Test bank
Chapter three
Assume ceteris paribus
1. The simple two sector model and the paradox of thrift implies
a.
b.
c.
d.
That saving is a good thing
An increase in desire to save leads to new saving overall
New saving is always matched by investment
Trying to save more can reduce national income and not increase
saving
2. The consumption function for an economy is given in the following diagram:
Consumption
C = a + cYd
200
100
200
Yd
Which of the following is true?
a. Autonomous consumption is 200.
b. The marginal propensity to save is 0.75.
c. Autonomous consumption is 100 and the marginal propensity to
consume is 0.5.
d. all of the above.
3. If government spending equals taxes, and there is a current account surplus,
then at equilibrium.
a. National saving is less than investment and the shortfall must come
from the use of foreign savings.
b. National saving is greater than investment and the excess will be used
for foreign investment.
c. National saving is less than investment and the shortfall must be filled
by government printing additional money.
d. National saving is greater than investment and the excess will be
withdrawn from the economy by the Reserve Bank.
4. The 4 sector model gives the government’s fiscal balance as T-G. This
a. shows the amount that government contributes to national saving
b. is different from the operating balance because G does not include
transfers
c. is a level that stays the same regardless of the stage of the business
cycle
d. may be reduced if there is an increase in export earnings
5.
In the circular flow model of economic activity which of the following are all
flows?
a.
b.
c.
d.
Investment, national income, overseas debt
Saving, Balance of Payments Current Account Deficit, net exports
Money, national output, net taxes
Capital stock, GDP, government spending
6. Which of the following will not increase the value of the 4-sector multiplier?
a.
b.
c.
d.
An increase in the marginal propensity to consume
A decrease in the income tax rate
An increase in exports
A reduction in the marginal propensity to import
7. Which of the following will decrease the value of the 4-sector multiplier?
a.
b.
c.
d.
An increase in the marginal propensity to consume.
An increase in the income tax rate.
A decrease in investment.
A decrease in the marginal propensity to import
8. An increase in autonomous investment will
a.
b.
c.
d.
Increase the trade surplus
Increase the trade deficit
Have no effect on the trade balance
Increase or decrease the trade surplus depending on the initial situation
9. In the 4-sector income-expenditure model, an increase in the propensity to
save will
a.
b.
c.
d.
Reduce national income
Have no effect on national saving
Have no effect on autonomous investment
All of the above
10. Concerning the income/expenditure model, if the marginal propensity to
consume does not change, moving from the three sector to four sector model
will cause the multiplier to
(a)
(b)
(c)
(d)
decrease
increase
remain unchanged
any of the above is possible