ECON 232 Chapter 9 Study Quiz
 
 
 
 
1.

R-1 F09082

Refer to the above figure. If the relevant saving schedule were constructed, one would find that:
A. saving would be minus $20 billion at the zero level of GDP.
B. aggregate saving would be $60 at the $60 billion level of income.
C. its slope would be 1/2.
D. it would slope downward and to the right


 
2. The investment-demand curve will shift to the left as a result of:
A. an increase in the excess production capacity available in industry.
B. a decrease in business taxes.
C. increased business optimism with respect to future economic conditions.
D. a decrease in labor costs.

 
3.
Answer the next question(s) on the basis of the following consumption schedules for three private closed economies. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars.

R-2 REF09092

Refer to the above data. The marginal propensity to consume:
A. is highest in economy (1).
B. is highest in economy (2).
C. is highest in economy (3).
D. cannot be calculated from the data given.


 
4.
Answer the next question(s) on the basis of the following consumption schedules for three private closed economies. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars.

R-2 REF09092

Refer to the above data. The marginal propensity to save:
A. is highest in economy (1).
B. is highest in economy (2).
C. is highest in economy (3).
D. cannot be determined from the data given.


 
5.
R-3 F09162

Refer to the above diagram that applies to a private closed economy. If aggregate expenditures are C + Ig2, the amount of saving at income level J is:
A. LK.
B. KN.
C. KD.
D. JD.


 
6.
(Advanced analysis) Answer the next question(s) on the basis of the following data. The letters Y, C, S, and I are used to represent GDP, consumption, saving, and investment respectively.

R-4 REF09188

The equation representing the consumption schedule for the above economy is:
A. C = Y - .6S.
B. Y = C + S.
C. C = 60 + .4Y .
D. C = 60 + .6Y .


 
7. Unintended changes in inventories:
A. cause the economy to move away from the equilibrium GDP.
B. are treated as components of consumption.
C. bring actual investment and saving into equality only at the equilibrium level of GDP.
D. bring actual investment and saving into equality at all levels of GDP.

 
8. One can determine the amount of any level of total income that is consumed by:
A. multiplying total income by the slope of the consumption schedule.
B. multiplying total income by the APC.
C. subtracting the MPS from total income.
D. multiplying total income by the MPC.

 
9.

R-5 F09087

Refer to the above diagram. The marginal propensity to save is equal to:
A. CD/0D.
B. 0B/0A.
C. 0D/0D.
D. CD/BD.


 
10. At the point where the consumption schedule intersects the 45-degree line:
A. the MPC is 1.00.
B. the APC is 1.00.
C. saving is equal to consumption.
D. the economy is in equilibrium.

 
11.
Answer the next question(s) on the basis of the following table:

R-6 REF09124

The above schedule indicates that if the real interest rate is 8 percent, then:
A. we cannot tell what volume of investment will be profitable.
B. $30 billion will be both saved and invested.
C. $30 billion of investment will be undertaken.
D. $60 billion of investment will be undertaken.


 
12.
(Advanced analysis) Answer the next question(s) on the basis of the following information for a private closed economy.

S = -20 + .4Y
Ig = 25 - 3i

where S is saving, Ig is gross investment, i is the real interest rate, and Y is GDP.
R-7 REF09203

Refer to the above information. If the real interest rate is 5 percent, investment will be:
A. $10 and the equilibrium GDP will be $75.
B. $15 and the equilibrium GDP will be $100.
C. $10 and the equilibrium GDP will be $120.
D. $15 and the equilibrium GDP will be $180.


 
13. If business taxes are reduced and the real interest rate increases:
A. consumption and saving will necessarily increase.
B. the level of investment spending might either increase or decrease.
C. the level of investment spending will necessarily increase.
D. the level of investment spending will necessarily decrease.

 
14.
R-8 F09104

Refer to the above diagram. The marginal propensity to consume is:
A. .4.
B. .6.
C. .5.
D. .8.


 
15. Other things equal, the real interest rate and the level of investment are:
A. related only when saving equals planned investment.
B. unrelated.
C. inversely related.
D. directly related.

 
16. The saving schedule is such that as aggregate income increases by a certain amount saving:
A. increases by the same amount as the increase in income.
B. does not change.
C. increases, but by a smaller amount.
D. increases by an even larger amount.

 
17. The consumption schedule is drawn on the assumption that as income increases consumption will:
A. be unaffected.
B. increase absolutely, but remain constant as a percentage of income.
C. increase absolutely, but decline as a percentage of income.
D. increase both absolutely and as a percentage of income.

 
18.

R-9 F09180

Refer to the above diagram for a private closed economy. In this economy investment:
A. decreases as GDP increases.
B. increases as GDP increases.
C. is $40 billion at all levels of GDP.
D. is $60 billion at all levels of GDP.


 
19.
(Advanced analysis) Answer the next question(s) on the basis of the following data:

R-10 REF09108

Which of the following equations represents the saving schedule implicit in the above data?
A. S = C - Yd
B. S = 40 + .4Yd
C. S = 40 + .6Yd
D. S = -40 + .4Yd


 
20. Which of the following is correct?
A. APC + APS = 1.
B. APC + MPS = 1.
C. APS + MPC = 1.
D. APS + MPS = 1.

 
21.
R-11 F09100

Refer to the above diagram. The average propensity to consume:
A. is greater than 1 at all levels of disposable income above $100.
B. is greater than 1 at all levels of disposable income below $100.
C. is equal to the average propensity to save.
D. cannot be determined from the information given.


 
22. If for some reason households become increasingly thrifty, we could show this by:
A. a downshift of the saving schedule.
B. an upshift of the consumption schedule.
C. an upshift of the saving schedule.
D. an increase in the equilibrium GDP.

 
23.
Answer the next question(s) on the basis of the following data for a private closed economy.

R-12 REF09155

Refer to the above data. If gross investment is $12 billion, the equilibrium level of GDP will be:
A. $380.
B. $370.
C. $360.
D. $350.


 
24.
Answer the next question(s) on the basis of the following data for a private closed economy.

R-12 REF09155

Refer to the above data. At the $370 billion level of DI the APS is approximately:
A. 4 percent.
B. 7 percent.
C. 1 percent.
D. 16 percent.


 
25.
Answer the next question(s) on the basis of the following information for a private closed economy.

Assume that for the entire business sector of the economy there is $0 worth of investment projects that will yield an expected rate of return of 25 percent or more. But there are $15 worth of investments that will yield an expected rate of return of 20-25 percent; another $15 with an expected rate of return of 15-20 percent; and similarly an additional $15 of investment projects in each successive rate of return range down to and including the 0-5 percent range.
R-13 REF09139

Refer to the above information. If the real interest rate is 15 percent, what amount of investment will be undertaken?
A. $15
B. $30
C. $45
D. $60


 
26. Actual investment equals saving:
A. at all levels of GDP.
B. at all below-equilibrium levels of GDP.
C. at all above-equilibrium levels of GDP.
D. only at the equilibrium GDP.

 
27. If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then more investment will be forthcoming when:
A. r falls.
B. i is greater than r.
C. r is greater than i.
D. i rises.

 
28. At the $180 billion equilibrium level of income, saving is $38 billion in a private closed economy. Planned investment must be:
A. $138 billion.
B. $126 billion.
C. $38 billion.
D. $180 billion.

 
29. The most important determinant of consumer spending is:
A. the level of household debt.
B. consumer expectations.
C. the stock of wealth.
D. the level of income.

 
30.

R-14 F09158

Refer to the above diagram for a private closed economy. Unplanned changes in inventories will be zero:
A. only at the $300 level of GDP.
B. only at the $200 level of GDP.
C. at all levels of GDP.
D. only at the $400 level of GDP.


 

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