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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
30-2
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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
30-3
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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
30-5
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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
30-7
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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
30-8
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
30-9
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
30-11
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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,
30-13
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
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
30-14
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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?
30-16
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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,
30-18
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
30-19
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
30-20
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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
