# Basic Macroeconomic relationships

As disposable income increases, consumption

and savings both increase

The relationship between consumption and disposable income is such that

a direct and relatively stable relationship exist between consumption and income

If the MPC is .8 and disposable income is 200$ then

consumption and savings can not be determined from this information

The MPC for an economy is

the slope of the consumption schedule or line

in contrast to investment, consumption is

relatively stable

which of the following will cause a movement down along an economies consumption schedule.

a decrease in disposable income

at the point where the consumption schedule intersects the 45 degree line

The APC is 1.00

Teesas break even income is 10,000 and her MPC is .75. If her actual income is 16,000 her level of

consumption spending will be 14500

If trents MPC is .80 this means that he will

spend eight tenths of any increase in his disposable income

Suppose a familys consumption exeeds its disposable income. This means that

APC is greater than 1

one can determine the amount of any level of total income that is consumed by

multiplying total income by the APC

Which of the following is correct

MPC+MPS=APC+APS

Dissaving means

The households are spending more than their current incomes

Dissaving occurs when

consumption exeeds income

Which of the following relations is not correct

MPS=MPC+1

The savings schedule is drawn on the assumption that as income increases

Savings will increase absolutely and as a percentage of income

At the point where the consumption schedule intersects the 45 degree line

Savings is 0

the saving schedule is such that as aggregate income increases by a certain amount, saving

increases, but by a smaller amount

If the consumption schedule is linear, then the

Savings schedule will also be linear

GIven the consumption schedule, it is possible to graph the relevant savings schedule by

Plotting the vertical differences between the consumption schedule and the 45 degree line

the marginal propensity to consume is .9 then the marginal propensity to save must be

.1

The greater the marginal propensity is

the smaller is the marginal propensity to save

if the savings schedule is a straight line

MPS must be constant

which of the following will cause a movement up along an economies saving schedule

an increase in disposable income

in the late 1990’s the U.s stock marked boomed causing U.S consumption to rise. Economist refer to this outcome as

Wealth effect

The wealth effect is shown graphically as a

shift of the consumption schedule

An upward shift of the savings schedule suggest

That the APC has decreased and the APS has increased at each GDP leve

Which of the following will not shift the consumption schedule upward

the expectation of a future decline in the consumer index

If the consumption schedule shift upwards and the shift was not caused by a tax xhange, the savings schedule

will shift downward

Which of the following will not cause the consumption schedule to shift

a change in consumers income

When consumption and savings are graphed relative to REAL GDP, an increase in personal taxes will shift

Both the consumption schedule and the savings schedule downwards

If for some reasons households become increasingly thrifty, we could show this by

an upward shift in the savings schedule

Assume the economies consumption and savings schedule simultaneously shift downward. This must be a result of

an increase in personal taxes

The investment demand slopes downwrd and to the right because lower real interest rates

enable more investment project to be undertaken profitably

The invest ment demand curve portrays an inverse (negative ) relationship between

The real interest rate and investment

Other things equal, a decrease in the real interest rate will

move the economy downward along its existing investment demand curve

the relationship between the real interest rate and investment is shown by the

investment demand schedule

Given the expected rate of return on all possible investment opportunities in the economy

An increase in the real rate of interest will reduce level of investment

A decline in real interest rates will

increase the amount of investment spending

The immediate determinants of invesment spending are the

expected rate of return on capital goods and the real interest rate

The investment demand curve suggest that

There is an inverse relationship between the real rate of interest and the level of investment spending

If business taxes are reduced and the real interest rate increases

the level of investment spending might either increase or decrease

Other thing equal, a 10 percent decrease in cooperate income taxes will

shift the investment demand curve to the right

The investment curve will shift to the right as a result of

Business becoming more optimistic about future business conditions

Other thing equal, f the real interest rate falls and business taxes rise

we will be uncertain as to the resulting change in investment

the investment demand curve will shift to the right as a result of

Technological programs

The investment demand curve will shift to the left as a result of

an increase in the exess production capacity available in industry

If the real interst rate in the economy is (i) and expected rate of return from additional investment is (r), then more investment will be forthcoming when

r is greater than i

a rightward shift of the investment demand curve might be caused by

Business planning to increase their stock of inventories

The real interest rate is

The percentage increase in purchasing power that the lender receives on a loan

When we draw an investment demand curve, we hold consistant all of the following except

the interest rate

If nominal interest rate is 18 percent and the real interest rate is 6 percent the inflation rate is

12 percent

If the inflation rate is 10 percent and the real interest rate is 12 percen, the nominal interest rate is

22 percetn

A high rate of inflation is likely to cause a

high nominal interest rate

If the real interest rate in the economy is (i) and the expected rate of return on additional investment is r, then other things equal

r will fall as more investment is undertaken

In annual percentage terms, investment spending in the united states is

more variable than REAL GDP

Investment spending in the United States tends to be unstable because

all of these contribute to instability

Investment spending in the United States tends to be unstable because

profits are highly variablw

the mulitplier effect means that

an increase in investment can cause GDP to change by a larger amount

The multiplier is

1/MPS

The Multiplier is useful in determining

change in real GDP resulting from a change in spending

The Multiplier is defined as

change in GDP/Initial change in spending

If 100 percent of any change in income is spent, the multiplier will be

infinitely large

the multiplier can be calculated by

1(1-MPC)

the size of the multiplier is equal to the

Reciprocal of the slope of the saving schedule

If the MPS is only half as large as the MPC, the multiplier is

3

If the MPC is .70 and investment increases by 3 billion the equilibrium will

increase by 10 billion

The numerical value of the multiplier will be smaller the

larger the slope of the saving schedule

the practical significance of the multiplier is that

magnifies initial change in spending into larger changes in GDP

If the MPC is .6 the multiplier will be

2.5

Assume the MPC is 2/3. If investment spending increase by 2 billion the level of GDP will increase by

6 billion

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