1. The multiplier effect means that: A. consumption is typically several times a
ID: 1099534 • Letter: 1
Question
1. The multiplier effect means that:
A. consumption is typically several times as large as saving.
B. a change in consumption can cause a larger increase in investment.
C. an increase in investment can cause GDP to change by a larger amount.
D. a decline in the MPC can cause GDP to rise by several times that amount.
2. As disposable income decreases, consumption:
A. And saving both increase
B. And saving both decrease
C. Increases and saving decreases
D. Decreases and saving increases
3. Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is:
A. 80 percent.
B. 8 percent.
C. 2 percent.
D. 20 percent.
4. A private closed economy includes:
A. households, businesses, and government, but not international trade.
B. households, businesses, and international trade, but not government.
C. households and businesses, but not government or international trade.
D. households only.
5. Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is 0.5. Aggregate expenditures must have increased by:
A. $100 billion.
B. $50 billion.
C. $500 billion.
D. $5 billion.
6. The amount by which an aggregate expenditures schedule must shift downward to eliminate demand-pull inflation and still achieve the full-employment GDP is a(n):
A. Inflationary expenditure gap
B. Recessionary expenditure gap
C. Depreciation rate
D. Price-level change
7. The fear of unwanted price wars may explain why many firms are reluctant to:
A. reduce wages when a decline in aggregate demand occurs.
B. reduce prices when a decline in aggregate demand occurs.
C. expand production capacity when an increase in aggregate demand occurs.
D. provide wage increases when labor productivity rises.
8. Which set of events would most likely decrease aggregate demand?
A. A reduction in the excess capital of the existing capital stock
B. A reduction in business and personal tax rates
C. An increase in investment spending
D. An increase in personal income tax rates
9. A fall in the price of capital goods will shift the aggregate:
A. Demand curve leftward
B. Demand curve rightward
C. Supply curve rightward
D. Supply curve leftward
10. A decline in the quantity of real output demanded along the aggregate demand curve is a result of a(n):
A. Decrease in the level of income
B. Increase in the price level
C. Increase in the level of income
D. Decrease in the price level
Explanation / Answer
1) C
2) A is correct answer because MPS+MPC=1.The increase in income will both be spent for consumption and saving.
3) D 20%
The machine will add revenue exceeding cost by $16,000; $16,000 on an investment of $80,000 is equal to 20% ($80,000 x 0.2 = $16,000).
4) A
households, businesses, and government but not internation trade because a closed economy does not have economic relationships with the rest of the world so a closed economy does not participate in international trade.
5) B $50 billion.
6) D
7) B) reduce prices when a decline in aggregate demand occurs.
8) D
9) A When the aggregate demand curve shifts to the left, the total quantity of goods and services demanded at any given price level falls.
10) B
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