Untitled 8

Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) The change in consumption divided by the change in income is equal to 1)A) MPC + MPS. B) 1 - MPC. C) the MPC. D) the MPS.

Answer: C

2) The change in saving divided by the change in income is equal to 2)A) MPC + MPS. B) the MPC. C) 1 - MPS. D) the MPS.

Answer: D

3) [Yd - C] equals 3)A) spending. B) saving. C) the MPS. D) the MPC.

Answer: B

4) If the MPS is 0.10, MPC is 4)A) 1.10. B) 1.00. C) 0.90. D) 0.80.

Answer: C

5) If you earn an additional $200 in disposable income one week for feeding your neighbors ferret, 5)A) your consumption will increase by more than $200, even if your MPS is 0.1.B) the total of your consumption and saving will increase by less than $200.C) the total of your consumption and saving will increase by $200.D) the total of your consumption and saving will increase by more than $200.

Answer: C

6) If Earl received an $800 bonus and his MPS is 0.25, his consumption rises by $________ and hissaving rises by $________.

6)

A) 600; 200 B) 400; 250 C) 800; 250 D) 825; 125Answer: A

7) Savings is 7)A) the part of income that a household does not consume in a given period.B) the same as saving.C) the current stock of accumulated saving.D) all of the above

Answer: C

8) Uncertainty about the future is likely to 8)A) either increase or decrease current spending.B) increase current spending.C) have no impact on current spending.D) decrease current spending.

Answer: D

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9) Lower interest rates are likely to 9)A) have no effect on consumer spending or saving.B) decrease consumer spending and increase consumer saving.C) increase consumer spending and decrease consumer saving.D) decrease both consumer spending and consumer saving.

Answer: C

10) Consumption is ________ related to household income and wealth and households' expectationsabout the future, and ________ related to interest rates.

10)

A) negatively; positively B) positively; positivelyC) positively; is not D) positively; negatively

Answer: D

11) In a closed economy with no government, ________ is consumption plus investment. 11)A) real spending B) savingC) aggregate expenditures D) national income

Answer: C

12) If Corinne's income is reduced to zero after she loses her job, her ________ will be greater than zeroand her ________ will be less than zero.

12)

A) consumption; expenses B) consumption; savingC) saving; investment D) taxes; consumption

Answer: B

Refer to the information provided in Figure 8.1 below to answer the questions that follow.

Figure 8.1

13) Refer to Figure 8.1. The ________ for this household is 0.5 and the ________ is also 0.5. 13)A) MPC; MPS B) consumption function; saving functionC) MPS; saving function D) MPC; consumption function

Answer: A

14) Refer to Figure 8.1. [-500 + 0.5Y] is this household's 14)A) MPS. B) saving function.C) consumption. D) MPC.

Answer: B

15) Refer to Figure 8.1. At income level ________, this household's saving is greater than zero and thishousehold's consumption is greater than zero.

15)

A) -$200 B) $800 C) $1,000 D) $1,500Answer: D

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16) Refer to Figure 8.1. [500 + 0.5Y] is this household's 16)A) MPS. B) MPC.C) saving function. D) consumption function.

Answer: D

17) Refer to Figure 8.1. This household saves ________ at an income level of $400. 17)A) -$300 B) -$250 C) $0 D) $250

Answer: A

18) Refer to Figure 8.1. This household consumes ________ at an income level of $3,000. 18)A) $1,000 B) $1,450 C) $2,000 D) $3,500

Answer: C

19) Refer to Figure 8.1. A(n) ________ in the amount of ________ this household makes when thishousehold's income is zero shifts the saving function downward.

19)

A) decrease; spending B) increase; consumptionC) increase; saving D) decrease; consumption

Answer: B

20) Refer to Figure 8.1. A decrease in the MPS 20)A) shifts the consumption function upward. B) makes the consumption function flatter.C) shifts the saving function downward. D) makes the saving function flatter.

Answer: D


Figure 8.2

21) Refer to Figure 8.2. The line segment ________ represents Jerry's consumption when income equalszero.

21)

A) DA B) BA C) BD D) BCAnswer: C

22) Refer to Figure 8.2. Jerry's ________ equals his ________ at Point A. 22)A) consumption; income B) consumption; savingC) saving; income D) all of the above

Answer: A

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23) Refer to Figure 8.2. Jerry's ________ equals ________ at income level Y1. 23)A) saving; zero B) consumption; zeroC) consumption; investment D) consumption; saving

Answer: A

24) Refer to Figure 8.2. Jerry's saving is positive along the line segment 24)A) BD. B) AC. C) BA. D) DA.

Answer: B

25) Refer to Figure 8.2. Jerry's saving is negative along the line segment 25)A) AY1. B) CY2. C) AC. D) AB.

Answer: D

26) Refer to Figure 8.2. Negative saving is represented by the area 26)A) DBCY2. B) DBAY1. C) ACY2Y1. D) DBAD.

Answer: D

27) Refer to Figure 8.2. A decrease in Jerry's income is represented by 27)A) an upward shift in Jerry's consumption function.B) a movement from Point C to A.C) a movement from Point B to A.D) a decrease in the slope of Jerry's consumption function.

Answer: B

28) Refer to Figure 8.2. Suppose Jerry's MPC decreases. At income Y1, Jerry's 28)A) saving will be zero.B) consumption will be greater than his income.C) consumption will be less than his income.D) all of the above

Answer: C

29) The marginal propensity to consume is 29)A) the amount of consumption at a specific level of income.B) a change in saving divided by a change in consumption.C) the fraction of a change in income that is consumed or spent.D) consumption times income.

Answer: C

30) If you save $20 when you experience a $80 rise in your income 30)A) your MPS is 0.4. B) your MPC is 0.8.C) your MPS is 0.8. D) your MPC is 0.75.

Answer: D

31) If consumption is $60,000 when income is $80,000, and consumption increases to $68,000 whenincome increases to $90,000, the MPC is

31)

A) 0.2. B) 0.4. C) 0.6. D) 0.8.Answer: D

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32) If consumption is $13,000 when income is $12,000, and consumption increases to $15,000 whenincome increases to $15,000, the MPS is

32)

A) -0.15. B) 0. C) 0.33. D) 0.40.Answer: C

33) Suppose consumption is $20,000 when income is $32,000 and the MPC equals 0.8. When incomeincreases to $40,000, consumption is

33)

A) $26.400. B) $28,000. C) $32,000. D) $72,000.Answer: A

34) Suppose saving is $1,000 when income is $10,000 and the MPC equals 0.9. When income increasesto $15,000, saving is

34)

A) $1,500. B) $1,400. C) $900. D) $500.Answer: A

35) Suppose consumption is $7,500 when income is $4,000 and the MPS equals 0.4. When incomeincreases to $6,000, consumption is

35)

A) $8,050. B) $8,300. C) $8,700. D) $9,500.Answer: C

36) If the MPS is 0.3, the MPC is 36)A) -0.3. B) 0.7. C) 1. D) 1.3.

Answer: B

37) If the MPS is 0.20, the MPC is 37)A) -0.20. B) 0.40. C) 0.80. D) 1.20.

Answer: C

38) If the consumption function is of the form [C = 60 + 0.9Y], the MPS equals 38)A) -0.9. B) 0.1. C) 0.6. D) 0.9.

Answer: B

39) If the saving function is of the form [S = -15 + 0.4Y], consumption at an income level of 200 is 39)A) 80. B) 105. C) 135. D) 185.

Answer: C

40) If Teena's consumption function is of the form [C = 200 + 0.75Y], her saving equals zero at anincome level of

40)

A) 150. B) 675. C) 800. D) 1,500.Answer: C

41) If Zach's saving function is of the form [S = -300 + 0.2Y], his consumption equals his income at anincome level of

41)

A) 300. B) 600. C) 1,040. D) 1,500.Answer: D

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Refer to the information provided in Table 8.1 below to answer the questions that follow.

Table 8.1Aggregate Income ($ billion) Aggregate Consumption ($billion)

0400800

1,2001,600

200500800

1,1001,400

42) Refer to Table 8.1. The equation for the aggregate consumption function is 42)A) C = 200 + 0.8Y. B) C = -200 + 0.2Y.C) C = 200 + 0.75Y. D) C = 200 + 0.3Y.

Answer: C

43) Refer to Table 8.1. Society's MPC is 43)A) 0.2. B) 0.3. C) 0.75. D) 0.8.

Answer: C

44) Refer to Table 8.1. Society's MPS is 44)A) 0.2. B) 0.25. C) 0.7. D) 0.8.

Answer: B

45) Refer to Table 8.1. At an aggregate income level of $300, aggregate saving would be 45)A) -$125. B) $100. C) $125. D) $175.

Answer: A

46) Refer to Table 8.1. Assuming society's MPC is constant at an aggregate of income of $2,000,aggregate consumption would be

46)

A) $1,500. B) $1,600. C) $1,700. D) $1,800.Answer: C


Table 8.2Aggregate Income ($ billions) Aggregate Saving ($ billion)

0200400600800

-200-150-100

-50 0

47) Refer to Table 8.2. The equation for the aggregate saving function is 47)A) S = -200 + 0.25Y. B) S = -200 + 0.15Y.C) S = -100 + 0.2Y. D) S = -100 + 0.75Y.

Answer: A

48) Refer to Table 8.2. Society's MPC is 48)A) 0.1. B) 0.2. C) 0.75. D) 0.9.

Answer: C

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49) Refer to Table 8.2. Society's MPS is 49)A) 0.1. B) 0.25. C) 0.8. D) 0.9.

Answer: B

50) Refer to Table 8.2. Assuming society's MPC is constant, at an aggregate income level of $1,200,aggregate consumption would be

50)

A) $2,000. B) $1,400. C) $1,100. D) $950.Answer: C

51) Refer to Table 8.2. Assuming society's MPC is constant, at an aggregate income of $1,000 aggregatesaving would be

51)

A) $50. B) $150. C) $225. D) $425.Answer: A


Figure 8.3

52) Refer to Figure 8.3. [60 + 0.7Y] is this society's 52)A) MPC. B) saving function.C) MPS. D) consumption function.

Answer: D

53) Refer to Figure 8.3. [-60 + 0.3Y] is this society's 53)A) MPS. B) saving function.C) MPC. D) consumption function.

Answer: B

54) Refer to Figure 8.3. In this economy, if income is $200 aggregate saving will be 54)A) $0. B) $130. C) $200. D) $270.

Answer: A

55) Refer to Figure 8.3. For this society, aggregate saving is ________ if aggregate income is above $200. 55)A) equal to aggregate consumption B) negativeC) zero D) positive

Answer: D

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56) Refer to Figure 8.3. Aggregate saving is $240 if aggregate income is 56)A) $300. B) $500. C) $800. D) $1,000.

Answer: D

57) Refer to Figure 8.3. Which of the following statements is TRUE? 57)A) Saving is negative at all income levels below $200.B) For all aggregate income levels above $200, aggregate consumption is greater than aggregate

income.C) Aggregate saving is negative for all income levels below $400.D) If consumption is the only expenditure, this economy would be in equilibrium at an

aggregate income level of $300.Answer: A


Figure 8.4

58) Refer to Figure 8.4. The aggregate consumption functions C2 and C3 58)A) differ in terms of the amount of consumption when income is zero.B) have the same MPC.C) imply the same MPS.D) all of the above

Answer: A

59) Refer to Figure 8.4. Which consumption function implies the smallest MPS? 59)A) C1 B) C2C) C3 D) cannot be determined from the figure

Answer: C

60) Refer to Figure 8.4. Suppose the consumption function for C1 is [C1 = 20 + 0.75Y]. The consumptionfunction that best fits C2 is

60)

A) C2 = 10 + 0.5Y. B) C2 = 10 + 0.4Y.C) C2 = 20 + 0.25Y. D) C2 = 40 + 0.75Y.

Answer: D

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61) Refer to Figure 8.4. Suppose the consumption function for C1 is [C1 = 15 + 0.4Y]. The consumptionfunction that best fits C3 is

61)

A) C3 = 20 + 0.8Y. B) C3 = 15 + 0.75Y.C) C3 = 30 + 0.25Y. D) C3 = 20 + 0.4Y.

Answer: B

62) Refer to Figure 8.4. If income is Y1, aggregate consumption is the smallest when the aggregateconsumption function is

62)

A) C3. B) C2.C) C1. D) cannot be determined from the figure

Answer: C

63) Refer to Figure 8.4. The society's consumption is equal along C2 and C3 if 63)A) saving is positive. B) saving is negative.C) income is Y2. D) income is Y1.

Answer: C

64) If the consumption function is above the 45-degree line 64)A) consumption exceeds income and saving is positive.B) consumption exceeds income and saving is negative.C) consumption is less than income and saving is negative.D) consumption is less than income and saving is positive.

Answer: B


Figure 8.5

65) Refer to Figure 8.5. In this graph, 0.25 represents this society's 65)A) consumption function. B) saving function.C) MPC. D) MPS.

Answer: D

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66) Refer to Figure 8.5. Aggregate saving is -100 billion when aggregate income is ________ billion. 66)A) -$50 B) $400 C) $800 D) $900

Answer: B

67) Refer to Figure 8.5. Aggregate consumption is $875 billion when aggregate income is ________billion.

67)

A) < $800 B) $800 C) $900 D) > $900Answer: C

68) Refer to Figure 8.5. If aggregate consumption is the only expenditure in this society, at an incomelevel of $800 billion

68)

A) the economy is in equilibrium. B) consumption equals income.C) saving is zero. D) all of the above

Answer: D


Figure 8.6

69) Refer to Figure 8.6. On this graph, 0.1 represents this society's 69)A) MPS. B) consumption function.C) saving function. D) MPC.

Answer: A

70) Refer to Figure 8.6. Aggregate saving is 20 when aggregate income is 70)A) $600. B) $660. C) $800. D) $850.

Answer: C

71) Refer to Figure 8.6. Aggregate consumption is 960 when aggregate income is 71)A) $800. B) $950. C) $1,000. D) $1,125.

Answer: C

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

72) As interest rates rise, spending decreases. 72)Answer: True False

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73) Uncertainty about the future is likely to decrease current spending. 73)Answer: True False

74) The marginal propensity to consume is the change in consumption per change in saving. 74)Answer: True False

75) If the marginal propensity to consume is 0.5, the marginal propensity to save is 0.5. 75)Answer: True False


76) The Bob & Weave Company manufactures only hair extensions. In 2010 Bob & Weavemanufactured 50,000 hair extensions, but sold only 32,000 hair extensions. In 2010 Bob & Weave'schange in inventory was ________ hair extensions.

76)

A) 16,000 B) 18,000 C) 32,000 D) 82,000Answer: B

77) The Slippery Slope Company manufactures only snow skis. In 2010 Slippery Slope manufactured10,000 snow skis, but sold 12,000 snow skis. In 2010 Slippery Slope's change in inventory was________ snow skis.

77)

A) -8,000 B) -2,000 C) 2,000 D) 22,000Answer: B

78) Which of the following is considered investment? 78)A) the purchase of government bonds B) the purchase of IBM stockC) the sale of foreign currency D) the acquisition of capital goods

Answer: D

79) Which of the following is NOT an investment? 79)A) the purchase of a delivery van by a floristB) the purchase of a share of stock by a householdC) the purchase of a new computer system by a law firmD) all of the above

Answer: B

80) A change in inventory is equal to 80)A) sales × production. B) sales - production.C) production - sales. D) production + sales.

Answer: C

81) Assume that in Narnia, planned investment is $80 billion but actual investment is $50 billion.Unplanned inventory investment is

81)

A) -$150 billion. B) -$30 billion. C) $65 billion. D) $150 billion.Answer: B

82) Assume that in Splendora, planned investment is $50 billion, but actual investment is $85 billion.Unplanned inventory investment is

82)

A) $67.5 billion. B) $35 billion. C) $5 billion. D) -$135 billion.Answer: B

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83) If unplanned business investment is $45 million and planned investment is $45 million, then actualinvestment is

83)

A) $90 million. B) $45 million. C) zero. D) -$45 million.Answer: A

84) In 2010, the Isle of Lucy's planned investment was $130 billion and its actual investment was $145billion. In 2010, the Isle of Lucy's unplanned inventory change was

84)

A) $15 billion. B) $30 billion. C) $45 billion. D) $275 billion.Answer: A

85) If actual investment exceeds planned investment 85)A) there will be an accumulation of inventories.B) there will be a decline in inventories.C) there will be no change in inventories.D) none of the above

Answer: A

86) If Inventory investment is lower than firms planned 86)A) actual and planned investment are equal.B) actual investment is greater than planned investment.C) actual investment is less than planned investment.D) actual investment must be negative.

Answer: C

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Figure 8.7

87) Refer to Figure 8.7. In Spiceland, income does not vary with planned investment. Spiceland'splanned investment function is represented by

87)

A) Panel A. B) Panel B. C) Panel C. D) Panel D.Answer: C

88) Refer to Figure 8.7. In Ichabodia, planned investment varies directly with income. Ichabodia'splanned investment function is represented by

88)

A) Panel A. B) Panel B. C) Panel C. D) Panel D.Answer: A

89) Without the government or the foreign sector in the income-expenditure model, consumptionequals

89)

A) planned aggregate expenditures minus inventory adjustment.B) planned aggregate expenditures minus planned investment.C) planned aggregate expenditures plus planned investment.D) planned aggregate expenditures plus actual investment.

Answer: B

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90) Related to the Economics in Practice on p. 464: A recent study by economists at Yale University andthe University of Chicago suggests that changing retirement plan enrollment options from a(n)________ system to a(n) ________ system increased pension plan enrollment after three months ofwork from 65 percent of workers to 98 percent of workers.

90)

A) voluntary; mandatory B) "opt-out"; "opt-in"C) "opt-in"; "opt-out" D) mandatory; voluntary

Answer: C

91) Related to the Economics in Practice on p. 464: Under the Save More Tomorrow retirement plans,employees can pre-commit to save more

91)

A) when the opt out of the social security system.B) when income tax rates increase.C) at the beginning of each fiscal year.D) whenever they get a pay raise.

Answer: D


92) If actual investment is greater than planned investment, unplanned inventories increase. 92)Answer: True False

93) Firms react to an unplanned inventory investment by decreasing output. 93)Answer: True False

94) Firms react to positive inventory investment by increasing output. 94)Answer: True False

95) If planned saving is less than planned investment, injections are greater than leakages. 95)Answer: True False

96) If planned investment decreases, equilibrium will be restored only when saving has decreased byexactly the amount of the initial decrease in planned investment, assuming there is no governmentor foreign sector.

96)

Answer: True False


97) In macroeconomics, the point at which planned aggregate expenditures equals aggregate output 97)A) is the equilibrium point.B) is only achieved if net exports are zero.C) is where saving is negative.D) only occurs when the MPC is equal to the MPS.

Answer: A

98) Planned investment must equal actual investment for 98)A) consumption to equal saving. B) the economy to be in equilibrium.C) the MPC to equal the MPS. D) saving to equal income.

Answer: B

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99) If aggregate output is less than planned spending, then 99)A) unplanned inventory investment is zero.B) unplanned inventory investment is positive.C) actual investment equals planned investment.D) unplanned inventory investment is negative.

Answer: D

100) If unplanned inventory investment is negative, then 100)A) planned investment must be zero.B) planned aggregate spending must be less than aggregate output.C) planned aggregate spending must equal aggregate output.D) planned aggregate spending must be greater than aggregate output.

Answer: D

101) If unplanned inventory investment is zero 101)A) aggregate output is greater than planned aggregate expenditures.B) aggregate output is less than planned aggregate expenditures.C) aggregate output equals planned aggregate expenditures.D) aggregate output is positive when planned aggregate expenditures are positive.

Answer: C


Table 8.3

102) Refer to Table 8.3. At an aggregate output level of $200 billion, planned expenditure equals 102)A) $160 billion. B) $220 billion. C) $260 billion. D) $410 billion.

Answer: C

103) Refer to Table 8.3. At an aggregate output level of $400 billion, aggregate saving 103)A) equals -$20 billion.B) equals $0.C) equals $20 billion.D) cannot be determined from this information.

Answer: A

104) Refer to Table 8.3. At an aggregate output level of $100 billion, the unplanned inventory change is 104)A) -$80 billion. B) -$30 billion. C) -$20 billion. D) $120 billion.

Answer: A

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105) Refer to Table 8.3. At an aggregate output level of $300 billion, the unplanned inventory change is 105)A) -$40 billion. B) -$10 billion. C) $0. D) $10 billion.

Answer: A

106) Refer to Table 8.3. If aggregate output equals ________, there will be a $20 billion unplanneddecrease in inventories.

106)

A) $100 billion B) $200 billion C) $300 billion D) $400 billionAnswer: D

107) Refer to Table 8.3. The equilibrium level of aggregate output is 107)A) $200 billion. B) $300 billion. C) $400 billion. D) $500 billion.

Answer: D

108) Refer to Table 8.3. Which of the following statements is FALSE? 108)A) At output levels greater than $400 billion, there is a positive unplanned inventory change.B) At an output level of $200 billion, there is a $60 billion unplanned inventory decrease.C) If aggregate output equals $500 billion, then aggregate saving equals $0.D) The MPC for this economy is 0.8.

Answer: A

109) Refer to Table 8.3. Planned saving equals planned investment at an aggregate output level of 109)A) $500 billion. B) $400 billion. C) $300 billion. D) $200 billion.

Answer: A

110) Refer to Table 8.3. Planned investment equals actual investment at 110)A) $500 billion. B) all income levels below $300 billion.C) all income levels above $300 billion. D) all income levels.

Answer: A


Table 8.4Aggregate Output

($ million) Aggregate Consumption

($ million)Planned Investment

($ million)2,0002,4002,8003,2003,600

1,5001,8002,1002,4002,700

700700700700700

111) Refer to Table 8.4. At an aggregate output level of $2,000 million, planned expenditure equals 111)A) $2,200. B) $2,500. C) $2,700. D) $4,700.

Answer: A

112) Refer to Table 8.4. The MPC in this economy is 112)A) 0.5. B) 0.6. C) 0.75. D) 0.8.

Answer: C

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113) Refer to Table 8.4. At an aggregate output level of $3,200 million, the unplanned inventory changeis

113)

A) -$1,100 million. B) -$100 million. C) $100 million. D) $700 million.Answer: C

114) Refer to Table 8.4. At an aggregate output level of $2,000 million, the unplanned inventory changeis

114)

A) -$800 million. B) -$200 million. C) $700 million. D) $800 million.Answer: B

115) Refer to Table 8.4. If aggregate output equals ________, there will be a $100 million unplanneddecrease in inventories.

115)

A) $2,400 million B) $2,800 million C) $3,200 million D) $3,600 millionAnswer: A

116) Refer to Table 8.4. The equilibrium level of aggregate output equals 116)A) $2,400 million. B) $2,800 million. C) $3,200 million. D) $3,600 million.

Answer: B

117) Refer to Table 8.4. Which of the following statements is FALSE? 117)A) At an output level of $3,600 million, there is a $200 million unplanned inventory increase.B) The MPC for this economy is 0.75.C) At an output level $2,000, there is a $200 million unplanned inventory decrease.D) If aggregate output equals $2,000 million, then aggregate saving equals $700 million.

Answer: D

118) Refer to Table 8.4. Planned saving equals planned investment at an aggregate output level of 118)A) $2,000 million. B) $2,400 million. C) $2,800 million. D) $3,200 million.

Answer: C

119) Refer to Table 8.4. Planned investment equals actual investment at 119)A) all income levels above $2,800 million. B) an income level of $2,800 million.C) all income levels. D) all income levels below $2,800 million

Answer: B

120) If C = 200 + 0.5Y and I = 100, then the equilibrium level of income is 120)A) 175. B) 300. C) 400. D) 600.

Answer: D

121) If C = 300 + 0.75Y and I = 200, then the equilibrium level of income is 121)A) 750. B) 1,000. C) 1,800. D) 2,000.

Answer: D

122) If S = -50 + 0.4Y and I = 70, then the equilibrium level of income is 122)A) 180. B) 300. C) 420. D) 450.

Answer: B

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123) If C = 1,200 + 0.8Y and I = 600, then planned saving equals planned investment at aggregate outputlevel of

123)

A) 6,800. B) 7,200. C) 9,000 D) 10,200.Answer: C


Figure 8.8

124) Refer to Figure 8.8. [150 + 0.25Y] is the 124)A) MPS. B) MPC.C) saving function. D) aggregate expenditures function.

Answer: D

125) Refer to Figure 8.8. $200 million is 125)A) the break even income.B) where saving equals aggregate expenditures.C) the equilibrium income.D) where saving equals consumption.

Answer: C

126) Refer to Figure 8.8. There is a $75 million increase in unplanned inventories at an aggregate outputlevel of

126)

A) $100 million. B) $200 million. C) $300 million. D) > $300 million.Answer: C

127) Refer to Figure 8.8. There is a $75 million decrease in unplanned inventories at an aggregate outputlevel of

127)

A) < $100 million. B) $100 million. C) $200 million. D) $300 million.Answer: B

128) Refer to Figure 8.8. As a result of a decrease in investment by $20 million, aggregate expendituresshifts ________, ________ equilibrium output and equilibrium expenditure.

128)

A) down; not changing B) down; increasingC) up; increasing D) down; decreasing

Answer: D

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129) Refer to Figure 8.8. At an aggregate output level of $300 million 129)A) leakages are less than injections. B) leakages and injections are both negative.C) leakages are equal to injections. D) leakages are greater than injections.

Answer: D


Figure 8.9

130) Refer to Figure 8.9. [200 + 0.8Y] represents the 130)A) MPS. B) aggregate income function.C) MPC. D) aggregate expenditures function.

Answer: D

131) Refer to Figure 8.9. There is a $100 million unplanned decrease in inventories at an aggregateoutput level of

131)

A) $500 million. B) $1,000 million.C) $1,200 million. D) > $1,200 million.

Answer: A

132) Refer to Figure 8.9. Unplanned inventories increase and output decreases when aggregate output is 132)A) $0. B) $500 million.C) $1,000 million. D) > $1,000 million.

Answer: D

133) Refer to Figure 8.9. Unplanned inventories decrease and output increases when aggregate output is 133)A) < $1,000 million. B) $1,000 million.C) $1,160 million. D) $1,200 million.

Answer: A

134) Refer to Figure 8.9. Leakages are greater than injections when aggregate output is 134)A) $0. B) $500 million.C) $1,000 million. D) > $1,000 million.

Answer: D

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135) Refer to Figure 8.9. Leakages are less than injections when aggregate output is 135)A) < $1,000 million. B) $1,000 million.C) $1,160 million. D) $1,200 million.

Answer: A

136) Using the saving/investment approach, when C + I = C + S 136)A) the market is in equilibrium. B) saving = income.C) income = consumption. D) saving = zero.

Answer: A

137) Firms react to unplanned inventory accumulations by 137)A) reducing planned investment. B) increasing output.C) increasing consumption. D) reducing output.

Answer: D

138) Firms would reduce output as a reaction to 138)A) unplanned inventory reductions. B) decreases in costs of resources.C) unplanned inventory increases. D) increased demand for output.

Answer: C

139) Aggregate output will decrease if there is a(n) 139)A) increase in saving. B) unplanned rise in inventories.C) decrease in consumption. D) unplanned fall in inventories.

Answer: B

140) An increase in planned investment causes 140)A) output to increase.B) output to decrease by an amount equal to the decrease in investment.C) output to decrease, but by a larger amount than the decrease in investment.D) output to decrease, but by a smaller amount than the decrease in investment.

Answer: A


141) When aggregate expenditure is less than aggregate output, there will be an unplanned build up ofinventories.

141)

Answer: True False

142) When there is an unplanned draw down of inventories, firms will decrease production. 142)Answer: True False

143) Planned investment equals actual investment plus unplanned changes in inventories. 143)Answer: True False

144) When the economy is in equilibrium, savings equals unplanned investment. 144)Answer: True False

145) If aggregate expenditure increases, then equilibrium output decreases. 145)Answer: True False

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146) Assuming there is no government or foreign sector, the economy will be in equilibrium if, and onlyif, planned investment is greater than actual investment.

146)

Answer: True False


147) The multiplier is the ratio of the change in ________ to a change in ________. 147)A) autonomous consumption; induced consumptionB) the equilibrium level of output; some autonomous variableC) the level of saving; the level of consumptionD) the MPC; the MPS

Answer: B


Figure 8.10

148) Refer to Figure 8.10. [50 + 0.75Y] represents the 148)A) aggregate expenditures function. B) MPS.C) autonomous consumption function. D) MPC.

Answer: A

149) Refer to Figure 8.10. On this graph, 4 represents the 149)A) MPC. B) multiplier.C) break even income level. D) MPS.

Answer: B

150) Refer to Figure 8.10. A ________ increase in investment changes equilibrium output to $240 million. 150)A) $5 million B) $10 million C) $20 million D) $50 million

Answer: B

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151) Refer to Figure 8.10. A $10 million decrease in autonomous consumption 151)A) changes equilibrium output to $120 million.B) increases the MPC.C) increases the MPS.D) changes equilibrium expenditure to $160 million.

Answer: D

152) Refer to Figure 8.10. Equilibrium aggregate output will increase to $250 million if the 152)A) MPS increases to 0.8. B) multiplier increases to 8.C) MPC increases to 0.8. D) all of the above

Answer: C

153) Assuming no government or foreign sector, if the MPC is 0.5, the multiplier is 153)A) 0.2. B) 0.5. C) 2. D) 5.

Answer: C

154) Assuming no government or foreign sector, [1 / MPS] represents 154)A) autonomous income. B) the consumption function.C) negative saving. D) the multiplier.

Answer: D

155) Assuming there is no government or foreign sector, [1 / 1-MPC] represents 155)A) the multiplier. B) the saving function.C) the consumption function. D) break even income.

Answer: A

156) Assuming there is no government or foreign sector, if the multiplier is 5, the MPC is 156)A) 0.4. B) 0.5. C) 0.8. D) 5.

Answer: C

157) Assume there is no government or foreign sector. If the MPS is 0.25, the multiplier is 157)A) 0.75. B) 2.5. C) 4. D) 5.

Answer: C

158) Assume there is no government or foreign sector. If the multiplier is 2, a $20 billion increase inplanned investment will cause aggregate output to increase by

158)

A) $5 billion. B) $10 billion. C) $20 billion. D) $40 billion.Answer: D

159) Assume there is no government or foreign sector. If the MPS is 0.10, a $20 billion decrease inplanned investment will cause aggregate output to decrease by

159)


160) Assume there is no government or foreign sector. If the multiplier is 5, a $4 billion increase ininvestment will cause aggregate output to increase by

160)


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Figure 8.11

161) Refer to Figure 8.11. [600 + 0.4Y] represents the 161)A) multiplier function. B) aggregate expenditures function.C) saving function. D) equilibrium function.

Answer: B

162) Refer to Figure 8.11. Suppose AE1, AE2 and AE3 are parallel. What is the value of Point B? 162)A) $900 millionB) $800 millionC) $700 millionD) cannot be determined from the given information

Answer: A

163) Refer to Figure 8.11. Suppose AE1, AE2 and AE3 are parallel. What is the value of Point A? 163)A) $540 millionB) $510 millionC) $450 millionD) cannot be determined from the given information

Answer: C

164) Refer to Figure 8.11. Suppose the economy's aggregate expenditure line is AE2. A $10 millionincrease in planned investment causes aggregate equilibrium output to increase to

164)

A) $1,440.5 million. B) $1,510 million.C) $1,516.7 million. D) $1,525 million.

Answer: C

165) As the MPS increases, the multiplier will 165)A) decrease.B) remain constant.C) increase.D) either increase or decrease depending on the size of the change in investment.

Answer: A

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166) Mudbug College in Louisiana is trying to convince Louisiana taxpayers that the tax dollars spent atMudbug College are well spent. One of the college's arguments is that for every $1 spent byMudbug College an additional $4 of expenditures are generated within Louisiana. Mudbug Collegeis arguing that the multiplier for their expenditures is

166)

A) 0.25. B) 1. C) 4. D) 25.Answer: C

167) If autonomous consumption decreases, the size of the multiplier would 167)A) remain constant.B) increase.C) decrease.D) either increase or decrease depending on the size of the change in autonomous consumption.

Answer: A

168) In practice, the actual size of the ________ is about 1.4. 168)A) saving function B) multiplier C) MPC D) MPS

Answer: B

169) Related to the Economics in Practice on p. 472: According to the "paradox of thrift," as individualsdecrease their saving

169)

A) income in the economy will remain constant because the change in consumption equals thechange in saving.

B) income in the economy will rise because the increased consumption that results fromdecreased saving causes the economy to expand.

C) income in the economy decreases because interest rates will rise and the economy willcontract.

D) income in the economy decreases because there is less money available for firms to invest.Answer: B

170) Related to the Economics in Practice on p. 472: According to the "paradox of thrift," decreased effortsto save will cause a(n)

170)

A) decrease in income but an increase in saving.B) decrease in income and an overall decrease in saving.C) increase in income but no overall change in saving.D) increase in income and an increase in overall saving.

Answer: D


171) The larger the MPC, the smaller the MPS. 171)Answer: True False

172) The smaller the MPS, the smaller the multiplier. 172)Answer: True False

173) If the MPC is 0.75, then the multiplier is 25. 173)Answer: True False

174) If the MPS is 0.1, then the multiplier is 9. 174)Answer: True False

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175) An increase in the MPC increases the multiplier. 175)Answer: True False

176) Related to the Economics in Practice on p. 472. The paradox of thrift is that all people deciding tosave more will lead to them saving even more due to the multiplier effect.

176)

Answer: True False

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