Macro Econ-Ch. 10: basic MacroEcon Relationships

question

To economists, the term "aggregate" means ______.

answer

total; combined

question

Consumption and disposable income have what kind of relationship?

answer

positive

question

The __ schedule shows the various amounts that households would plan to spend at each of the various levels of disposable income.

answer

consumption

question

According to the table, __ is $30 billion when disposable income is $510 billion.

answer

savings

question

The fraction or percentage of total income that is consumed is called the:

answer

average propensity to consume (APC)

question

Economists use what term to mean "total" or "combined"?

answer

aggregate

question

When real interest rates ___ households tend to borrow more, consume more, and save less.

answer

decrease

question

Consumption is positively related to disposable __.

answer

income

question

When developing macroeconomic models, economists change their focus from the relationship between consumption and __ income to the relationship between consumption and real GDP.

answer

disposable

question

The consumption schedule shows the various amounts that households plan to consume at each level of:

answer

disposable income

question

A firm's spending on new plants, capital equipment, machinery, and inventory is all considered ______.

answer

investment

question

According to the table, when disposable income is $470 billion, what is the savings?

answer

$20 billion

question

A business is thinking about investing in a new piece of equipment. The expected _____ of return helps the business make the decision about whether or not to invest.

answer

rate

question

The ___ propensity to consume is the fraction or percentage of total income that is consumed.

answer

average

question

Real interest rates are rates adjusted for what?

answer

inflation

question

When real interest rates fall, households tend to borrow ______, consume ______ and save _______.

answer

more, more, less

question

The inverse relationship between interest rates and quantity of investment conforms to ______.

answer

law of demand

question

When developing macroeconomic models, economists change their focus from the relationship between consumption and disposable income to the relationship between consumption and ______.

answer

Real GDP

question

Any factor that leads businesses to collectively expect lower rates of return on their investments ______ investment demand.

answer

decreases

question

____ spending consists of expenditures on new plants, capital equipment, machinery, and inventories.

answer

investment

question

Which of the following has historically had the greatest swings in spending?

answer

investment

question

The owner of a manufacturing company is considering whether or not to invest in a new sanding machine that costs $1,000. Net expected revenue after installation of the machine is $1,100. What is the expected rate of return?

answer

10%

question

The relationship between spending and GDP is?

answer

direct

question

The nominal interest rate minus the rate of inflation equals what?

answer

real interest rate

question

The economy supports repetitive, continuous flows of ______ and income through which dollars spent by Smith are received as income by Chin and then spent by Chin and received as income by Gonzales, and so on.

answer

spending

question

The __ relationship between interest rates and quantity of investment conforms to the law of demand.

answer

inverse

question

1/(1-MPC) is what formula?

answer

multiplier formula

question

Any factor that leads businesses to collectively expect lower rates of return on their investments _____.

answer

reduces investment demand

question

Spending on ______ drains off some of the additional consumption created by the increases in income.

answer

imports and taxes

question

Most of the fluctuations in output and employment over time are due to changes in what?

answer

investment

question

There is a(n) __ relationship between spending and GDP.

answer

direct

question

A business purchases a new piece of equipment. Another firm earns income from this sale and with this income builds a new factory. The contractor that built the factory earns income and uses the income to take a vacation. The resort earns income from the contractor. This scenario describes the:

answer

multiplier effect

question

The direct relationship between MPC and the multiplier is shown in the following equation:

answer

1/(1-MPC)

question

The paying of taxes drains off some of the additional consumption spending created by the increases in ______.

answer

income

question

A downshift of the consumption schedule typically involves an equal upshift of the saving schedule.

The exception to this relationship occurs when

answer

There is an increase in personal taxes; then they both shift downward.

question

In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal?
a. A large decrease in real estate values, including private homes.

answer

The consumption schedule will shift downward
The saving schedule will shift upward

question

In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal?
b. A sharp, sustained increase in stock prices.

answer

The consumption schedule will shift upward
The saving schedule will shift downward

question

In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal?
c. A 5-year increase in the minimum age for collecting Social Security benefits.

answer

The consumption schedule will shift downward
The saving schedule will shift upward

question

In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal?
d. An economywide expectation that a recession is over and that a robust expansion will occur.

answer

The consumption schedule will shift upward
The saving schedule will shift downward

question

In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal?
e. A substantial increase in household borrowing to finance auto purchases.

answer

The consumption schedule will shift upward
The saving schedule will shift downward

question

Irving owns a chain of movie theaters. He is considering whether he should build a new theater downtown. The expected rate of return is 15 percent per year. He can borrow money at a 12 percent interest rate to finance the project. Should Irving proceed with this project?

answer

Yes

question

Which of the following scenarios will shift the investment demand curve right?

answer

-the expected return on capital increases
-firms are planning on increasing their inventories

question

If a $50 billion initial increase in spending leads to a $250 billion change in real GDP, how big is the multiplier?

answer

5.0

question

The following table provides data for output (real GDP) and saving.

a. Fill in the missing numbers (gray-shaded cells) in the table.

answer

...

question

The following table provides data for output (real GDP) and saving.
b. What is the break-even level of income in the table?

answer

...

question

What is the term that economists use for the saving situation shown at the $480 level of income?

answer

Dissaving

question

c. For each of the following items, indicate whether the value in the table is either constant or variable as income changes:
The MPS:

answer

...

question

c. For each of the following items, indicate whether the value in the table is either constant or variable as income changes:
The APC:

answer

...

question

c. For each of the following items, indicate whether the value in the table is either constant or variable as income changes:

answer

...

question

c. For each of the following items, indicate whether the value in the table is either constant or variable as income changes:

answer

...

question

In the late 1990s, the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the

answer

wealth effect

question

Suppose the economy's saving schedule shifts from S1 to S2, as shown in the given diagram. We can say that its

answer

MPS has increased.

question

A rightward shift of the investment demand curve might be caused by

answer

Business planning to increase their stock of inventories

question

The investment demand curve will shift to the left as a result of

answer

an increase in the excess production capacity available in industry.

question

The most important determinant of consumer spending is

answer

level of income

question

The APC can be defined as the fraction of a

answer

specific level of total income that is consumed.

question

The consumption and saving schedules reveal that the

answer

MPC is greater than zero but less than one.

question

The consumption schedule is drawn on the assumption that as income increases, consumption will

answer

increase absolutely but decline as a percentage of income.

question

If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is

answer

22%

question

When we draw an investment demand curve we hold constant all of the following except:

answer

interest rate

question

Assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300. The expected rate of return on this machine is

answer

15%

question

Other things equal, a decrease in the real interest rate will

answer

move the economy downward along its existing investment demand curve.

question

If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then other things equal:

answer

investment will take place until i and r are equal.

question

If a $100 billion decrease in investment spending causes income to decline by $100 billion in the first round of the multiplier process and by $75 billion in the second round, income will eventually decline by

answer

$400 billion

question

If a $500 billion increase in investment spending increases income by $500 billion in the first round of the multiplier process and by $450 in the second round, income will eventually increase by:

answer

$5,000 billion.

question

The multiplier effect means that

answer

An increase in investment can cause GDP to increase by a larger amount

question

A $1 billion increase in investment will cause a

answer

(1/MPS) billion increase in GDP.

question

The multiplier can be calculated as

answer

1/(1-MPC)

question

MPC formula

answer

change in consumption/change in disposable income

question

APC formula

answer

total consumption/total disposable income

question

APS formula

answer

savings/disposable income

question

Consumption formula

answer

...

1 of 72

question

To economists, the term "aggregate" means ______.

answer

total; combined

question

Consumption and disposable income have what kind of relationship?

answer

positive

question

The __ schedule shows the various amounts that households would plan to spend at each of the various levels of disposable income.

answer

consumption

question

According to the table, __ is $30 billion when disposable income is $510 billion.

answer

savings

question

The fraction or percentage of total income that is consumed is called the:

answer

average propensity to consume (APC)

question

Economists use what term to mean "total" or "combined"?

answer

aggregate

question

When real interest rates ___ households tend to borrow more, consume more, and save less.

answer

decrease

question

Consumption is positively related to disposable __.

answer

income

question

When developing macroeconomic models, economists change their focus from the relationship between consumption and __ income to the relationship between consumption and real GDP.

answer

disposable

question

The consumption schedule shows the various amounts that households plan to consume at each level of:

answer

disposable income

question

A firm's spending on new plants, capital equipment, machinery, and inventory is all considered ______.

answer

investment

question

According to the table, when disposable income is $470 billion, what is the savings?

answer

$20 billion

question

A business is thinking about investing in a new piece of equipment. The expected _____ of return helps the business make the decision about whether or not to invest.

answer

rate

question

The ___ propensity to consume is the fraction or percentage of total income that is consumed.

answer

average

question

Real interest rates are rates adjusted for what?

answer

inflation

question

When real interest rates fall, households tend to borrow ______, consume ______ and save _______.

answer

more, more, less

question

The inverse relationship between interest rates and quantity of investment conforms to ______.

answer

law of demand

question

When developing macroeconomic models, economists change their focus from the relationship between consumption and disposable income to the relationship between consumption and ______.

answer

Real GDP

question

Any factor that leads businesses to collectively expect lower rates of return on their investments ______ investment demand.

answer

decreases

question

____ spending consists of expenditures on new plants, capital equipment, machinery, and inventories.

answer

investment

question

Which of the following has historically had the greatest swings in spending?

answer

investment

question

answer

10%

question

The relationship between spending and GDP is?

answer

direct

question

The nominal interest rate minus the rate of inflation equals what?

answer

real interest rate

question

answer

spending

question

The __ relationship between interest rates and quantity of investment conforms to the law of demand.

answer

inverse

question

1/(1-MPC) is what formula?

answer

multiplier formula

question

Any factor that leads businesses to collectively expect lower rates of return on their investments _____.

answer

reduces investment demand

question

Spending on ______ drains off some of the additional consumption created by the increases in income.

answer

imports and taxes

question

Most of the fluctuations in output and employment over time are due to changes in what?

answer

investment

question

There is a(n) __ relationship between spending and GDP.

answer

direct

question

answer

multiplier effect

question

The direct relationship between MPC and the multiplier is shown in the following equation:

answer

1/(1-MPC)

question

The paying of taxes drains off some of the additional consumption spending created by the increases in ______.

answer

income

question

A downshift of the consumption schedule typically involves an equal upshift of the saving schedule.

The exception to this relationship occurs when

answer

There is an increase in personal taxes; then they both shift downward.

question

In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal?
a. A large decrease in real estate values, including private homes.

answer

The consumption schedule will shift downward
The saving schedule will shift upward

question

In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal?
b. A sharp, sustained increase in stock prices.

answer

The consumption schedule will shift upward
The saving schedule will shift downward

question

answer

The consumption schedule will shift downward
The saving schedule will shift upward

question

answer

The consumption schedule will shift upward
The saving schedule will shift downward

question

In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal?
e. A substantial increase in household borrowing to finance auto purchases.

answer

The consumption schedule will shift upward
The saving schedule will shift downward

question

answer

Yes

question

Which of the following scenarios will shift the investment demand curve right?

answer

-the expected return on capital increases
-firms are planning on increasing their inventories

question

If a $50 billion initial increase in spending leads to a $250 billion change in real GDP, how big is the multiplier?

answer

5.0

question

The following table provides data for output (real GDP) and saving.

a. Fill in the missing numbers (gray-shaded cells) in the table.

answer

...

question

The following table provides data for output (real GDP) and saving.
b. What is the break-even level of income in the table?

answer

...

question

What is the term that economists use for the saving situation shown at the $480 level of income?

answer

Dissaving

question

c. For each of the following items, indicate whether the value in the table is either constant or variable as income changes:
The MPS:

answer

...

question

c. For each of the following items, indicate whether the value in the table is either constant or variable as income changes:
The APC:

answer

...

question

c. For each of the following items, indicate whether the value in the table is either constant or variable as income changes:

answer

...

question

c. For each of the following items, indicate whether the value in the table is either constant or variable as income changes:

answer

...

question

In the late 1990s, the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the

answer

wealth effect

question

Suppose the economy's saving schedule shifts from S1 to S2, as shown in the given diagram. We can say that its

answer

MPS has increased.

question

A rightward shift of the investment demand curve might be caused by

answer

Business planning to increase their stock of inventories

question

The investment demand curve will shift to the left as a result of

answer

an increase in the excess production capacity available in industry.

question

The most important determinant of consumer spending is

answer

level of income

question

The APC can be defined as the fraction of a

answer

specific level of total income that is consumed.

question

The consumption and saving schedules reveal that the

answer

MPC is greater than zero but less than one.

question

The consumption schedule is drawn on the assumption that as income increases, consumption will

answer

increase absolutely but decline as a percentage of income.

question

If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is

answer

22%

question

When we draw an investment demand curve we hold constant all of the following except:

answer

interest rate

question

answer

15%

question

Other things equal, a decrease in the real interest rate will

answer

move the economy downward along its existing investment demand curve.

question

If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then other things equal:

answer

investment will take place until i and r are equal.

question

answer

$400 billion

question

If a $500 billion increase in investment spending increases income by $500 billion in the first round of the multiplier process and by $450 in the second round, income will eventually increase by:

answer

$5,000 billion.

question

The multiplier effect means that

answer

An increase in investment can cause GDP to increase by a larger amount

question

A $1 billion increase in investment will cause a

answer

(1/MPS) billion increase in GDP.

question

The multiplier can be calculated as

answer

1/(1-MPC)

question

MPC formula

answer

change in consumption/change in disposable income

question

APC formula

answer

total consumption/total disposable income

question

APS formula

answer

savings/disposable income

question

Consumption formula

answer

...

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