ECON102
Spring 2015
Chapter 23 Study Guide
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) The MPC is
A) the change in consumption divided by the change in saving.
B) the change in consumption divided by the change in income.
C) the change in saving divided by the change in income.
D) consumption divided by income.
2) If you earn additional $500 in disposable income one week for painting your neighbors house,
A) the total of your consumption and saving will increase by $500.
B) your consumption will increase by more than $500, even if your MPS is 0.1.
C) the total of your consumption and saving will increase by less than $500.
D) the total of your consumption and saving will increase by more than $500.
3) If Logan received a $2,500 bonus and his MPS is 0.20, his consumption rises by $________ and his saving
rises by $________.
A) 2,500; 200
B) 2,500; 20
C) 500; 100
D) 2,000; 500
Refer to the information provided in Figure 23.1 below to answer the questions that follow.
Figure 23.1
4) Refer to Figure 23.1. The MPS for this household is ________ and the MPC is ________.
A) 0.3; 0.7
B) 0.2; 0.8
C) 0.5; 0.5
D) 0.4; 0.6
5) Refer to Figure 23.1. This household's consumption function is
A) C = 500 + 0.5Y.
B) C = 200 + 0.2Y.
C) C = 300 + 0.75Y.
D) C = 1,000 + 0.2Y.
6) Refer to Figure 23.1. This household consumes $2,000 at an income level of
A) $3,000.
B) $2,275.
C) $2,000.
D) $1,840.
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Refer to the information provided in Figure 23.2 below to answer the questions that follow.
Figure 23.2
7) Refer to Figure 23.2. Jerry's consumption equals his income at Point
A) A.
B) B.
C) C.
D) D.
8) Refer to Figure 23.2. Jerry's saving equals zero at income level
A) Y 2.
B) zero.
C) Y 2 - Y 1.
D) Y 1.
9) If consumption is $30,000 when income is $35,000, and consumption increases to $36,000 when income
increases to $43,000, the MPC is
A) 0.65.
B) 0.75.
C) 0.80.
D) 0.95.
Refer to the information provided in Table 23.1 below to answer the questions that follow.
Table 23.1
Aggregate Income ($ billion)
Aggregate Consumption ($billion)
0
80
50
125
100
170
150
215
200
260
10) Refer to Table 23.1. The equation for the aggregate consumption function is
A) C = -80 + 0.45Y.
B) C = 80 + 0.75Y.
C) C = 80 + 0.95Y.
D) C = 80 + 0.9Y.
11) Refer to Table 23.1. Society's MPS is
A) 0.05.
B) 0.10.
D) 0.95.
C) 0.20.
12) The Tiny Tots Toy Company manufactures only sleds. In 2012 Tiny Tots manufactured 10,000 sleds, but sold
only 8,000 sleds. In 2012 Tiny Tots' change in inventory was
A) -2,000 sleds.
B) 1,000 sleds.
C) 2,000 sleds.
D) 3,000 sleds.
13) Which of the following is an investment?
A) the purchase of a new printing press by a business
B) the purchase of a share of stock by a household
C) a leveraged buyout of one corporation by another
D) the purchase of a corporate bond by a household
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14) Assume that in Jabara, planned investment is $30 billion, but actual investment is $45 billion. Unplanned
inventory investment is
A) -$75 billion.
B) -$15 billion.
C) $15 billion.
D) $75 billion.
15) If planned investment exceeds actual investment,
A) there will be an accumulation of inventories.
C) there will be no change in inventories.
B) there will be a decline in inventories.
D) none of the above
Refer to the information provided in Figure 23.7 below to answer the questions that follow.
Figure 23.7
16) Refer to Figure 23.7. In Azora, planned investment does not vary with income. Azora's planned investment
function is represented by
A) Panel A.
B) Panel B.
C) Panel C.
D) Panel D.
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Refer to the information provided in Figure 23.8 below to answer the questions that follow.
Figure 23.8
17) Refer to Figure 23.8. The amount of planned investment increases if the interest rate
A) drops from 8% to 4%.
B) remains at 8%.
C) rises from 4% to 8%.
D) remains at 4%.
18) Refer to Figure 23.8. The amount of planned investment decreases if the interest rate
A) remains at 8%.
B) drops from 8% to 4%.
C) remains at 4%.
D) rises from 4% to 8%.
19) In macroeconomics, equilibrium is defined as that point at which
A) aggregate output equals consumption minus investment.
B) planned aggregate expenditure equals aggregate output.
C) saving equals consumption.
D) planned aggregate expenditure equals consumption.
20) The economy can be in equilibrium if, and only if,
A) actual investment is zero.
B) planned investment equals actual investment.
C) planned investment is greater than actual investment.
D) planned investment is zero.
Refer to the information provided in Table 23.4 below to answer the questions that follow.
Table 23.4
All Figures in Billions of Dollars
Aggregate Output
Aggregate Consumption
Planned Investment
200
300
100
400
450
100
600
600
100
800
750
100
1,000
900
100
21) Refer to Table 23.4. At an aggregate output level of $400 billion, planned expenditure equals
A) $450 billion.
B) $500 billion.
C) $550 billion.
D) $850 billion.
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22) Refer to Table 23.4. At an aggregate output level of $800 billion, aggregate saving
A) equals -$50 billion.
B) equals $0.
C) equals $50 billion.
D) cannot be determined from this information.
23) Refer to Table 23.4. At an aggregate output level of $200 billion, the unplanned inventory change is
A) -$200 billion.
B) -$150 billion.
C) -$50 billion.
D) $100 billion.
24) Refer to Table 23.4. The equilibrium level of aggregate output equals
A) $400 billion.
B) $600 billion.
C) $800 billion.
D) $1,000 billion.
25) If C = 500 + 0.9Y and I = 400, then the equilibrium level of income is
A) 900.
B) 1,000.
C) 1,800.
D) 9,000.
Refer to the information provided in Figure 23.9 below to answer the questions that follow.
Figure 23.9
26) Refer to Figure 23.9. What is the equation for the aggregate expenditure function (AE)?
A) AE = 200 + 0.8Y.
B) AE = 200 + 0.5Y.
C) AE = 150 + 0.25Y.
D) AE = 350 + 0.6Y.
27) Refer to Figure 23.9. Equilibrium output equals
A) 100.
B) 150.
C) 200.
D) 300.
28) Using the saving/investment approach to equilibrium, the equilibrium condition can be written as
A) C +I = C +S.
B) C = S +I.
C) C +S = I.
D) C - S = I.
29) Aggregate output will increase if there is a(n)
A) decrease in consumption.
C) unplanned fall in inventories.
B) increase in saving.
D) unplanned rise in inventories.
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Refer to the information provided in Figure 23.11 below to answer the questions that follow.
Figure 23.11
30) Refer to Figure 23.11. The equation for the aggregate expenditure function AE0 is
A) AE0 = 50 + 0.75Y.
B) AE0 = 50 + 0.4Y.
C) AE0 = 50 + 0.6Y.
D) AE0 = 80 + 0.6Y.
31) Refer to Figure 23.11. The value of the multiplier is
A) 2.
B) 2.5.
D) 4.
C) 3.
32) Refer to Figure 23.11. A $10 million increase in investment changes equilibrium output to
A) $240 million.
B) $225 million.
C) $175 million.
D) $90 million.
33) Assuming there is no government or foreign sector, the formula for the multiplier is
A) 1 - MPC.
B) 1/(1 - MPC).
C) 1/(1 +MPC).
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D) 1/MPC.
Answer Key
Testname: STUDY GUIDE 4 S2015
1) B
2) A
3) D
4) C
5) A
6) A
7) A
8) D
9) B
10) D
11) B
12) C
13) A
14) C
15) B
16) B
17) A
18) D
19) B
20) B
21) C
22) C
23) A
24) D
25) D
26) C
27) C
28) A
29) C
30) A
31) D
32) A
33) B
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