978-1259723223 Test Bank TBChap030 Part 5

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A. 2.

B. 3.

C. 4.

D. 5.

AACSB: Knowledge Application

Accessibility:

Keyboard Navigation

Blooms: Understand

D i f fi cu lt y:

02 Medium

Learning Objective: 30-05 Illustrate how changes in investment or one of the other

components of total spending can increase or decrease real GDP by a multiple amount.

Test Bank: I

Topic:

The Multiplier Effect

149. If the MPC is 0.70 and investment increases by $3 billion, the equilibrium GDP will

150. The numerical value of the multiplier will be smaller the

151. The practical significance of the multiplier is that it

152. If the MPC is 0.6, the multiplier will be

153. Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP

will increase by

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Blooms: Understand

D i f fi cu lt y:

02 Medium

Learning Objective: 30–05 Illustrate how changes in investment or one of the other

components of total spending can increase or decrease real GDP by a multiple

amount.

Test Bank: I

Topic:

The Multiplier Effect

154. The multiplier applies to

155. The multiplier effect indicates that

156.

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Change in

Income

Change in

Consumption

Change in

Saving

Assumed Increase in

Investment

$20

$

$4.00

Second Round

$

$12.80

$

All Other Rounds

$

$51.20

$

Totals

$

$20.00

Refer to the given table, which illustrates the multiplier process. The marginal propensity to

consume is

157.

Change in

Income

Change in

Consumption

Change in

Saving

Assumed Increase in

Investment

$20

$

$4.00

Second Round

$

$12.80

$

All Other Rounds

$

$51.20

$

Totals

$

$20.00

Refer to the given table, which illustrates the multiplier process. The marginal propensity to

save is

158.

Change in

Income

Change in

Consumption

Change in

Saving

Assumed Increase in

Investment

$20

$

$4.00

Second Round

$

$12.80

$

All Other Rounds

$

$51.20

$

Totals

$

$20.00

Refer to the given table, which illustrates the multiplier process. The change in income in round

two will be

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components of total spending can increase or decrease real GDP by a multiple

amount.

Test Bank: I

Topic:

The Multiplier Effect

Type: Table

159.

Change in

Income

Change in

Consumption

Change in

Saving

Assumed Increase in

Investment

$20

$

$4.00

Second Round

$

$12.80

$

All Other Rounds

$

$51.20

$

Totals

$

$20.00

Refer to the given table, which illustrates the multiplier process. The total change in income

resulting from the initial change in investment will be

160.

Change in

Income

Change in

Consumption

Change in

Saving

Assumed Increase in

Investment

$20

$

$4.00

Second Round

$

$12.80

$

All Other Rounds

$

$51.20

$

Totals

$

$20.00

Refer to the given table, which illustrates the multiplier process. The total change in

consumption resulting from the initial change in investment will be

161.

Change in

Income

Change in

Consumption

Change in

Saving

Assumed Increase in

Investment

$20

$

$4.00

Second Round

$

$12.80

$

All Other Rounds

$

$51.20

$

Totals

$

$20.00

Refer to the given table, which illustrates the multiplier process. The multiplier in this economy

is

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D. 10.

162. 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 multiplier in the

economy is

163. If a $50 billion decrease in investment spending causes income to decline by $50 billion in

the first round of the multiplier process and by $25 in the second round, the multiplier in the

economy is

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Learning Objective: 30-05 Illustrate how changes in investment or one of the other

components of total spending can increase or decrease real GDP by a multiple amount.

Test Bank: I

Topic:

The Multiplier Effect

164. If a $100 billion decrease in investment spending causes income to decline by $100 billion

in the first round of the multiplier process and by $75 billion in the second round, income will

eventually decline by

165. If a $500 billion increase in investment spending increases income by $500 billion in the

first round of the multiplier process and by $450 in the second round, income will eventually

increase by

166. If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment

spending will increase

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A. GDP by $120 billion.

B. GDP by $20 billion.

C. saving by $25 billion.

D. consumption by $80 billion.

167. A $1 billion increase in investment will cause a

168. The actual multiplier effect in the U.S. economy is less than the multiplier effect in the text

examples because

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D i f fi c ul ty :

02 Medium

Learning Objective: 30–05 Illustrate how changes in investment or one of the other

components of total spending can increase or decrease real GDP by a multiple

amount.

Test Bank: I

Topic:

The Multiplier Effect

169. (Consider This) During the Great Recession of 2007–2009, both real interest rates and

investment spending declined. This suggests that

170. (Consider This) During the Great Recession of 2007–2009,

171. (Last Word) Art Buchwald‘s article “Squaring the Economic Circle” is a humorous

description of

172. (Last Word) Art Buchwald’s article “Squaring the Economic Circle” humorously describes

how

True / False Questions

173. If DI is $275 billion and the APC is 0.8, we can conclude that saving is $55 billion.

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Blooms: Understand

D i f fi c ul ty :

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

174. If the MPC is constant at various levels of income, then the APC must also be constant at

all of those income levels.

175. The average propensity to consume is defined as income divided by consumption.

176. 1 − MPC = MPS.

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Test Bank: I

Topic:

The Income-Consumption and Income-Saving Relationships

177. If the Hennige family’s marginal propensity to consume is 0.70, then it will necessarily

consume seven-tenths of its total income.

179. The slope of the consumption schedule is measured by the MPC.

180. A decline in the real interest rate will shift the investment demand curve to the right.

181. A specific investment will be undertaken if the expected rate of return, r, exceeds the

interest rate, i.

182. Investment is highly stable; it increases over time at a very steady rate.

183. The greater the MPC, the greater the multiplier.

184. The multiplier is equal to the reciprocal of the MPC.

185. The multiplier shows the relationship between changes in a component of spending, say,

investment, and the consequent changes in real income and output.

186. Economists widely agree that the value of the real-world multiplier is 2.5.

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AACSB: Knowledge Application

Access i b ility:

Keyboard Navigation

Blooms: Understand

D i f fi cu lt y:

02 Medium

Learning Objective: 30-05 Illustrate how changes in investment or one of the other

components of total spending can increase or decrease real GDP by a multiple amount.

Test Bank: I

Topic:

The Multiplier Effect

187. If the MPC is 0.9 and investment spending increases by $20 billion, real GDP will

increase by $200 billion.

Multiple Choice Questions

188. Personal saving is equal to

189. The amount of consumption in an economy correlates

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B. directly with the level of disposable income.

C. directly with the level of saving.

D. directly with the rate of interest.

190. The consumption schedule shows the relationship of household consumption to the level of

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

line is

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Topic:

The Income-Consumption and Income-Saving Relationships

192. When the consumption schedule is plotted on a graph,

193. As disposable income decreases, consumption

194.

Refer to the consumption schedule shown in the graph. At income level 3, the amount of

consumption is represented by the line segment