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Refer to the given diagram. The marginal propensity to save is

Top of Form

Multiple Choice

• CD/EF.

• CB/CF.

• CB/AF.

• EF/CB.

Bottom of Form

Ca = 25 + 0.75 (Y − T)

Ig = 50

Xn = 10

G = 70

T = 30

(Advanced analysis) The accompanying equations are for a mixed open economy. The letters Y, Ca, Ig, Xn, G, and T stand for GDP, consumption, gross investment, net exports, government purchases, and net taxes, respectively. Figures are in billions of dollars. The multiplier for this economy is

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Multiple Choice

• 4.

• 3.

• 2.

• 2.33.

Bottom of Form

Which one of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left?

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Multiple Choice

• a reduction in business taxes

• production bottlenecks occurring when producers near full plant capacity

• an increase in the price of imported resources

• deregulation of industry

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When a consumption schedule is plotted as a straight line, the slope of the consumption line is

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Multiple Choice

• vertical.

• horizontal.

• greater than the slope of the 45° line.

• less than the slope of the 45° line.

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If GDP exceeds aggregate expenditures in a private closed economy,

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Multiple Choice

• saving will exceed planned investment.

• planned investment will exceed saving.

• planned investment will exceed actual investment.

• injections will exceed leakages.

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Which of the diagrams for the U.S. economy best portrays the effects of a substantial reduction in government spending?

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Multiple Choice

• A

• B

• C

• D

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If households consume less at each level of disposable income, they are

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Multiple Choice

• saving more.

• saving less.

• spending more.

• working less.

Bottom of Form

The consumption and saving schedules reveal that the

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Multiple Choice

• MPC is greater than zero but less than one.

• MPC and APC are equal at the point where the consumption schedule intersects the 45-degree line.

• APS is positive at all income levels.

• MPC is equal to or greater than one at all income levels.

Bottom of Form

The table illustrates the multiplier process resulting from an autonomous increase in investment by $5. The total change in income resulting from the initial change in investment will be

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Multiple Choice

• $5.

• $10.

• $15.

• $20.

Bottom of Form

In the accompanying table for a particular country, C is consumption expenditures, Ig is gross investment expenditures, G is government expenditures, X is exports, and M is imports. All figures are in billions of dollars. If this nation's equilibrium price level is 125, its net exports will be

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Multiple Choice

• minus $4 billion.

• minus $2 billion.

• zero.

• $2 billion.

Bottom of Form

The accompanying table shows the aggregate demand and aggregate supply schedules for a hypothetical economy. The equilibrium price and output levels will be

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Multiple Choice

• 200 and $5,000.

• 200 and $6,000.

• 250 and $7,000.

• 300 and $8,000.

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The size of the multiplier is equal to the

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Multiple Choice

• slope of the consumption schedule.

• reciprocal of the slope of the consumption schedule.

• slope of the saving schedule.

• reciprocal of the slope of the saving schedule.

Bottom of Form

The level of aggregate expenditures in a mixed open economy consists of

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Multiple Choice

• Ca + Ig + Xn.

• Ca + Ig + G + T + Xn.

• Ca + Ig + Xn + G.

• Ca + G.

Bottom of Form

(Advanced analysis) Assume the consumption schedule for a private closed economy is C = 40 + 0.75Y, where C is consumption and Y is gross domestic product. The multiplier for this economy is

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Multiple Choice

• 3.

• 4.

• 5.

• 10.

Bottom of Form

Dissaving occurs where

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Multiple Choice

• income exceeds consumption.

• saving exceeds consumption.

• consumption exceeds income.

• saving exceeds income.

Bottom of Form

The $787 billion stimulus package enacted by the Federal government in 2009 to try to deal with the Great Recession was intended to

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Multiple Choice

• shift the aggregate expenditures schedule down.

• close an inflationary expenditures gap.

• bring inflation down.

• push the aggregate expenditures schedule upward.

Bottom of Form

Refer to the given consumption schedules. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. A $2 billion increase in consumption at each level of DI could be caused by

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Multiple Choice

• a decrease in consumer wealth.

• new expectations of higher future income.

• an increase in taxation.

• an increase in saving.

Bottom of Form

In a private closed economy, when aggregate expenditures exceed GDP,

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Multiple Choice

• GDP will decline.

• business inventories will rise.

• saving will decline.

• business inventories will fall.

Bottom of Form

The table gives aggregate demand and supply schedules for a hypothetical economy. If the price level is 250 and producers supply $450 of real output,

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Multiple Choice

• a shortage of real output of $150 will occur.

• a shortage of real output of $100 will occur.

• a surplus of real output of $150 will occur.

• neither a shortage nor a surplus of real output will occur.

Bottom of Form

The simple multiplier 1/MPS

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Multiple Choice

• understates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes.

• understates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes.

• overstates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes.

• overstates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes.

Bottom of Form

Suppose that technological advancements stimulate $24 billion in additional investment spending. If the MPC = 0.8, how much will the change in investment increase aggregate demand?

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Multiple Choice

• $120 billion

• $24 billion

• $192 billion

• $22.2 billion

Bottom of Form

If investment increases by $30 billion and the economy's MPC is 0.8, the aggregate demand curve will shift

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Multiple Choice

• rightward by $150 billion at each price level.

• rightward by $30 billion at each price level.

• leftward by $150 billion at each price level.

• leftward by $60 billion at each price level.

Bottom of Form

If the MPC is 0.5 and the equilibrium GDP is $60 billion below the full-employment GDP, then the size of the recessionary expenditure gap is

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Multiple Choice

• $30 billion.

• $50 billion.

• $60 billion.

• $120 billion.

Bottom of Form

(Advanced analysis) Assume the following consumption schedule: C = 20 + 0.9Y, where C is consumption and Y is disposable income. At a(n) $1,000 level of disposable income, the level of saving is

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Multiple Choice

• $80.

• $920.

• $180.

• $18.

Bottom of Form

Assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,200. The expected rate of return on this machine is

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Multiple Choice

• 10 percent.

• 20 percent.

• 30 percent.

• 2 percent.

Bottom of Form

If disposable income is $900 billion when the average propensity to consume is 0.6, it can be concluded that saving is

Top of Form

Multiple Choice

• $360 billion.

• $540 billion.

• $900 billion.

• $400 billion.

Bottom of Form

If the multiplier in an economy is 10, a $20 billion increase in net exports will

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Multiple Choice

• increase GDP by $200 billion.

• reduce GDP by $2 billion.

• decrease GDP by $200 billion.

• increase GDP by $20 billion.

Bottom of Form

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $112,000. The expected rate of return on this tool is

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Multiple Choice

• 40 percent.

• 60 percent.

• 30 percent.

• 12 percent.

Bottom of Form

If the marginal propensity to save is 0.2 in an economy, a $40 billion rise in investment spending will increase consumption by

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Multiple Choice

• 160.

• 200.

• 40.

• 8.

Bottom of Form

An economy is employing 3 units of capital, 3 units of raw materials, and 2 units of labor to produce its total output of 120 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. The per-unit cost of production in this economy is

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Multiple Choice

• $0.40.

• $8.00.

• $0.30.

• $0.50.

Bottom of Form

Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is 0.8. Aggregate expenditures must have increased by

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Multiple Choice

• $20 billion.

• $100 billion.

• $80 billion.

• $10 billion.

Bottom of Form

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the MPC in the economy is

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Multiple Choice

• 0.8.

• 0.6.

• 0.2.

• 0.9.

Bottom of Form

The table gives information about the relationship between input quantities and real domestic output in a hypothetical economy. If the price of each input is $4, the per-unit cost of production in the economy is

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Multiple Choice

• $2.00.

• $0.50.

• $0.20.

• $1.50.

Bottom of Form

If the marginal propensity to consume is 0.8 then the marginal propensity to save must be

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Multiple Choice

• 0.2.

• 1.

• 1.2.

• 0.8.

Bottom of Form

Suppose that an economy produces 500 units of output. It takes 10 units of labor at $15 a unit and 3 units of capital at $50 a unit to produce this amount of output. The per unit cost of production is

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Multiple Choice

• $0.60.

• $1.60.

• $1.20.

• $0.30.

Bottom of Form

Suppose the economy's multiplier is 5. Other things equal, a $5 billion decrease in government expenditures on national defense will cause equilibrium GDP to

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Multiple Choice

• decrease by $25 billion.

• decrease by $50 billion.

• increase by $25 billion.

• decrease by $5 billion.

• remain unchanged.

Bottom of Form

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. The level of productivity is

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Multiple Choice

• 2.

• 20.

• 10.

• 5.

Bottom of Form

Suppose that real domestic output in an economy is 120 units, the quantity of inputs is 50, and the price of each input is $6. The per-unit cost of production in the economy described is

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Multiple Choice

• $2.50.

• $25.

• $4.

• $20.

Bottom of Form

Assume the MPC is 0.8. If government were to impose $30 billion of new taxes on household income, consumption spending would initially decrease by

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Multiple Choice

• $24 billion.

• $30 billion.

• $60 billion.

• $6 billion.

Bottom of Form

If a lump-sum income tax of $25 billion is levied and the MPS is 0.4, the consumption schedule will shift

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Multiple Choice

• downward by $15 billion.

• upward by $15 billion.

• downward by $25 billion.

• downward by $10 billion.

Bottom of Form