Chapter 10 – Basic Macroeconomic Relationships
97. Which factor explains the variability of investment?
98. During the Great Recession of 2007-2009, the investment demand curve shifted:
99. The multiplier effect relates:
Chapter 10 – Basic Macroeconomic Relationships
100. The multiplier can be calculated by dividing:
101. The simple multiplier formula assumes the following, except:
102. Generally speaking, the greater the MPS, the:
Chapter 10 – Basic Macroeconomic Relationships
103. If the MPC is .75, the multiplier will be:
104. In a closed, private economy, income is $50 billion and consumption is $40 billion.
When income rises by 10 percent, consumption rises by 9 percent. The MPS over the relevant
income range is:
105. If, in an economy, a $200 billion increase in consumption spending creates $200 billion
of new income in the first round of the multiplier process and $160 billion in the second
round, the marginal propensity to consume and the multiplier are, respectively:
Chapter 10 – Basic Macroeconomic Relationships
10–40
106. Assume the marginal propensity to consume is 0.8. If consumer spending increases by
$20 billion, then real GDP will:
107. Assume that MPS is 0.4. If spending increases by $8 billion, then real GDP will increase
by:
On the table below which illustrates the multiplier process resulting from an increase in
investment by $5.
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108. Refer to the above table. The marginal propensity to consume is:
109. Refer to the above table. The change in income in round two will be:
110. Refer to the above table. The total change in income resulting from the initial change in
investment will be:
Chapter 10 – Basic Macroeconomic Relationships
111. Refer to the above table. The total change in consumption resulting from the initial
change in investment will be:
112. Refer to the above table. The multiplier in this economy is:
113. In general, the steeper the consumption schedule the:
Chapter 10 – Basic Macroeconomic Relationships
114. An increase in spending of $25 billion increases real GDP from $600 billion to $700
billion. The marginal propensity to consume must be:
115. The value of the multiplier is likely to fall if there is a fall in:
116. If the MPC is 0.8, what change in investment spending is required to reduce total income
by $60 billion?
Chapter 10 – Basic Macroeconomic Relationships
117. An $18 billion increase in spending creates $18 billion of new income in the first round
of the multiplier process and $13.5 billion in the second round. The multiplier in the economy
is:
118. Which statement about the multiplier is correct?
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119. If households in the economy save more of any extra income that they earn, then the
multiplier effect will:
120. The change in real GDP resulting from an initial change in spending can be calculated
by:
121. The simple multiplier 1/MPS:
Chapter 10 – Basic Macroeconomic Relationships
122. Art Buchwald’s article in the Last Word section of the chapter, “Squaring the Economic
Circle,” is a humorous description of:
123. Art Buchwald’s article, “Squaring the Economic Circle,” is a humorous description of
what happens to total income if:
124. There are only two things that people could do with their disposable income – spend it or
save it.
Chapter 10 – Basic Macroeconomic Relationships
125. Saving equals disposable income minus consumption.
126. If disposable income is $350 billion and the average propensity to consume is .80, then
personal saving is $70 billion.
127. The marginal propensity to consume shows the fraction of any level of total income that
is consumed.
128. The average propensity to save is equal to the percentage of total income that is saved.
Chapter 10 – Basic Macroeconomic Relationships
129. The marginal propensity to consume is the ratio of consumption to saving.
130. If people saved more of any extra income that they receive, then the consumption
schedule will become flatter.
131. If the consumption schedule becomes steeper, then the saving schedule will become
steeper also.
132. If households see the value of their financial assets increase significantly, then the saving
schedule will shift upward.
Chapter 10 – Basic Macroeconomic Relationships
133. The wealth effect will tend to decrease consumption and increase saving.
134. The Great Recession of 2007-2009 caused a basic change in consumer behavior, shifting
the saving schedule up.
135. If the real rate of interest increases, then the level of investment in the economy will also
increase.
136. A business firm will purchase additional capital goods if the real rate of interest in the
economy is less than the expected rate of return from the investment.
Chapter 10 – Basic Macroeconomic Relationships
137. An increase in business taxes will tend to shift the investment-demand curve rightward.
138. Investment is not affected by current profits; it is affected by expected future profits
only.
139. The multiplier measures the change in real GDP that results from a given change in the
price level.
140. The multiplier effect magnifies a decrease in spending, resulting in a bigger decrease in
real GDP.
Chapter 10 – Basic Macroeconomic Relationships
141. The multiplier value is the reciprocal of the marginal propensity to consume.
142. The multiplier will be larger the steeper is the saving schedule.
143. If a $100 billion increase in consumption spending creates $100 billion of new income in
the first round of the multiplier process and $75 billion in the second round, the multiplier in
the economy is 4.
144. The lower the marginal propensity to consume, the larger is the multiplier.
Chapter 10 – Basic Macroeconomic Relationships
145. If households do not spend any extra income they receive but instead save the entire
extra amount, then the multiplier will be zero.