question archive QUESTION 1 If the slope of the consumption schedule is 0
QUESTION 1 If the slope of the consumption schedule is 0
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QUESTION 1
If the slope of the consumption schedule is 0.75, then the slope of the saving schedule?
A. is 0.25.
B. is 0.75.
C. is 1.25.
D. cannot be determined from the data.
QUESTION 2
The multiplier effect indicates that?
A. a decline in the interest rate will cause a proportionately larger increase in investment.
B. a change in spending will change aggregate income by a larger amount.
C. a change in spending will increase aggregate income by the same amount.
D. an increase in total income will generate a larger change in aggregate expenditures.
QUESTION 3
If Matt's disposable income increases from $4,000 to $4,500 and his level of saving increases from $200 to $325, it may be concluded that his marginal propensity to?
A. consume is 0.80.
B. consume is 0.75.
C. consume is 0.60.
D. save is 0.30.
QUESTION 4
If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase?
A. GDP by $120 billion.
B. GDP by $20 billion.
C. saving by $25 billion.
D. consumption by $80 billion.
QUESTION 5
The change in real GDP resulting from an initial change in spending can be calculated by?
A. dividing the multiplier by the initial change in spending.
B. dividing the initial change in spending by the multiplier.
C. multiplying the multiplier by the initial change in spending.
D. adding the initial change in spending to the multiplier.
QUESTION 6
The saving schedule is drawn on the assumption that as income increases,?
A. saving will decline absolutely and as a percentage of income.
B. saving will increase absolutely but remain constant as a percentage of income.
C. saving will increase absolutely but decline as a percentage of income.
D. saving will increase absolutely and as a percentage of income.
QUESTION 7
With a marginal propensity to save of 0.4, the marginal propensity to consume will be?
A.1.0 minus 0.4.
B. 0.4 minus 1.0.
C. the reciprocal of the MPS.
D. 0.4.
QUESTION 8
The nominal rate of interest is 8.5 percent, and the real rate is 5 percent. The expected rate of return on an investment is 8 percent. The firm should?
A. not undertake the investment, because the expected rate of return of 8 percent is less than the nominal interest rate.
B. not undertake the investment, because the expected rate of return of 8 percent is less than the nominal plus the real interest rate.
C. undertake the investment because the expected rate of return of 8 percent is greater than the difference between the nominal and real interest rates.
D. undertake the investment because the expected rate of return of 8 percent is greater than the real rate of interest.
QUESTION 9
Which one of the following will cause a movement down along an economy's consumption schedule?
A. an increase in stock prices
B. a decrease in stock prices
C. an increase in consumer indebtedness
D. a decrease in disposable income
QUESTION 10
A. an increase in disposable income
B. a decrease in interest rates
C.a significant decrease in stock prices
D. a decrease in people's ability to borrow
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- a) is 0.25.
- b) a change in spending will change aggregate income by a larger amount.
- b) consume is 0.75
- d) consumption by $80 billion.
- c) multiplying the multiplier by the initial change in spending.
- d) saving will increase absolutely and as a percentage of income.
- a) 1.0 minus 0.4.
- d) undertake the investment because the expected rate of return of 8 percent is greater than the real rate of interest.
- d) a decrease in disposable income
1.Explanation: saving schedule = (1-b), here b = marginal propensity to consume => slope of saving schedule = 1 - 0.75 = 0.25
2.Explanation: A multiplier broadly refers to an economic factor that, when increased or changed, causes increases or changes in many other related economic variables. In terms of gross domestic product, the multiplier effect causes gains in total output to be greater than the change in spending that caused it.
3.Explanation: MPS= Change in saving/change in investment => 125/500 = 1/4 =0.25> Now, We know that MPC+MPS = 1 so MPC = 1-0.25 =0.75
4.Explanation: The spending or investment multiplier is given by:
= 1 / marginal propensity to save
= 1/0.2
= 5
The increase in the income of the economy on account of rise in the investment spending is given by:
= Increase in the investment spending * investment multiplier
= $20 billion * 5
= $100 billion
The increase in the savings of the economy is given by:
= Total increase in the income of the economy * marginal propensity to save
= $100 billion * 0.2
= $20 billion
The increase in the consumption of the economy is given by:
= Increase in the income of the economy - increase in the savings of the economy
= $100 billion - $20 billion
= $80 billion
5.Explanation: The change in real GDP resulting from an initial change in spending can be calculated by multiplying the multiplier by the initial change in spending as The multiplier is simply the ratio of the change in real GDP to the initial change in spending. Multiplying the initial change in spending by the multiplier gives you the amount of change in real GDP.
6.Explanation: The supply schedule or curve shows as income increases savings will absolutely increase as percentage of income as supply schedule shows how much households plan to save at various levels of disposable income at a specific point in time and with increase in income, the household will always try to save more and eventually the savings will increase as the percentage of income.
7.Explanation: MPS = 0.4, we know that MPC +MPS = 1 so to calculate MPC we should do this question like this 1 - 0.4 = 0.6
8.Explanation: in this situation, the firm should undertake the investment because the expected rate of return of 8 percent is greater than the real rate of interest as it will help firm in increasing overall profit.
9.Explanation: a decrease in disposable income of an individual may adversely affect his consumption as consumption depends on the level of income because level of income decides the purchasing power.
