# chapter_8 - Principles of Macroeconomics, 9e ­ TB1...

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Unformatted text preview: Principles of Macroeconomics, 9e ­ TB1 (Case/Fair/Oster) Chapter 8 1 Aggregate Expenditu re and Equilibriu m Output 8.1 The 1 M ul ti pl e C 1) h o i c e The MPC is A) the change in B) consumption divided by the change in income. consumption C) divided by income. the change in consumption divided by the change in saving. D) the change in saving divided by the change in income. Answer: A Diff: 1 Topic: The Keynesian Theory of Consumption Skill: Definition 2) The MPS is A) the change in B) saving divided by the change in income. 1 + MPC C) income divided by saving. D) total saving divided by total income. Answer: A Diff: 1 Topic: The Keynesian Theory of Consumption Skill: Definition 3) Saving equals A) Y - C. B) Y - planned I. C) Y - actual I. D) Inventory changes. Answer: A Diff: 1 Topic: The Keynesian Theory of Consumption Skill: Definition 4) If the MPS is .60, MPC A) is 1.60. B) is .30. C) is .40. D) cannot be determined by the given information. Answer: C Diff: 1 Topic: The Keynesian Theory of Consumption Skill: Conceptual AACSB: Reflective Thinking 5) If you earn additional \$500 in disposable income one week for painting your neighbors house, A) the total of your consumption and saving will increase by more than \$500. B) the total of your consumption and saving will increase by \$500. C) the total of your consumption and saving will increase by less than \$500. D) your consumption will increase by more than \$500, even if your MPS is 0.1. Answer: B Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Conceptual AACSB: Reflective Thinking 6) If Logan \$2,500 bonus and his MPS is 0.20, his consumption rises by \$________ and his saving rises by received a \$________. A) 500; 100 B) 2,500; 200 C) 2,000; 500 D) 2,500; 20 Answer: C Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 7) Saving is a ________ variable and savings is a ________ variable. A) flow; flow B) stock; stock C) flow; stock D) stock; flow Answer: C Diff: 1 Topic: The Keynesian Theory of Consumption Skill: Conceptual AACSB: Reflective Thinking 8) Uncertain ty about the future is likely to A) increase current spending. B) have no impact on current spending. C) decrease current spending. D) either increase or decrease current spending. Answer: C Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Conceptual AACSB: Reflective Thinking 9) Higher interest rates are likely to A) have no effect on consumer spending or saving. B) decrease C) consumer spending and increase consumer saving. decrease both consumer spending and consumer saving. D) increase consumer spending and decrease consumer saving. Answer: B Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Conceptual AACSB: Reflective Thinking 10) Consumpt ion is A) positively related to B) household income and wealth and households' expectations about the future, but negatively related to interest rates. negatively related to C) household income and wealth, interest rates, and households' expectations about the future. determined only by income. D) positively related to household income and wealth, interest rates, and households' expectations about the future. Answer: A Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 11) In a closed economy with no government, aggregate expenditure is A) consumption B) plus investment. saving plus C) investment. consumption D) plus the MPC. MPC + MPS. Answer: A Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Conceptual AACSB: Reflective Thinking 12) If income is reduced to zero after she loses her job, her consumption will be ________ and her saving will Wanda's be ________. A) less than zero; less than zero B) greater than C) zero; greater than zero less than zero; greater than zero D) greater than zero; less than zero Answer: D Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 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 MPS for this household is ________ and the MPC is ________. A) 0.4; 0.6 B) 0.5; 0.5 C) 0.2; 0.8 D) 0.3; 0.7 Answer: B Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 14) Refer to Figure 8.1. The equation for this household's saving function is A) S = -200 + .8Y. B) S = -300 + C) 0.25Y. S = -500 + .5Y. D) S = -1,000 + 0.8Y. Answer: C Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 15) Refer to 8.1. At income level \$1,500, this household's saving is ________ than (to) zero and this household's Figure consumption is ________ zero. A) less than; B) greater than equal to ; equal to C) greater than; D) less than greater than; greater than Answer: D Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 16) Refer to Figure 8.1. This household's consumption function is A) C = 200 + B) 0.2Y. C = 300 + C) 0.75Y. C = 500 + D) 0.5Y. C = 1,000 + 0.2Y. Answer: C Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 17) Refer to Figure 8.1. This household saves -\$300 at an income level of A) \$400. B) \$300 C) \$250. D) \$125. Answer: A Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 18) Refer to Figure 8.1. This household consumes \$2,000 at an income level of A) \$3,000. B) \$2,000. C) \$2,275. D) \$1,840. Answer: A Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 19) Refer to 8.1. An increase in the amount of consumption this household makes when this household's income is Figure zero A) makes the B) consumption function steeper. makes the C) saving function flatter. shifts the D) consumption function downward. shifts the saving function downward. Answer: D Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 20) Refer to Figure 8.1. An increase in the MPC A) makes the B) consumption function flatter. makes the C) saving function flatter. shifts the D) consumption function upward. shifts the saving function downward. Answer: B Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Figure 8.2 below to answer the questions that follow. Figure 8.2 21) Refer to Figure 8.2. The line segment BD represents Jerry's A) consumption B) when income equals Y1. saving when C) income equals zero. saving when D) income is Y1. consumption when income equals zero. Answer: D Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 22) Refer to Figure 8.2. Jerry's consumption equals his income at Point A) B. B) A. C) D. D) C. Answer: B Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 23) Refer to Figure 8.2. Jerry's saving equals zero at income level A) zero. B) Y1. C) Y2. D) Y2 - Y1. Answer: B Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 24) Refer to Figure 8.2. Along the line segment AC, Jerry's A) consumption B) equals his income. consumption is greater than his income. C) saving is zero. D) saving is positive. Answer: D Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 25) Refer to Figure 8.2. Along the segment AB, Jerry's A) consumption is less than his income. B) saving is C) positive. consumption D) equals his income. saving is negative. Answer: D Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 26) Refer to Figure 8.2. Positive saving occurs along the line segment A) BC. B) DC. C) AC. D) BA. Answer: C Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 27) Refer to Figure 8.2. An increase in Jerry's income is represented by A) an upward shift in Jerry's consumption function. B) an increase in the slope of Jerry's consumption function. C) a movement D) from Point B to A. none of the above Answer: C Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 28) Refer to Figure 8.2. Suppose Jerry's MPC increases. At income Y1, Jerry's A) consumption B) will be greater than his income. consumption C) will be less than his income. saving will be zero. D) all of the above Answer: A Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 29) The fraction of a change in income that is consumed or spent is called A) the marginal B) propensity of income. the marginal C) propensity to save. the marginal D) propensity to consume. average consumption. Answer: C Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Definition 30) If you save \$80 when you experience a \$400 rise in your income, A) your MPS is B) 0.25. your MPC is C) 0.80. your MPC is D) 0.85. 0.40. your MPS is Answer: B Diff: 1 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 31) If on is \$30,000 when income is \$35,000, and consumption increases to \$36,000 when income increases to consumpti \$43,000, the MPC is A) 0.65. B) 0.80. C) 0.75. D) 0.95. Answer: C Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 32) If on is \$10,000 when income is \$10,000, and consumption increases to \$11,000 when income increases to consumpti \$12,000, the MPS is A) 0.10. B) 0.25. C) 0.50. D) 0.90. Answer: C Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 33) Suppose on is \$5,000 when income is \$8,000 and the MPC equals 0.9. When income increases to \$10,000, consumpti consumption is A) \$4,500. B) \$2,700. C) \$6,800. D) \$7,200. Answer: C Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 34) Suppose \$1,400 when income is \$10,000 and the MPC equals 0.8. When income increases to \$12,000, saving is saving is A) \$1,680. B) \$1,800. C) \$2,200. D) \$3,000. Answer: B Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 35) Suppose on is \$60,000 when income is \$90,000 and the MPS equals 0.25. When income increases to \$100,000, consumpti consumption is A) \$70,000. B) \$85,000. C) \$67,500. D) \$90,250. Answer: C Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 36) If the MPS is .22, the MPC is A) -0.22. B) 0.78. C) 1.22. D) 0.66. Answer: B Diff: 1 Topic: The Keynesian Theory of Consumption Skill: Conceptual AACSB: Reflective Thinking 37) If the MPS is .05, the MPC is A) -0.05. B) 2.25. C) 0.95. D) 1.05. Answer: C Diff: 1 Topic: The Keynesian Theory of Consumption Skill: Conceptual AACSB: Reflective Thinking 38) If the consumption function is of the form C = 80 + 0.4Y, the MPS equals A) -0.4. B) 0.4. C) 0.6. D) -0.6. Answer: C Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Conceptual AACSB: Reflective Thinking 39) If the saving function is of the form S = -20 + 0.3Y, consumption at an income level of 200 is A) 80. B) 120. C) 160. D) 180. Answer: C Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 40) If Lily's consumption function is of the form C = 100 + 0.8Y, her saving equals zero at an income level of A) 180. B) 500. C) 800. D) cannot be determined from the given information Answer: B Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 41) If saving function is of the form S = -150 + 0.5Y, his consumption equals his income at an income level of Zander's A) 150. B) 225. C) 1,500. D) 300. Answer: D Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Table 8.1 below to answer the questions that follow. Table 8.1 42) Refer to Table 8.1. The equation for the aggregate consumption function is A) C = 80 + .95Y. B) C = 80 + .9Y. C) C = 80 + .75Y. D) C = -80 + . 45Y. Answer: B Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 43) Refer to Table 8.1. Society's MPC is A) 0.90. B) 0.95. C) 0.80. D) 0.05. Answer: A Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 44) Refer to Table 8.1. Society's MPS is A) 0.05. B) 0.10. C) 0.20. D) 0.95. Answer: B Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 45) Refer to Table 8.1. At an aggregate income level of \$100, aggregate saving would be A) -\$30. B) \$30. C) -\$70. D) \$50. Answer: C Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 46) Refer to Assuming society's MPC is constant at an aggregate of income of \$300, aggregate consumption would be Table 8.1. ________. A) \$325. B) \$350. C) \$305. D) \$425. Answer: B Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Table 8.2 below to answer the questions that follow. Table 8.2 47) Refer to Table 8.2. The equation for the aggregate saving function is A) S = -100 + . B) 15Y. S = -100 + .1Y. C) S = -150 + .2Y. D) S = -150 + . 85Y. Answer: B Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 48) Refer to Table 8.2. Society's MPC is A) 0.1. B) 0.2. C) 0.8. D) 0.9. Answer: D Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 49) Refer to Table 8.2. Society's MPS is A) 0.2. B) 0.3. C) 0.1. D) 0.9. Answer: C Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 50) Refer to Assuming society's MPC is constant, at an aggregate income level of \$900, aggregate consumption Table 8.2. would be A) \$665. B) \$910. C) \$1,200. D) \$1,750. Answer: B Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 51) Refer to Assuming society's MPC is constant, at an aggregate income of \$1,200 aggregate saving would be Table 8.2. ________. A) \$0 B) \$20 C) \$55 D) \$150 Answer: B Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Figure 8.3 below to answer the questions that follow. Figure 8.3 52) Refer to Figure 8.3. The equation for the aggregate consumption function is A) C = 140 + .5Y. B) C = 60 + .7Y. C) C = 80 + .6Y. D) C = 60 + .4Y. Answer: B Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 53) Refer to Figure 8.3. The equation for the aggregate saving function is A) S = -60 + .3Y. B) S = -200 + .6Y. C) S = -140 + .5Y. D) S = -80 + .4Y Answer: A Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 54) Refer to Figure 8.3. In this economy, aggregate saving will be zero if income is A) \$100 billion. B) \$200 billion. C) \$300 billion. D) \$400 billion. Answer: B Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 55) Refer to Figure 8.3. For this society, aggregate saving is positive if aggregate income is A) above zero. B) between \$0 and \$150 billion. C) equal to \$200 billion. D) above \$200 billion. Answer: D Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 56) Refer to 8.3. If aggregate income is \$1,000 billion, then in this society aggregate saving is ________ billion. Figure A) \$300 B) \$320 C) \$240 D) \$550 Answer: C Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 57) Refer to Figure 8.3. Which of the following statements is FALSE? A) Aggregate B) saving is negative for all income levels below \$400 billion. For all C) aggregate income levels above \$200 billion, aggregate consumption is less than aggregate income. If consumption expenditure, this economy would be in equilibrium at an aggregate income level of \$200 billion. is the only D) Saving is negative at all income levels below \$200 billion. Answer: A Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Figure 8.4 below to answer the questions that follow. Figure 8.4 58) Refer to Figure 8.4. The aggregate consumption functions C1 and C2 A) have the same MPC values. B) imply a C) different MPS values. have the same autonomous consumption values. D) have the same break-even values. Answer: A Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 59) Refer to Figure 8.4. Which consumption function has the largest MPC? A) C1. B) C2. C) C3. D) cannot be determined from the figure Answer: C Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 60) Refer to 8.4. Suppose the consumption function for C1 = 10 + 0.8Y, the consumption function that best fits C2 is Figure A) C2 = 20 + B) 0.8Y. C2 = 10 + C) 0.4Y. C2 = 40 + D) 0.5Y. C2 = 20 + 0.1Y. Answer: A Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 61) Refer to 8.4. Suppose the consumption function for C1 = 20 + 0.5Y, the consumption function that best fits C3 is Figure A) C3 = 20 + B) 0.8Y. C3 = 20 + C) 0.4Y. C3 = 40 + D) 0.5Y. C3 = 40 + 0.4Y. Answer: A Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 62) Refer to 8.4. If income is Y1, aggregate consumption is the greatest when the aggregate consumption function is Figure A) C3. B) C2. C) C1. D) cannot be determined from the figure Answer: B Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 63) Refer to Figure 8.4. If income is Y2 A) the society's B) saving is negative along C1, C2, and C3. the society's C) consumption is equal along C2 and C3. the society's D) saving is positive along C2 and C3. the society's savings is negative along C1. Answer: B Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 64) If the consumption function is below the 45-degree line, A) consumption is less than income and saving is positive. B) consumption is less than income and saving is negative. C) consumption D) exceeds income and saving is positive. consumption exceeds income and saving is negative. Answer: A Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Figure 8.5 below to answer the questions that follow. Figure 8.5 65) Refer to Figure 8.5. The MPS for this saving function is A) 5. B) 0.25. C) 0.5. D) 4. Answer: B Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 66) Refer to Figure 8.5. If aggregate income is \$400 billion, aggregate saving is ________ billion. A) -\$300 B) -\$100 C) \$0 D) \$500 Answer: B Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 67) Refer to Figure 8.5. If aggregate income is \$900 billion, aggregate consumption A) is \$25 billion. B) is \$800 billion. C) is \$875 billion. D) cannot be determined from this information. Answer: C Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Figure 8.6 below to answer the questions that follow. Figure 8.6 68) Refer to Figure 8.6. The MPS for this saving function is A) .4. B) .2. C) .25. D) .1. Answer: D Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 69) Refer to Figure 8.6. If aggregate income is \$800, aggregate saving is ________. A) -\$100 B) -\$20 C) \$40 D) \$20 Answer: D Diff: 2 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 70) Refer to Figure 8.6. If aggregate income is \$1,000, aggregate consumption is A) \$850. B) \$960. C) \$910. D) \$920. Answer: B Diff: 3 Topic: The Keynesian Theory of Consumption Skill: Analytic AACSB: Analytic Skills 2 Tr ue /F al 1) s e As interest rates fall, spending decreases. Answer: FALSE Diff: 1 Topic: The Keynesian Theory of Consumption Skill: Conceptual AACSB: Reflective Thinking 2) Uncertain ty about the future is likely to increase current spending. Answer: FALSE Diff: 1 Topic: The Keynesian Theory of Consumption Skill: Conceptual AACSB: Reflective Thinking 3) The marginal propensity to consume is the change in consumption per change in income. Answer: TRUE Diff: 1 Topic: The Keynesian Theory of Consumption Skill: Definition 4) If the marginal propensity to consume is .8, the marginal propensity to save is 8. Answer: FALSE Diff: 1 Topic: The Keynesian Theory of Consumption Skill: Conceptual AACSB: Reflective Thinking 8.2 Plan ned Inve stm ent 1 M ul ti pl e C 1) h o i c e The Tiny Company manufactures only sleds. In 2007 Tiny Tots manufactured 10,000 sleds, but sold only 8,000 Tots Toy sleds. In 2007 Tiny Tots' change in inventory was A) -2,000 sleds. B) 1,000 sleds. C) 2,000 sleds. D) 3,000 sleds. Answer: C Diff: 2 Topic: Planned Investment Skill: Analytic AACSB: Analytic Skills 2) The Jackson Tool Company manufactures only tools. In 2008 Jackson Tools manufactured 20,000 tools, but sold 21,000 tools. In 2008 Jackson Tools' change in inventory was A) -2,000 tools. B) 1,000 tools. C) -1,000 tools. D) 3,000 tools. Answer: C Diff: 2 Topic: Planned Investment Skill: Analytic AACSB: Analytic Skills 3) Which of the following is NOT considered investment? A) The acquisition of capital goods B) The purchase of government bonds C) The increase in planned inventories D) The construction of a new factory Answer: B Diff: 1 Topic: Planned Investment Skill: Conceptual AACSB: Reflective Thinking 4) Which of the following is an investment? A) the purchase of a new printing press by a business B) the purchase of a corporate bond by a household C) the purchase of a share of stock by a household D) a leveraged buyout of one corporation by another Answer: A Diff: 1 Topic: Planned Investment Skill: Conceptual AACSB: Reflective Thinking 5) Over which component of investment do firms have the least amount of control? A) purchases of B) new equipment construction of new factories C) changes in D) inventories building new machines Answer: C Diff: 1 Topic: Planned Investment Skill: Conceptual AACSB: Reflective Thinking 6) Assume that in Scandia, planned investment is \$80 billion but actual investment is \$60 billion. Unplanned inventory investment is A) -\$10 billion. B) \$140 billion. C) -\$20 billion. D) \$70 billion. Answer: C Diff: 1 Topic: Planned Investment Skill: Analytic AACSB: Analytic Skills 7) Assume that in Jabara, planned investment is \$30 billion, but actual investment is \$45 billion. Unplanned inventory investment is A) \$75 billion. B) -\$15 billion. C) \$15 billion. D) -\$75 billion. Answer: C Diff: 1 Topic: Planned Investment Skill: Analytic AACSB: Analytic Skills 8) If business investment is \$20 million and planned investment is \$20 million, then actual investment is unplanned A) \$20 million. B) \$40 million. C) -\$20 million. D) \$200 million. Answer: B Diff: 1 Topic: Planned Investment Skill: Analytic AACSB: Analytic Skills 9) In 2006 d's planned investment was \$90 billion and its actual investment was \$140 billion. In 2006 Happyland's Happylan unplanned inventory change was A) -\$50 billion. B) -\$115 billion. C) \$50 billion. D) \$230 billion. Answer: C Diff: 1 Topic: Planned Investment Skill: Analytic AACSB: Analytic Skills 10) If planned investment exceeds actual investment, A) there will be an accumulation of inventories. B) there will be no change in inventories. C) there will be a decline in inventories. D) none of the above Answer: C Diff: 1 Topic: Planned Investment Skill: Conceptual AACSB: Reflective Thinking 11) If Inventory investment is higher than firms planned, A) actual and B) planned investment are equal. actual C) investment is less than planned investment. actual D) investment is greater than planned investment. actual investment must be negative. Answer: C Diff: 1 Topic: Planned Investment Skill: Conceptual AACSB: Reflective Thinking Refer to the information provided in Figure 8.7 below to answer the questions that follow. Figure 8.7 12) Refer to 8.7. In Azora, planned investment does not vary with income. Azora's planned investment function is Figure represented by A) Panel A. B) Panel B. C) Panel C. D) Panel D. Answer: B Diff: 2 Topic: Planned Investment Skill: Analytic AACSB: Analytic Skills 13) Refer to 8.7. In Farley, planned investment varies inversely with income. Farley's planned investment function is Figure represented by A) Panel A. B) Panel B. C) Panel C. D) Panel D. Answer: D Diff: 2 Topic: Planned Investment Skill: Analytic AACSB: Analytic Skills 14) Without government or the foreign sector in the income-expenditure model, planned aggregate expenditure equals the A) consumption B) plus actual investment. consumption C) plus inventory adjustment. consumption D) minus planned investment. consumption plus planned investment. Answer: D Diff: 1 Topic: Planned Investment Skill: Conceptual 15) Related to s in Practice on p. 147 [459]: A recent study by economists at Yale University and the University of the Chicago suggests that changing retirement plan enrollment options from "opt-in" systems to "opt-out" Economic systems increased pension plan enrollment after three months of work from ________ percent of workers to ________ percent of workers. A) 80; 22 B) 10; 100 C) 65; 98 D) 77; 42 Answer: C Diff: 1 Topic: Planned Investment: Economics in Practice Skill: Fact 16) Related to Economics in Practice on p. 147 [459]: Early results from the Save More Tomorrow retirement plans the have shown ________ in the savings rates of the enrolled. A) very little B) change mixed results C) significant D) decreases dramatic increases Answer: D Diff: 1 Topic: Planned Investment: Economics in Practice Skill: Fact 2 Tr ue /F al 1) s e If actual investment is greater than planned investment, unplanned inventories decline. Answer: FALSE Diff: 2 Topic: Planned Investment Skill: Conceptual AACSB: Reflective Thinking 2) Firms react to an unplanned inventory investment by increasing output. Answer: FALSE Diff: 2 Topic: Planned Investment Skill: Conceptual AACSB: Reflective Thinking 3) Firms react to negative inventory investment by increasing output. Answer: TRUE Diff: 2 Topic: Planned Investment Skill: Conceptual AACSB: Reflective Thinking 4) If planned saving exceeds planned investment, injections are greater than leakages. Answer: FALSE Diff: 2 Topic: Planned Investment Skill: Conceptual AACSB: Reflective Thinking 5) If planned t increases, equilibrium will be restored only when saving has increased by exactly the amount of the investmen initial increase in planned investment, assuming there is no government or foreign sector. Answer: TRUE Diff: 2 Topic: Planned Investment Skill: Conceptual AACSB: Reflective Thinking 8.3 The 1 M ul ti pl e C 1) h o i c e In macroeconomics, equilibrium is defined as that point at which A) saving equals consumption. B) planned C) aggregate expenditure equals aggregate output. planned D) aggregate expenditure equals consumption. aggregate output equals consumption minus investment. Answer: B Diff: 1 Topic: The Determination of Equilibrium Output (Income) Skill: Definition 2) The economy can be in equilibrium if, and only if, A) planned B) investment is zero. actual C) investment is zero. planned D) investment is greater than actual investment. planned investment equals actual investment. Answer: D Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Conceptual AACSB: Reflective Thinking 3) If aggregate output is greater than planned spending, then A) unplanned B) inventory investment is zero. unplanned C) inventory investment is negative. unplanned D) inventory investment is positive. actual investment equals planned investment. Answer: C Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Conceptual AACSB: Reflective Thinking 4) If unplanned inventory investment is positive, then A) planned B) investment must be zero. planned C) aggregate spending must be greater than aggregate output. planned D) aggregate spending must be less than aggregate output. planned aggregate spending must equal aggregate output. Answer: C Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Conceptual AACSB: Reflective Thinking 5) If aggregate output equals planned aggregate expenditure, then A) unplanned B) inventory investment is zero. unplanned C) inventory adjustment is negative. unplanned D) inventory adjustment is positive. actual investment is greater than planned investment. Answer: A Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Conceptual AACSB: Reflective Thinking Refer to the information provided in Table 8.3 below to answer the questions that follow. Table 8.3 6) Refer to Table 8.3. At an aggregate output level of \$400 billion, planned expenditure equals A) \$550 billion. B) \$450 billion. C) \$500 billion. D) \$850 billion. Answer: A Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 7) Refer to Table 8.3. At an aggregate output level of \$800 billion, aggregate saving A) equals -\$50 B) billion. equals \$0. C) equals \$50 D) billion. cannot be determined from this information. Answer: C Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 8) Refer to Table 8.3. At an aggregate output level of \$200 billion, the unplanned inventory change is A) -\$150 billion. B) -\$200 billion. C) -\$50 billion. D) \$100 billion. Answer: B Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 9) Refer to Table 8.3. At an aggregate output level of \$600 billion, the unplanned inventory change is A) -\$100 billion. B) -\$50 billion. C) \$0. D) \$50 billion. Answer: A Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 10) Refer to If aggregate output equals ________, there will be a \$100 billion unplanned decrease in inventories. Table 8.3. A) \$200 billion B) \$400 billion C) \$600 billion D) \$800 billion Answer: C Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 11) Refer to Table 8.3. The equilibrium level of aggregate output equals A) \$400 billion. B) \$600 billion. C) \$800 billion. D) \$1,000 billion. Answer: D Diff: 1 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 12) Refer to Table 8.3. Which of the following statements is FALSE? A) At output levels greater than \$800 billion, there is a positive unplanned inventory change. B) If aggregate C) output equals \$1000 billion, then aggregate saving equals \$100. The MPC for this economy is .75. D) At an output level of \$400 billion, there is a \$150 billion unplanned inventory decrease. Answer: A Diff: 3 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 13) Refer to Table 8.3. Planned saving equals planned investment at an aggregate output level A) of \$1000 B) billion. of \$600 billion. C) of \$800 billion. D) that cannot be determined from this information. Answer: A Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 14) Refer to Table 8.3. Planned investment equals actual investment at A) all income B) levels. all income C) levels above \$600 billion. all income D) levels below \$600 billion. \$1000 billion. Answer: D Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Table 8.4 below to answer the questions that follow. Table 8.4 15) Refer to Table 8.4. At an aggregate output level of \$3,000 million, planned expenditure equals A) \$3,000. B) \$3,600. C) \$2,800. D) \$4,400. Answer: B Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 16) Refer to Table 8.4. The MPC in this economy is A) 0.5. B) 0.6. C) 0.7. D) 0.8. Answer: D Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 17) Refer to Table 8.4. At an aggregate output level of \$4,000 million, the unplanned inventory change is A) \$1,200 million. B) 0. C) \$400 million. D) -\$400 million. Answer: D Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 18) Refer to Table 8.4. At an aggregate output level of \$7,000 million, the unplanned inventory change is A) 0. B) \$400 million. C) -\$400 million. D) -\$1,200 million. Answer: B Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 19) Refer to If aggregate output equals ________, there will be a \$200 million unplanned decrease in inventories. Table 8.4. A) \$3,000 million B) \$4,000 million C) \$5,000 million D) \$6,000 million Answer: C Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 20) Refer to Table 8.4. The equilibrium level of aggregate output equals A) \$3,000 million. B) \$4,000 million. C) \$5,000 million. D) \$6,000 million. Answer: D Diff: 1 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 21) Refer to Table 8.4. Which of the following statements is FALSE? A) At an output B) level \$4,000, there is a \$400 million unplanned inventory decrease. If aggregate C) output equals \$4,000 million, then aggregate saving equals \$1000 million. The MPC for this economy is 0.8. D) At an output level of \$3,000 million, there is a \$600 million unplanned inventory decrease. Answer: B Diff: 3 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 22) Refer to Table 8.4. Planned saving equals planned investment at an aggregate output level of A) \$4,000 million. B) \$5,000 million. C) \$6,000 million. D) \$7,000 million. Answer: C Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 23) Refer to Table 8.4. Planned investment equals actual investment at A) all income B) levels. all income C) levels above \$6,000 million. all income D) levels below \$6,000 million an income level of \$6,000 million. Answer: D Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 24) If C = 100 + .8Y and I = 50, then the equilibrium level of income is A) 600. B) 375. C) 187.5. D) 750. Answer: D Diff: 3 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 25) If C = 500 + .9Y and I = 400, then the equilibrium level of income is A) 900. B) 1,800. C) 1,000. D) 9,000. Answer: D Diff: 3 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 26) If S = -200 + 0.2Y and I = 100, then the equilibrium level of income is A) 3,000. B) 1,500. C) 4,000. D) 1,200. Answer: B Diff: 3 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 27) If C = 1,500 + .75Y and I = 500, then planned saving equals planned investment at aggregate output level of A) 8,000. B) 20,000. C) 2,666.67. D) 10,000. Answer: A Diff: 3 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Figure 8.8 below to answer the questions that follow. Figure 8.8 28) Refer to Figure 8.8. What is the equation for the aggregate expenditure function (AE)? A) AE = 200 B) + .5Y. AE = 150 + . 25Y. C) AE = 200 D) + .8Y. AE = 350 + .6Y. Answer: B Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 29) Refer to Figure 8.8. Equilibrium output equals A) 100. B) 200. C) 150. D) 300. Answer: B Diff: 1 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 30) Refer to Figure 8.8. At aggregate output level \$300 million, there is a A) \$75 million B) unplanned increase in inventories. \$75 million C) unplanned decrease in inventories. \$100 million D) decrease in inventories. \$100 million increase in inventories. Answer: A Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 31) Refer to Figure 8.8. At aggregate output level \$100 million, there is a A) \$75 million B) unplanned increase in inventories. \$75 million C) unplanned decrease in inventories. \$100 million D) decrease in inventories. \$100 million increase in inventories. Answer: B Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 32) Refer to 8.8. How will equilibrium aggregate expenditure and equilibrium aggregate output change as a result of a Figure decrease in investment by \$20 million? A) AE line shifts down, increasing equilibrium output and equilibrium expenditure. B) AE line shifts up, increasing equilibrium output and equilibrium expenditure. C) AE line shifts down, decreasing equilibrium output and equilibrium expenditure. D) AE line shifts down, increasing equilibrium output and decreasing equilibrium expenditure. Answer: C Diff: 3 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 33) Refer to Figure 8.8. Leakages are greater than injections at an aggregate output level of A) \$300 million. B) \$100 million. C) \$200 million. D) cannot be determined from the figure Answer: A Diff: 3 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Figure 8.9 below to answer the questions that follow. Figure 8.9 34) Refer to Figure 8.9. What is the equation for the aggregate expenditure function (AE)? A) AE = 600 B) + .1Y. AE = 200 C) + .8Y. AE = 550 D) + .8Y. AE = 100 + .9Y. Answer: B Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 35) Refer to Figure 8.9. At an aggregate output level of \$500 million, there is a A) \$100 million B) unplanned increase in inventories. \$175 million C) unplanned decrease in inventories. \$0 change in D) unplanned inventories. \$100 million unplanned decrease in inventories. Answer: D Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 36) Refer to Figure 8.9. At aggregate output levels above \$1,000 million, there are A) unplanned B) increases in inventories and output increases. unplanned C) decreases in inventories and output increases. unplanned D) decreases in inventories and output decreases. unplanned increases in inventories and output decreases. Answer: D Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 37) Refer to Figure 8.9. At aggregate output levels below \$1,000 million, there are A) unplanned B) decreases in inventories and output increases. unplanned C) increases in inventories and output increases. unplanned D) increases in inventories and output decreases. unplanned decreases in inventories and output decreases. Answer: A Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 38) Refer to Figure 8.9. At aggregate output levels above \$1,000 million, A) leakages equal injections. B) leakages are C) more than injections. leakages are D) zero, but injections are positive. leakages are less than injections. Answer: B Diff: 3 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 39) Refer to Figure 8.9. At aggregate output levels below \$1,000 million, A) leakages equal injections. B) leakages are C) greater than injections. leakages are D) less than injections. leakages are positive, but injections are negative. Answer: C Diff: 3 Topic: The Determination of Equilibrium Output (Income) Skill: Analytic AACSB: Analytic Skills 40) Using the saving/investment approach to equilibrium, the equilibrium condition can be written as A) C + I = C + S. B) C = S + I. C) C - S = I. D) C + S = I. Answer: A Diff: 1 Topic: The Determination of Equilibrium Output (Income) Skill: Conceptual AACSB: Reflective Thinking 41) Firms react to unplanned inventory reductions by A) reducing output. B) increasing C) output. reducing D) planned investment. increasing consumption. Answer: B Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Conceptual AACSB: Reflective Thinking 42) Firms react to unplanned increases in inventories by A) reducing output. B) increasing C) output. increasing D) planned investment. increasing consumption. Answer: A Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Conceptual AACSB: Reflective Thinking 43) Aggregate output will increase if there is a(n) A) increase in B) saving. unplanned rise in inventories. C) unplanned fall in inventories. D) decrease in consumption. Answer: C Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Conceptual AACSB: Reflective Thinking 44) A decrease in planned investment causes A) output to B) increase. output to C) decrease, but by a smaller amount than the decrease in investment. output to D) decrease, but by a larger amount than the decrease in investment. output to decrease by an amount equal to the decrease in investment. Answer: C Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Conceptual AACSB: Reflective Thinking 2 Tr ue /F al 1) s e When expenditure is greater than aggregate output, there will be an unplanned build up of inventories. aggregate Answer: FALSE Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Conceptual AACSB: Reflective Thinking 2) When there is an unplanned draw down of inventories, firms will increase production. Answer: TRUE Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Conceptual AACSB: Reflective Thinking 3) Actual investment equals planned investment plus unplanned changes in inventories. Answer: TRUE Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Definition 4) When the economy is in equilibrium, savings equals planned investment. Answer: TRUE Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Conceptual AACSB: Reflective Thinking 5) If aggregate expenditure decreases, then equilibrium output increases. Answer: FALSE Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Conceptual AACSB: Reflective Thinking 6) Assuming government or foreign sector, the economy will be in equilibrium if, and only if, planned investment there is no equals actual investment. Answer: TRUE Diff: 2 Topic: The Determination of Equilibrium Output (Income) Skill: Conceptual AACSB: Reflective Thinking 8.4 The Mul tipli er 1 M ul ti pl e C 1) h o i c e The ratio of the change in the equilibrium level of output to a change in some autonomous variable is the A) elasticity B) coefficient. multiplier. C) automatic D) stabilizer. marginal propensity of the autonomous variable. Answer: B Diff: 2 Topic: The Multiplier Skill: Definition Refer to the information provided in Figure 8.10 below to answer the questions that follow. Figure 8.10 2) Refer to Figure 8.10. The equation for the aggregate expenditure function AE0 is A) AE0 = 50 B) + .6Y. AE0 = 80 C) + .6Y. AE0 = 50 + . D) 75Y. AE0 = 50 + .4Y. Answer: C Diff: 2 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 3) Refer to Figure 8.10. The value of the multiplier is A) 2. B) 2.5. C) 3. D) 4. Answer: D Diff: 2 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 4) Refer to Figure 8.10. A \$10 million increase in investment changes equilibrium output to A) \$240 million. B) \$90 million. C) \$225 million. D) \$175 million. Answer: A Diff: 2 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 5) Refer to Figure 8.10. A \$20 million decrease in autonomous consumption A) changes B) equilibrium expenditure to \$120 million. changes C) equilibrium output to \$180 million. will change the MPC. D) will change the MPS. Answer: A Diff: 3 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 6) Refer to Figure 8.10. If MPC increases to 0.8, equilibrium aggregate output A) increases to B) \$250 million. remains at \$200 million. C) increases to D) \$400 million. cannot be determined from the given information. Answer: A Diff: 3 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 7) Assuming no government or foreign sector, if the MPC is 0.9, the multiplier is A) 0.1. B) 5. C) 9. D) 10. Answer: D Diff: 1 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 8) Assuming no government or foreign sector, the formula for the multiplier is A) 1/MPC. B) 1/MPS. C) 1/(1 + MPC). D) 1 - MPC. Answer: B Diff: 1 Topic: The Multiplier Skill: Definition 9) Assuming there is no government or foreign sector, the formula for the multiplier is A) 1/(1 - MPC). B) 1/MPC. C) 1/(1 + MPC). D) 1 - MPC. Answer: A Diff: 1 Topic: The Multiplier Skill: Definition 10) Assuming there is no government or foreign sector, if the multiplier is 10, the MPC is A) 0.9. B) 0.8. C) 0.5. D) 0.1. Answer: A Diff: 1 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 11) Assume there is no government or foreign sector. If the MPS is .05, the multiplier is A) 0.95. B) 20. C) 10. D) 50. Answer: B Diff: 1 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 12) Assume government or foreign sector. If the multiplier is 10, a \$10 billion increase in planned investment will there is no cause aggregate output to increase by A) \$1 billion. B) \$5 billion. C) \$10 billion. D) \$100 billion. Answer: D Diff: 1 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 13) Assume government or foreign sector. If the MPS is 0.2, a \$40 billion decrease in planned investment will cause there is no aggregate output to decrease by A) \$20 billion. B) \$50 billion. C) \$80 billion. D) \$200 billion. Answer: D Diff: 1 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 14) Assume government or foreign sector. If the multiplier is 4, a \$20 billion increase in investment will cause there is no aggregate output to increase by A) \$5 billion. B) \$20 billion. C) \$40 billion. D) \$80 billion. Answer: D Diff: 1 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Figure 8.11 below to answer the questions that follow. Figure 8.11 15) Refer to Figure 8.11. What is the equation for aggregate expenditure AE1? A) AE1 = 1,000 + .5Y. B) AE1 = 600 C) + .4Y. AE1 = 1,000 + .6Y. D) AE1 = 400 + .4Y. Answer: B Diff: 2 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 16) Refer to Figure 8.11. Suppose AE1, AE2 and AE3 are parallel. What is the value of Point B? A) \$750 million B) \$800 million C) \$900 million D) cannot be determined from the given information Answer: C Diff: 3 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 17) Refer to Figure 8.11. Suppose AE1, AE2 and AE3 are parallel. What is the value of Point A? A) \$450 million B) \$540 million C) \$510 million D) cannot be determined from the given information Answer: A Diff: 3 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 18) Refer to 8.11. Suppose the economy's aggregate expenditure line is AE1. A \$10 million increase in planned Figure investment causes aggregate equilibrium output to increase to A) \$1,016.7 B) million. \$1,010 million. C) \$1,125.5 D) million. \$1,215.6 million. Answer: A Diff: 2 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 19) As the MPS decreases, the multiplier will A) increase. B) decrease. C) remain D) constant. either increase or decrease depending on the size of the change in investment. Answer: A Diff: 2 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 20) Midwest State Universit y in Nebraska is trying to convince Nebraska taxpayers that the tax dollars spent at Midwest State University are well spent. One of the university's arguments is that for every \$1 spent by Midwest State University an additional \$5 of expenditures are generated within Nebraska. Midwest State University is arguing that the multiplier for their expenditures is A) 0.2. B) 1. C) 4. D) 5. Answer: D Diff: 2 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 21) If autonomous consumption increases, the size of the multiplier would A) increase. B) decrease. C) remain D) constant. either increase or decrease depending on the size of the change in autonomous consumption. Answer: C Diff: 2 Topic: The Multiplier Skill: Conceptual AACSB: Reflective Thinking 22) In practice, the actual size of the multiplier is about A) 1. B) 1.4. C) 2. D) 4. Answer: B Diff: 1 Topic: The Multiplier Skill: Fact 23) Related to Economics in Practice on p. 154 [466]: According to the "paradox of thrift," as individuals increase their the saving, A) income in the economy increases because there is more money available for firms to invest. B) income in the economy increases because interest rates will fall and the economy will expand. C) income in the economy will remain constant because the change in consumption equals the change in saving. D) income in the fall because the decreased consumption that results from increased saving causes the economy to economy will contract. Answer: D Diff: 1 Topic: The Multiplier: Economics in Practice Skill: Conceptual AACSB: Reflective Thinking 24) Related to Economics in Practice on p. 154 [466]: According to the "paradox of thrift," increased efforts to save the will cause a(n) A) increase in B) income and an increase in overall saving. increase in C) income but no overall change in saving. decrease in D) income and an overall decrease in saving. decrease in income but an increase in saving. Answer: C Diff: 1 Topic: The Multiplier: Economics in Practice Skill: Conceptual AACSB: Reflective Thinking 2 Tr ue /F al 1) s e The larger the MPC, the smaller the multiplier. Answer: FALSE Diff: 2 Topic: The Multiplier Skill: Conceptual AACSB: Reflective Thinking 2) The smaller the MPS, the larger the multiplier. Answer: TRUE Diff: 2 Topic: The Multiplier Skill: Conceptual AACSB: Reflective Thinking 3) If the MPC is .75, then the multiplier is 4. Answer: TRUE Diff: 2 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 4) If the MPS is .1, then the multiplier is 10. Answer: TRUE Diff: 1 Topic: The Multiplier Skill: Analytic AACSB: Analytic Skills 5) An increase in the MPC, reduces the multiplier. Answer: FALSE Diff: 2 Topic: The Multiplier Skill: Conceptual AACSB: Reflective Thinking 6) Related to Economics in Practice on p. 154 [466]: The paradox of thrift is that all people deciding to save more the could lead to them saving less. Answer: TRUE Diff: 2 Topic: The Multiplier: Economics in Practice Skill: Conceptual AACSB: Reflective Thinking ...
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## This note was uploaded on 01/31/2011 for the course ECON 12123 taught by Professor Donald during the Spring '10 term at Johnson County Community College.

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