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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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