Assume the economy’s consumption and saving schedules simultaneously shift downward. This must be the result of
a. an increase in personal taxes
b. an increase in household wealth
c. an increase in disposable income
d. the expectation of a recession

an increase in personal taxes

Disposable Income (Yd) Consumption (C)
$0 $40
100 100
200 160
300 220
400 280
(Advanced analysis) Which of the following equations correctly represents the given data
a. C = 40 + 0.6Yd.
b. Yd = 40 + 0.6C.
c. C = 0.6Yd.
d. C = 60 + 0.4Yd.

C= 40 + 0.6Yd

Disposable Income Consumption
$10,000 $12,000
18,000 18,000
26,000 24,000
34,000 30,000
42,000 36,000
50,000 42,000
Refer to the accompanying consumption schedule. If disposable income is $42,000, then saving is
a. $2,000.
b. $6,000.
c. $4,000.
d. $0.

$6,000

Disposable Income Saving
$0 -$10
50 0
100 10
150 20
200 30
Refer to the given data for a hypothetical economy. At the $100 level of income, the average propensity to save is
a. 0.20.
b. 0.90.
c. 0.10.
d. 0.25.

0.10

If a family’s MPC is 0.7, it means that the family is
a. necessarily dissaving.
b. spending 70 percent of its disposable income.
c. operating at the break-even point.
d. spending seven-tenths of any increment to its income.

spending seven-tenths of any increment to its income.

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,
a. 0.2 and 1.25.
b. 0.4 and 1.67.
c. 0.4 and 2.5.
d. 0.8 and 5.0.

0.8 and 5.0

The APC can be defined as the fraction of a
Selected Answer:
a. specific level of total income that is not consumed.
b. specific level of total income that is consumed.
c. change in income that is not spent.
d. change in income that is spent.

specific level of total income that is consumed

The Paradox of Thrift highlights the idea that
a. saving more is good for the economy in the short run.
b. saving more can be bad for the economy during a recession.
c. in spending more, households will end up saving less.
d. in spending more, workers may end up losing their jobs.

saving more can be bad for the economy during a recession

Which of the following relations is not correct?
a. MPC + MPS = 1.
b. MPS = MPC + 1.
c. APS + APC = 1.
d. 1 − MPC = MPS.

MPS = MPC + 1

Which statement about the multiplier is correct?
a. If a $60 billion increase in spending creates $60 billion of new income in the first round of the multiplier process and $50 billion in the second round, the multiplier in the economy is 5.
b. If a $20 billion increase in spending creates $20 billion of new income in the first round of the multiplier process and $15 billion in the second round, the multiplier in the economy is 5.
c. If a $40 billion increase in spending creates $40 billion of new income in the first round of the multiplier process and $20 billion in the second round, the multiplier in the economy is 4.
d. If an $80 billion increase in spending creates $80 billion of new income in the first round of the multiplier process and $60 billion in the second round, the multiplier in the economy is 4.

If an $80 billion increase in spending creates $80 billion of new income in the first round of the multiplier process and $60 billion in the second round, the multiplier in the economy is 4

Actual investment is $28 billion and saving is $15 billion at the $166 billion level of output in a private closed economy. At this level,
a. planned investment minus saving will be $38 billion.
b. planned investment will be $13 billion.
c. unplanned investment will be $15 billion.
d. consumption will be $151 billion.

consumption will be $151 billion

An exchange rate
a. is the ratio of the dollar volume of a nation’s exports to the dollar volume of its imports.
b. is the price that the currencies of any two nations exchange for one another.
c. is the amount that one nation must export to obtain $1 worth of imports.
d. measures the interest rate ratios of any two nations.

is the price that the currencies of any two nations exchange for one another

If government increases its tax revenues by $15 billion and the MPC is 2/3, then we can expect the equilibrium GDP to
a. decrease by $30 billion.
b. decrease by $35 billion.
c. decrease by $55 billion.
d. decrease by $45 billion.

decrease by $30 billion

In an aggregate expenditures diagram, a lump-sum tax (T) will
a. shift the C + Ig + Xn line downward by an amount b. equal to T × MPC.
c. shift the C + Ig + Xn line downward by an amount equal to T.
d. shift the C + Ig + Xn line upward by an amount equal to T.
not affect the C + Ig + Xn line.

shift the C + Ig + Xn line downward by an amount b. equal to T × MPC

Suppose government finds it can increase the equilibrium real GDP $45 billion by increasing government purchases by $18 billion. On the basis of this information, we can say that the
a. MPS in this economy is 0.4.
b. multiplier does not apply in this economy.
c. multiplier is 3.
d. MPC in this economy is 0.4.

MPS in this economy is 0.4

Relationship between income and consumption is one of the best relationships in macroeconomics
a. true
b. false

true