Name croprínciples: HW #8-Sample Test ll According to Keynesian theory, the prim

Question

Name croprínciples: HW #8-Sample Test ll According to Keynesian theory, the primary determinant of the level of consumption and saving in the economy is the: a. level of investment. C) level of income. c. level of prices. d. interest rate. If a family's MPC is.7, it is: a. spending 70 percent of its income on consumer goods. b. necessarily dissaving. spending seven-tenths of any increment to its income. d. operating at the break-even point. The size of the MPC is assumed to be: a. less than zero. b. greater than one. greater than zero, but less than one. two or more. In the late 1990s the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the: a. Keynes effect. b. interest-rate effect. wealth effect. d. multiplier effect. Other things being equal, if the interest rate falls, investment a. is likely to decrease. is likely to increase. c. is not likely to change. d. may increase, decrease, or stay the same. The significance of the 45-degree line in studying demand side equilibrium is that a. the line shows the points of consumer satisfaction. the distance of each point on the line from the horizontal and vertical axes are equal. c. the line shows the points where consumption is zero. d. the sum of saving and consumption is maximized. Equilibrium GDP on the demand side occurs when a. total spending equals total production, and inventories are zero. Dtotal spending equals total production, and inventories remain at desired levels : total spending exceeds total production, and inventories are rising

Explanation / Answer

1) b) level of income

Saving and consumption depends upon the level of income of person

2) MPC = Change in C/Change in Y

MPC shows how much consumption change when income of person changes.

c) spending seven-tenths of any increment to its income

3) Value of MPC lies between 0 and 1.

c) greater than zero, but less than 1.

5) Decrease in interest rate increases investment because people borrow more money from banks as they have to pay less interest rate.

b) is likely to increase

6) 45 degree line has the same distance from both the axis.

Answer is b)

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