Chapter 8 Review
Macroeconomic Measurement
&
Basic Concepts
With an MPS of .5, the MPC will be:
• 1.0 minus
.
The most important determinant of
consumption and saving is:
• level of
.
As disposable income goes up the
• APC
.
Which fiscal policy actions would be
most effective in combating a
recession
• Taxes
.
• Government Spending
.
The consumption schedule relates:
• consumption to the level of
.
The consumption schedule in the
diagram indicates that:
• up to a point consumption
but then falls below income.
income,
APC + APS =
•
.
The sector of the economy that is
responsible for Consumption is:
• the
sector
The relationship between
consumption and disposable income is
such that:
• a direct and relatively stable relationship
exists between
and
.
If the Government increases
Government Purchases by $800 billion
dollars and increases taxes by $800
billion dollars the effect on GDP will be
•
.
If the marginal propensity to consume
is three quarters, then an increase in
personal income taxes of $100 will
most likely result in
• a decrease in consumption of
decrease in savings of
.
and a
The spending multiplier will have an
effect on any new, additional spending
in the component(s) of
•
and
Purchases
• MPC is greater in
than in
.
If X’s MPC is .70, this means that X
will:
• spend
of any increase in its
disposable income.
Dissaving occurs where:
• consumption
income.
The saving schedule is drawn on the
assumption that as income increases:
• saving will increase
percentage of
and as a
.
If the marginal propensity to consume
is .9, then the marginal propensity to
save must be:
•
.
The greater is the marginal propensity
to consume, :
• The
save.
is the marginal propensity to
In the late 1990s the U.S. stock market
boomed, causing U.S. consumption to
rise.
•
effect.
The wealth effect is shown graphically
as a:
•
shift of the consumption
schedule.
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Marginal
propensity to
save (MPS)
Marginal
propensity to
consume (MPC)
=
=
change in saving
change in income
change in consumption
change in income
The investment demand slopes
downward and to the right because
lower real interest rates:
• enable more
undertaken profitably.
projects to be
An increase in the real rate of interest
will
•
the level of investment.
The investment demand curve
suggests:
• there is an
relationship between
the real rate of interest and the level of
investment spending.
A decrease in corporate income taxes
will:
• shift the investment-demand curve to
the
.
Investment spending in the United
States tends to be unstable because:
• profits are highly
.
• Capital goods, because their purchases can be
postponed like
consumer goods,
tend to contribute to
in investment
spending.
The multiplier is:
• 1/
.
Or
• 1/(1 )
• Which economy has the highest marginal
propensity to consume?
•
• Which economy has the largest multiplier?
The practical significance of the
multiplier is that it:
•
initial changes in spending into
larger changes in
.
If the MPC is 0.75 and gross
investment increases by $8 billion,
GDP will increase by
• $
billion.