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Module 8

ECO/EMCC William Ashley
STUDY
PLAY
The saving schedule is drawn on the assumption that as income increases: Answer
saving will increase absolutely and as a percentage of income.
If 100 percent of any change in income is spent, the multiplier will be: Answer
infinitely large.
(Last Word) Art Buchwald's article "Squaring the Economic Circle" humorously describes how: Answer
a person's decision not to buy an automobile eventually reduces many people's incomes, including that of the person making the original decision.
The consumption schedule is such that: Answer
the MPC is constant and the APC declines as income rises.
The multiplier effect indicates that: Answer
a change in spending will change aggregate income by a larger amount.
The relationship between the real interest rate and investment is shown by the: Answer
investment demand schedule.
An upward shift of the saving schedule suggests: Answer
that the APC has decreased and the APS has increased at each GDP level.
The investment demand slopes downward and to the right because lower real interest rates: Answer
enable more investment projects to be undertaken profitably.
Other things equal, a decrease in the real interest rate will: Answer
move the economy downward along its existing investment demand curve.
The size of the MPC is assumed to be: Answer
greater than zero, but less than one.
Refer to the above diagram. The average propensity to consume: Answer
is greater than 1 at all levels of disposable income below $100.
The numerical value of the multiplier will be smaller the: Answer
larger the slope of the saving schedule.
The real interest rate is: Answer
the percentage increase in purchasing power that the lender receives on a loan.
A decline in disposable income: Answer
decreases consumption by moving downward along a specific consumption schedule.
Answer the question on the basis of the following information for a private closed economy.
Assume that for the entire business sector of the economy there is $0 worth of investment projects that will yield an expected rate of return of 25 percent or more. But there are $15 worth of investments that will yield an expected rate of return of 20−25 percent; another $15 with an expected rate of return of 15−20 percent; and similarly an additional $15 of investment projects in each successive rate of return range down to and including the 0−5 percent range.

Refer to the above information. If the real interest rate is 5 percent, what amount of investment will be undertaken?
$60
Answer the question on the basis of the following table that illustrates the multiplier process.


Refer to the above table. The multiplier in this economy
5.
If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is: Answer
22 percent.
A decline in the real interest rate will: Answer
increase the amount of investment spending.
If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then more investment will be forthcoming when: Answer
r is greater than i.
Which one of the following will cause a movement up along an economy's saving schedule? Answer
an increase in disposable income
If the marginal propensity to consume is .9, then the marginal propensity to save must be: Answer
.1.
Which of the following will not tend to shift the consumption schedule upward? Answer
the expectation of a future decline in the consumer price index
Refer to the above graph. A movement from a to b along C1 might be caused by a: Answer
increase in real GDP.
The immediate determinants of investment spending are the: Answer
expected rate of return on capital goods and the real interest rate.
If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to: Answer
consume is three-fifths.