978-1259723223 Test Bank TBChap030 Part 1

Chapter 30 Basic Macroeconomic Relationships Answer Key

Multiple Choice Questions

1. The most important determinant of consumer spending is

2. The most important determinant of consumption and saving is the

3. If Carol’s disposable income increases from $1,200 to $1,700 and her level of saving

increases from minus $100 to a plus $100, her marginal propensity to

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Acce ssib i l ity:

Keyboard Navigation

Blooms: Understand

D i f f i c u l t y :

02 Medium

Learning Objective: 30–01 Describe how changes in income affect consumption and

saving.

Test Bank: I

Topic:

The Income-Consumption and Income-Saving Relationships

4. With a marginal propensity to save of 0.4, the marginal propensity to consume will be

5. The MPC can be defined as that fraction of a

6. The 45-degree line on a graph relating consumption and income shows

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C. all the points at which consumption and income are equal.

D. the amounts households will plan to save at each possible level of income.

AACSB: Knowledge Application

Acce ssib i l ity:

Keyboard Navigation

Blooms: Understand

D i f f i c u l t y :

02 Medium

Learning Objective: 30–01 Describe how changes in income affect consumption and

saving.

Test Bank: I

Topic:

The Income-Consumption and Income-Saving Relationships

7. As disposable income goes up, the

8. The consumption schedule shows

9. The consumption schedule directly relates

10. A decline in disposable income

11. The APC is calculated as

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saving.

Test Bank: I

Topic:

The Income-Consumption and Income-Saving Relationships

12. The consumption schedule shows

13. The APC can be defined as the fraction of a

14.

Refer to the figure. The consumption schedule indicates that

15. The consumption schedule is drawn on the assumption that as income increases,

consumption will

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AACSB: Knowledge Application

Access i bility:

Keyboard Navigation

Blooms: Understand

D i f f i c u l t y :

02 Medium

Learning Objective: 30-01 Describe how changes in income affect consumption and

saving.

Test Bank: I

Topic:

The Income-Consumption and Income-Saving Relationships

16. Which of the following is correct?

17. The consumption schedule is such that

18. The consumption and saving schedules reveal that the

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written consent of McGraw-Hill Education.

B. MPC and APC are equal at the point where the consumption schedule intersects the 45–

degree line.

C. APS is positive at all income levels.

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

AACSB: Knowledge Application

Access i bility:

Keyboard Navigation

Blooms: Understand

D i f f i c u l t y :

02 Medium

Learning Objective: 30–01 Describe how changes in income affect consumption and

saving.

Test Bank: I

Topic:

The Income-Consumption and Income-Saving Relationships

19. The size of the MPC is assumed to be

20. As disposable income increases, consumption

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written consent of McGraw-Hill Education.

Topic:

The Income-Consumption and Income-Saving Relationships

21. The relationship between consumption and disposable income is such that

22. If the MPC is 0.8 and disposable income is $200, then

23. The MPC for an economy is

30–10

written consent of McGraw-Hill Education.

D i f f i c u l t y :

02 Medium

Learning Objective: 30–01 Describe how changes in income affect consumption and

saving.

Test Bank: I

Topic:

The Income-Consumption and Income-Saving Relationships

24. In contrast to investment, consumption is

25. (Advanced analysis) Assume the following consumption schedule: C = 20 + 0.9Y, where C

is consumption and Y is disposable income. The MPC is

26. (Advanced analysis) Assume the following consumption schedule: C = 20 + 0.9Y, where C

is consumption and Y is disposable income. At an $800 level of disposable income, the level of

saving is

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B. $740.

C. $60.

D. $18.

AACSB: Knowledge Application

Acce ssib i l ity:

Keyboard Navigation

Blooms: Understand

D i f f i c u l t y :

02 Medium

Learning Objective: 30-01 Describe how changes in income affect consumption and

saving.

Test Bank: I

Topic:

The Income-Consumption and Income-Saving Relationships

27. Which one of the following will cause a movement down along an economy’s consumption

schedule?

28.

Refer to the given diagram, which shows consumption schedules for economies A and B. We

can say that the

29. At the point where the consumption schedule intersects the 45-degree line,

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AACSB: Knowledge Application

Acce ssib i l ity:

Keyboard Navigation

Blooms: Understand

D i f f i c u l t y :

02 Medium

Learning Objective: 30-01 Describe how changes in income affect consumption and

saving.

Test Bank: I

Topic:

The Income-Consumption and Income-Saving Relationships

30. Tessa’s break-even income is $10,000, and her MPC is 0.75. If her actual disposable income

is $16,000, her level of

31. If Trent‘s MPC is 0.80, this means that he will

32. Suppose a family‘s consumption exceeds its disposable income. This means that its

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A. MPC is greater than 1.

B. MPS is negative.

C. APC is greater than 1.

D. APS is positive.

AACSB: Knowledge Application

Acce ssib i l ity:

Keyboard Navigation

Blooms: Understand

D i f f i c u l t y :

02 Medium

Learning Objective: 30-01 Describe how changes in income affect consumption and

saving.

Test Bank: I

Topic:

The Income-Consumption and Income-Saving Relationships

33. (Advanced analysis) If the equation for the consumption schedule is C = 20 + 0.8Y, where C

is consumption and Y is disposable income, then the average propensity to consume is 1 when

disposable income is

34. (Advanced analysis) The equation C = 35 + 0.75Y, where C is consumption and Y is

disposable income, shows that

30–15

written consent of McGraw-Hill Education.

Blooms: Understand

D i f f i c u l t y :

02 Medium

Learning Objective: 30–01 Describe how changes in income affect consumption and

saving.

Test Bank: I

Topic:

The Income-Consumption and Income-Saving Relationships

35. (Advanced analysis) If the equation C = 20 + 0.6Y, where C is consumption and Y is

disposable income, were graphed,

36. One can determine the amount of any level of total income that is consumed by

37. Which of the following is correct?

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B. APC + MPS = APS + MPC.

C. APC + MPC = APS + MPS.

D. APC −APS = MPC − MPS.

AACSB: Knowledge Application

Acce ssib i l ity:

Keyboard Navigation

Blooms: Understand

D i f f i c u l t y :

02 Medium

Learning Objective: 30–01 Describe how changes in income affect consumption and

saving.

Test Bank: I

Topic:

The Income-Consumption and Income-Saving Relationships

38. Dissaving means

39. Dissaving occurs where

40. Which of the following relations is not correct?

41. The saving schedule is drawn on the assumption that as income increases,

42. At the point where the consumption schedule intersects the 45-degree line,

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written consent of McGraw-Hill Education.

Learning Objective: 30–01 Describe how changes in income affect consumption and

saving.

Test Bank: I

Topic:

The Income-Consumption and Income-Saving Relationships

43. The saving schedule is such that as aggregate income increases by a certain amount, saving

44. If the consumption schedule is linear, then the

45. Given the consumption schedule, it is possible to graph the relevant saving schedule by

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written consent of McGraw-Hill Education.

AACSB: Knowledge Application

Acce ssib i l ity:

Keyboard Navigation

Blooms: Understand

D i f f i c u l t y :

02 Medium

Learning Objective: 30-01 Describe how changes in income affect consumption and

saving.

Test Bank: I

Topic:

The Income-Consumption and Income-Saving Relationships

46. If the marginal propensity to consume is 0.9, then the marginal propensity to save must be

47. The greater is the marginal propensity to consume, the

48. If the saving schedule is a straight line, the

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B. APS must be constant.

C. APC must be constant.

D. MPC must be rising.

AACSB: Knowledge Application

Acce ssib i l ity:

Keyboard Navigation

Blooms: Understand

D i f f i c u l t y :

02 Medium

Learning Objective: 30–01 Describe how changes in income affect consumption and

saving.

Test Bank: I

Topic:

The Income-Consumption and Income-Saving Relationships

49. Which one of the following will cause a movement up along an economy’s saving schedule?

50. In the late 1990s, the U.S. stock market boomed, causing U.S. consumption to rise.

Economists refer to this outcome as the