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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question 1) The

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

Answer: D 2) The

most important determinant of consumption and saving is the: B) level of bank credit. of disposable income. C) price level. D) interest rate. A) level

Answer: A 3) The

45-degree line on a chart relating consumption and income shows: the points at which consumption and income are equal. B) the amounts households will plan to save at each possible level of income. C) all points at which saving and income are equal. D) all points where the MPC is constant. A) all

Answer: A 4) The

consumption schedule shows: A) that consumption depends primarily upon the level of business investment. B) the amounts households plan or intend to consume at various possible levels of aggregate income. C) that the MPC increases in proportion to GDP. D) that households consume more when interest rates are low.

Answer: B

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5) The

consumption schedule in the diagram below indicates that:

A) the

MPC falls as income increases. B) up to a point consumption exceeds income, but then falls below income. C) households consume as much as they earn. D) consumers will maximize their satisfaction where the consumption schedule and 45° line intersect. Answer: B 6) The

consumption schedule relates: A) saving to the level of disposable income. B) consumption to saving. C) disposable income to domestic income. D) consumption to the level of disposable income.

Answer: D 7) A

decline in disposable income: consumption because it shifts the consumption schedule upward. B) decreases consumption because it shifts the consumption schedule downward. C) decreases consumption by moving downward along a specific consumption schedule. D) increases consumption by moving upward along a specific consumption schedule. A) increases

Answer: C 8) The

consumption schedule shows: direct relationship between aggregate consumption and accumulated wealth. B) an inverse relationship between aggregate consumption and accumulated financial wealth. C) a direct relationship between aggregate consumption and aggregate income. D) an inverse relationship between aggregate consumption and aggregate income. A) a

Answer: C 2

9) The

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

10) The

relationship between consumption and disposable income is such that: A) a direct and quite stable relationship exists between consumption and income. B) the two are always equal. C) an inverse and stable relationship exists between consumption and income. D) a direct, but very volatile, relationship exists between consumption and income.

Answer: A 11) The

equation C = 35 + .75Y, where C is consumption and Y is disposable income, tells us that: A) households will save $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive. B) households will consume $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive. C) there is an inverse relationship between disposable income and consumption. D) households will consume three-fourths of whatever level of disposable income they receive.

Answer: B 12) If

the equation C = 20 + .6Y, where C is consumption and Y is disposable income, were graphed: A) it would reveal an inverse relationship between consumption and disposable income. B) the vertical intercept would be +.6 and the slope would be +20. C) the vertical intercept would be +20 and the slope would be +.6. D) the vertical intercept would be negative, but consumption would increase as disposable income rises.

Answer: C

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13) Refer

to the data below. When plotted on a graph, the vertical intercept of the consumption schedule economy is ________ and the slope is ________.

A) $2;

.18

B) -2;

1

C)

$100; .5

D) $2;

Answer: D 14) Refer

to the diagram below. Consumption will be equal to income at:

A) an

income equal to OF. C) point C.

B) an

income equal to OE. D) point D.

Answer: B

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.9

15) Which

A) C

of the following equations correctly represents the data below?

= 60 + .4Yd

B) C

= 40 + .6Yd

C)

Y d = 40 + .6C

D) C

= .6Yd

Answer: B 16) If

the consumption schedule is linear, then the: A) MPS will decline as income rises. B) MPC will decline as income rises. C) APC will be constant at all levels of income. D) saving schedule will also be linear.

Answer: D 17) As

disposable income increases, consumption: A) increases and saving decreases. C) and saving both decrease.

B) decreases and D)

saving increases. and saving both increase.

Answer: D 18) If

the MPC is .8 and the disposable income is $200, then A) personal consumption expenditures will be $80. B) saving will be $20. C) consumption and saving cannot be determined from the information given. D) saving will be $40.

Answer: C 19) Given

the consumption schedule, it is possible to graph the relevant saving schedule by: the horizontal differences between the consumption schedule and the 45-degree line. B) subtracting investment from consumption at each level of GDP. C) subtracting the MPC from "one" at each level of income. D) plotting the vertical differences between the consumption schedule and the 45-degree line. A) plotting

Answer: D

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20) The

saving schedule is drawn on the assumption that as income increases: A) saving will increase absolutely and as a percentage of income. B) saving will decline absolutely and as a percentage of income. C) saving will increase absolutely, but decline as a percentage of income. D) saving will increase absolutely, but remain constant as a percentage of income.

Answer: A 21) The

saving schedule is such that as aggregate income increases by a certain amount, saving:

A) decreases. B) increases. C) increases

by the same amount as the increase in income. D) does not change. Answer: B 22) Dissaving

means: saving and investment are equal. B) that disposable income is less than zero. C) that households are spending in excess of their current incomes. D) the same thing as disinvesting. A) that

Answer: C 23) Dissaving

occurs where: A) consumption exceeds income. C) income exceeds consumption.

B) saving D)

exceeds income. saving exceeds consumption.

Answer: A 24) At

the point where the consumption schedule intersects the 45-degree line: A) saving is zero. B) saving equals income. C) the APC is zero. D) the MPC equals 1.

Answer: A

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25) Refer

to the above diagram. At income level F the volume of saving is: B) DC. C) BD. - BF.

A) CF

D) AB.

Answer: B 26) Refer

to the above diagram. The economy is dissaving: B) at all income levels greater than E. income level H. C) in the amount CD. D) at income level E. A) at

Answer: A

27) Refer

to the above diagram. At disposable income level D, consumption: B) is equal to CD. equal to CD/OD. C) is equal to CD plus BD. D) is equal to OD minus CD. A) is

Answer: D

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28) Refer

to the above diagram. Consumption equals disposable income when: A) CD equals A. B) disposable income is B. C) disposable income is D. D) B equals CD.

Answer: B

29) Refer

to the above diagram. The break-even level of disposable income: $100. B) is minus $10. C) is zero. D) cannot be determined from the information given. A) is

Answer: A 30) The

equation for the above saving schedule is: A) S = 20 + .8Yd . B) Y d = -20 + .8S.

Answer: D

8

C)

Y d = 20 + .2S.

D) S

= -20 + .2Y d .

31) Refer

to the above diagram. The break-even level of income is: B) 60 C) 120

A) 150

D) zero.

Answer: A 32) Refer

to the above diagram. The equation for the saving schedule is: B) S = 60 + .4Y. C) Y = 60 + .6S. = -60 + .4Y.

A) S

D) S

= .6Y.

Answer: A 33) Which

A) S

of the following equations represents the saving schedule implicit in the data below?

= C - Yd

B) S

= 40 + .6Yd

C)

Answer: C

9

S = -40 + .4Y d

D) S

= 40 + .4Yd

34) Refer

to the diagram below. The average propensity to consume is 1 at point:

A) B.

B) F.

C)

D.

D) A.

Answer: D 35) If

the equation for the consumption schedule is C = 20 + 0.8Y, where C is consumption and Y is disposable income, then the average propensity to consume is 1 when disposable income is: A) $160 B) $100 C) $120 D) $80 Answer: B

36) The

average propensity to consume indicates the: between a change in saving and the consequent change in consumption. B) amount by which income exceeds consumption. C) percentage of total income which will be consumed. D) percentage of a change in income which will be consumed. A) relationship

Answer: C 37) As

disposable income goes up the: of investment can be expected to diminish. B) APC falls. C) volume of consumption declines absolutely. D) APS falls. A) volume

Answer: B

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38) The

APC can be defined as: A) change in income/change in consumption C) change in consumption/change in income

B) income/consumption D)

consumption/income

Answer: D 39) The

APC can be defined as the fraction of a: in income which is spent. B) specific level of total income which is consumed. C) change in income which is not spent. D) specific level of total income which is not consumed. A) change

Answer: B 40) For

all levels of income to the left of the intersection of the 45-degree line and the consumption schedule, the APC is: A) greater than 100 percent. B) less than the APS. C) equal to 100 percent. D) equal to the MPC. Answer: A

41) At

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

Answer: C 42) Suppose

a family's consumption exceeds its disposable income. This means that its: B) APS is positive. is greater than 1. C) MPS is negative. D) MPC is greater than 1. A) APC

Answer: A 43) One

can determine the amount of consumption at any level of total income by: A) multiplying total income by the slope of the consumption schedule. B) multiplying total income by the APC. C) multiplying total income by the MPC. D) subtracting the MPS from total income.

Answer: B 44) As

aggregate income decreases, the APC: A) will increase, but the APS will decrease. C) will decrease, but the APS will increase.

B) and D)

APS will both decrease. and APS will both increase.

Answer: A 45) As

aggregate income increases, the APC: decrease, but the APS will increase. C) and APS will both decrease. A) will

B) will

increase, but the APS will decrease. D) and APS will both increase.

Answer: A

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46) Refer

to the above diagram. The MPC and APC are both constant as income increases for: B) C 1 and C2 only. only. C) none of the consumption schedules shown. D) C 3 and C4 only. A) C 3

Answer: A 47) Refer

to the above diagram. The APC diminishes as income increases for: A) none of the consumption schedules shown. B) C 1 , and C2 . C) C 3 only. D) C 4 only.

Answer: B 48) Refer

to the above diagram. The MPC is constant as income rises for: B) none of the consumption schedules shown. only. C) C 3 only. D) C 1 , C 2 , and C3 only. A) C 4

Answer: D 49) Holly's

break-even level of income is $10,000 and her MPC is 0.75. If her actual disposable income is $16,000, her level of: A) consumption spending will be $14,500. B) saving will be $2,500. C) consumption spending will be $13,000. D) consumption spending will be $4,500. Answer: A

50) If

Smith's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, it may be concluded that her marginal propensity to: A) consume is one-half. B) consume is three-fifths. C) save is three-fifths. D) consume is one-sixth. Answer: B

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51) With

an MPS of .4, the MPC will be: A) 1.0 minus .4. C) .4 minus 1.0.

B) the D)

reciprocal of the MPS.

.4.

Answer: A 52) The

MPC can be defined as the fraction of a: in income which is not spent. C) change in income which is spent. A) change

B) given

total income which is consumed. D) given total income which is not consumed.

Answer: C 53) If

Ben's MPC is .80, this means that he will: A) save eight-tenths of any level of disposable income. B) spend eight-tenths of any increase in his disposable income. C) break even when his disposable income is $8,000. D) spend eight-tenths of any level of disposable income.

Answer: B 54) The

diagram below shows two different consumption schedules. We can say that the:

A) MPC

is greater in A than in B. is greater in B than in A. C) MPS is smaller in B than in A. D) APC at any given income level is greater in B than in A. B) MPC

Answer: A

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55) Refer

to the above data. The marginal propensity to consume is: B) .80. C) .20.

A) .75.

D) 0.25

Answer: B 56) Refer

to the above data. At the $200 level of disposable income: average propensity to consume is .80. B) dissaving is $5. C) the average propensity to save is .20. D) the marginal propensity to save is 2 1/2 percent. A) the

Answer: B

57) Refer

to the above diagram. The marginal propensity to consume is equal to: B) CB/AB. C) AE/0E.

A) CD/CF. Answer: B

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D) CF/CD.

58) Refer

to the above diagram. The marginal propensity to save is: A) CB/AF. B) CD/EF. C) EF/CB.

D) CB/CF.

Answer: B

59) Refer

to the above data. The marginal propensity to consume is: A) .25. B) .80. C) .20.

D) .75.

Answer: B 60) Refer

to the above data. At the $100 level of income, the average propensity to save is: B) .20. C) .90. D) .10.

A) .25.

Answer: D 61) Refer

to the above data. The slope of the saving schedule is: B) .20. C) .15.

A) .80.

D) .10.

Answer: B

62) Refer

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

A) CD/0D. Answer: B

15

D) 0D/0D.

63) Refer

to the above diagram. At disposable income level D, the average propensity to save is equal

to: A) CD/OD.

B) OD/CD.

C)

CD/BD.

D) OA/OB.

Answer: A

Following is consumption schedules for three private closed economies. DI signifies disposable income and C rep consumption expenditures. All figures are in billions of dollars.

64) Refer

to the above data. The marginal propensity to consume in economy (1): A) is .3. B) is .7. C) is .8.

D) is

.5.

Answer: B 65) 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.

Answer: C 66) Refer

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

Answer: C 67) Refer

to the above data. At an income level of $40 billion, the average propensity to consume: B) is highest in economy (1). highest in economy (3). C) is highest in economy (2). D) cannot be determined from the data given. A) is

Answer: C 68) Refer

to the above data. At an income level of $400 billion, the average propensity to save in economy (2) is: A) .9305. B) .0875. C) .0725. D) .9125. Answer: B

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69) Refer

to the above data. Suppose that consumption increased by $2 billion at each level of DI in each of the three countries. We can conclude that the: A) average propensity to save will fall at each level of DI in each of the three countries. B) marginal propensity to consume will remain unchanged in each of the three countries. C) marginal propensity to save will rise in each of the three countries. D) marginal propensity to consume will decline in each of the three countries. Answer: B

70) Refer

to the above diagram. The marginal propensity to consume is: B) .2. C) .4.

A) .8.

D) .3.

Answer: A 71) Refer

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

Answer: C 72) Which

of the following is correct? B) APS + MPC = 1. + MPS = 1.

A) APC

Answer: C

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C)

APC + APS = 1.

D) APS

+ MPS = 1.

73) Refer

to the data below. The MPS is:

A) 2/5.

B) 7/10.

C)

3/10.

D) 3/5.

Answer: C 74) The

consumption schedule is such that: MPC and APC must be equal at all levels of income. B) both the APC and the MPC increase as income rises. C) the MPC is constant and the APC declines as income rises. D) the APC is constant and the MPC declines as income rises. A) the

Answer: C 75) The

MPC for an economy is: divided by the slope of the savings schedule or line. B) the slope of the savings schedule or line. C) 1 divided by the slope of the consumption schedule or line. D) the slope of the consumption schedule or line. A) 1

Answer: D...