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Exam Name___________________________________

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

1) The MPC is A) the change in consumption divided by the change in income. B) the change in consumption divided by the change in saving. C) the change in saving divided by the change in income. D) consumption divided by income.

1)

2) The Tiny Tots Toy Company manufactures only sleds. In 2016 Tiny Tots manufactured 10,000 sleds, but sold only 8,000 sleds. In 2016 Tiny Tots' change in inventory was A) - 2,000 sleds. B) 1,000 sleds. C) 2,000 sleds. D) 3,000 sleds.

2)

3) If planned investment is perfectly unresponsive to changes in the interest rate, the planned investment schedule A) has a positive slope. B) has a negative slope. C) is horizontal. D) is vertical.

3)

4) In macroeconomics, equilibrium is defined as that point at which A) planned aggregate expenditure equals consumption. B) aggregate output equals consumption minus investment. C) planned aggregate expenditure equals aggregate output. D) saving equals consumption.

4)

5) The ratio of the change in the equilibrium level of output to a change in some autonomous variable is the A) elasticity coefficient. B) multiplier. C) marginal propensity of the autonomous variable. D) automatic stabilizer.

5)

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Refer to the information provided in Figure 8.11 below to answer the questions that follow.

Figure 8.11

6) Refer to Figure 8.11. The equation for the aggregate expenditure function AE0 is A) AE0 = 50 + 0.6Y. B) AE0 = 50 + 0.75Y. C) AE0 = 80 + 0.6Y. D) AE0 = 50 + 0.4Y. 7) Refer to Figure 8.11. The value of the multiplier is A) 2. B) 2.5.

6)

7) C) 3.

D) 4.

8) Refer to Figure 8.11. A $10 million increase in investment changes equilibrium output to A) $240 million. B) $225 million. C) $175 million. D) $90 million.

8)

9) Refer to Figure 8.11. A $20 million decrease in autonomous consumption A) will change the MPC. B) changes equilibrium output to $180 million. C) changes equilibrium expenditure to $120 million. D) will change the MPS.

9)

10) Refer to Figure 8.11. If MPC increases to 0.8, equilibrium aggregate output A) remains at $200 million. B) increases to $250 million. C) increases to $400 million. D) cannot be determined from the given information.

10)

11) Refer to Figure 8.11. [50 + 0.75Y] represents the A) MPC. C) MPS.

11) B) aggregate expenditures function. D) autonomous consumption function.

12) Refer to Figure 8.11. On this graph, 4 represents the A) MPS. B) break even income level. C) MPC. D) multiplier.

12)

13) Refer to Figure 8.11. A ________ increase in investment changes equilibrium output to $240 million 13) A) $5 million B) $10 million C) $20 million D) $50 million

2

14) Refer to Figure 8.11. A $10 million decrease in autonomous consumption A) changes equilibrium output to $120 million. B) increases the MPC. C) increases the MPS. D) changes equilibrium expenditure to $160 million.

14)

15) Refer to Figure 8.11. Equilibrium aggregate output will increase to $250 million if the A) multiplier increases to 8. B) MPC increases to 0.8. C) MPS increases to 0.8. D) all of the above

15)

16) Assuming no government or foreign sector, if the MPC is 0.9, the multiplier is A) 0.1. B) 5. C) 9. D) 10.

16)

17) Assuming no government or foreign sector, the formula for the multiplier is A) 1/MPS. B) 1 - MPC. C) 1/(1 + MPC).

17) D) 1/MPC.

18) Assuming there is no government or foreign sector, the formula for the multiplier is A) 1/MPC. B) 1 - MPC. C) 1/(1 - MPC). D) 1/(1 + MPC).

18)

19) Assuming there is no government or foreign sector, if the multiplier is 10, the MPC is A) 0.9. B) 0.8. C) 0.5. D) 0.1.

19)

20) Assume there is no government or foreign sector. If the MPS is 0.05, the multiplier is A) 0.95. B) 10. C) 20. D) 50.

20)

21) Assume there is no government or foreign sector. If the multiplier is 10, a $10 billion increase in planned investment will cause aggregate output to increase by A) $1 billion. B) $5 billion. C) $10 billion. D) $100 billion.

21)

22) Assume there is no government or foreign sector. If the MPS is 0.2, a $40 billion decrease in planned investment will cause aggregate output to decrease by A) $20 billion. B) $50 billion. C) $80 billion. D) $200 billion.

22)

23) Assume there is no government or foreign sector. If the multiplier is 4, a $20 billion increase in investment will cause aggregate output to increase by A) $5 billion. B) $20 billion. C) $40 billion. D) $80 billion.

23)

3

Refer to the information provided in Figure 8.12 below to answer the questions that follow.

Figure 8.12

24) Refer to Figure 8.12. What is the equation for aggregate expenditure AE1 ? A) AE1 = 400 + 0.4Y. B) AE1 = 1,000 + 0.6Y. C) AE1 = 1,000 + 0.5Y.

24)

D) AE1 = 600 + 0.4Y.

25) Refer to Figure 8.12. Suppose AE1 , AE2 and AE3 are parallel. What is the value of Point B? A) $750 million B) $800 million C) $900 million D) cannot be determined from the given information

25)

26) Refer to Figure 8.12. Suppose AE1 , AE2 and AE3 are parallel. What is the value of Point A? A) $450 million B) $510 million C) $540 million D) cannot be determined from the given information

26)

27) Refer to Figure 8.12. Suppose the economy's aggregate expenditure line is AE1 . A $10 million increase in planned investment causes aggregate equilibrium output to increase to A) $1,010.0 million. B) $1,016.7 million. C) $1,125.5 million. D) $1,215.6 million.

27)

28) Refer to Figure 8.12. [600 + 0.4Y] represents the A) saving function. C) aggregate expenditures function.

28) B) equilibrium function. D) multiplier function.

29) Refer to Figure 8.12. Suppose AE1 , AE2 and AE3 are not parallel. What is the value of Point B? A) $900 million B) $800 million C) $700 million D) cannot be determined from the given information

4

29)

30) Refer to Figure 8.12. Suppose AE1 , AE2 and AE3 are not parallel. What is the value of Point A?

30)

A) $540 million B) $510 million C) $450 million D) cannot be determined from the given information 31) Refer to Figure 8.12. Suppose the economy's aggregate expenditure line is AE2 . A $10 million increase in planned investment causes aggregate equilibrium output to increase to A) $1,440.5 million. B) $1,510 million. C) $1,516.7 million. D) $1,525 million.

31)

32) As the MPS decreases, the multiplier will A) decrease. B) increase. C) remain constant. D) either increase or decrease depending on the size of the change in investment.

32)

33) Midwest State University in Nebraska is trying to convince Nebraska taxpayers that the tax dollars spent at Midwest State University are well spent. One of the university's arguments is that for ever $1 spent by Midwest State University an additional $5 of expenditures are generated within Nebraska. Midwest State University is arguing that the multiplier for their expenditures is A) 0.2. B) 1. C) 4. D) 5.

33)

34) If autonomous consumption increases, the size of the multiplier would A) decrease. B) increase. C) remain constant. D) either increase or decrease depending on the size of the change in autonomous consumption.

34)

35) In practice, the actual size of the multiplier is about A) 1. B) 1.4.

35) C) 2.

D) 4.

36) Related to the Economics in Practice on p. 156: According to the "paradox of thrift," as individuals increase their saving, A) income in the economy increases because interest rates will fall and the economy will expand B) income in the economy will remain constant because the change in consumption equals the change in saving. C) income in the economy will fall because the decreased consumption that results from increased saving causes the economy to contract. D) income in the economy increases because there is more money available for firms to invest.

36)

37) Related to the Economics in Practice on p. 156: According to the "paradox of thrift," increased efforts to save will cause a(n) A) increase in income and an increase in overall saving. B) decrease in income but an increase in saving. C) increase in income but no overall change in saving. D) decrease in income and an overall decrease in saving.

37)

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38) The multiplier is the ratio of the change in ________ to a change in ________. A) the level of saving; the level of consumption B) autonomous consumption; induced consumption C) the MPC; the MPS D) the equilibrium level of output; some autonomous variable

38)

39) Assuming no government or foreign sector, if the MPC is 0.5, the multiplier is A) 0.2. B) 0.5. C) 2. D) 5.

39)

40) Assuming no government or foreign sector, [1 /MPS] represents A) the consumption function. B) autonomous income. C) the multiplier. D) negative saving.

40)

41) Assuming there is no government or foreign sector, [1 /1- MPC] represents A) the saving function. B) the consumption function. C) the multiplier. D) break even income.

41)

42) Assuming there is no government or foreign sector, if the multiplier is 5, the MPC is A) 0.4. B) 0.5. C) 0.8. D) 5.

42)

43) Assume there is no government or foreign sector. If the MPS is 0.25, the multiplier is A) 0.75. B) 2.5. C) 4. D) 5.

43)

44) Assume there is no government or foreign sector. If the multiplier is 2, a $20 billion increase in planned investment will cause aggregate output to increase by A) $5 billion. B) $10 billion. C) $20 billion. D) $40 billion.

44)

45) Assume there is no government or foreign sector. If the MPS is 0.10, a $20 billion decrease in planned investment will cause aggregate output to decrease by A) $20 billion. B) $50 billion. C) $100 billion. D) $200 billion.

45)

46) Assume there is no government or foreign sector. If the multiplier is 5, a $4 billion increase in investment will cause aggregate output to increase by A) $125 billion. B) $80 billion. C) $50 billion. D) $20 billion.

46)

47) As the MPS increases, the multiplier will A) decrease. B) increase. C) remain constant. D) either increase or decrease depending on the size of the change in investment.

47)

48) Mudbug College in Louisiana is trying to convince Louisiana taxpayers that the tax dollars spent at 48) Mudbug College are well spent. One of the college's arguments is that for every $1 spent by Mudbug College an additional $4 of expenditures are generated within Louisiana. Mudbug College is arguing that the multiplier for their expenditures is A) 0.25. B) 1. C) 4. D) 25.

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49) If autonomous consumption decreases, the size of the multiplier would A) decrease. B) increase. C) remain constant. D) either increase or decrease depending on the size of the change in autonomous consumption.

49)

50) In practice, the actual size of the ________ is about 2. A) MPC B) saving function C) MPS

50) D) multiplier

51) Related to the Economics in Practice on p. 156: According to the "paradox of thrift," as individuals decrease their saving A) income in the economy will remain constant because the change in consumption equals the change in saving. B) income in the economy will rise because the increased consumption that results from decreased saving causes the economy to expand. C) income in the economy decreases because interest rates will rise and the economy will contract. D) income in the economy decreases because there is less money available for firms to invest.

51)

52) Related to the Economics in Practice on p. 156: According to the "paradox of thrift," decreased efforts to save will cause a(n) A) increase in income but no overall change in saving. B) decrease in income but an increase in saving. C) increase in income and an increase in overall saving. D) decrease in income and an overall decrease in saving.

52)

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

53) The larger the MPC, the smaller the multiplier.

53)

54) The smaller the MPS, the larger the multiplier.

54)

55) If the MPC is 0.75, then the multiplier is 4.

55)

56) If the MPS is 0.1, then the multiplier is 10.

56)

57) An increase in the MPC, reduces the multiplier.

57)

58) Related to the Economics in Practice on p. 156: The paradox of thrift is that all people deciding to save more could lead to them saving less.

58)

59) The larger the MPC, the smaller the MPS.

59)

60) The multiplier is equal to 1 /(1 - MPC).

60)

61) If the MPC is 0.8, then the multiplier is 0.2

61)

62) If the MPS is 0.25, then the multiplier is 4.

62)

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63) A multiplier of 1 means the MPS is equal to 1.

63)

64) Related to the Economics in Practice on p. 156. When society as a whole saves more, the result is a drop in income but no increased saving.

64)

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

65) The economy can be in equilibrium if, and only if, A) planned investment is zero. B) planned investment equals actual investment. C) actual investment is zero. D) planned investment is greater than actual investment.

65)

66) If aggregate output is greater than planned spending, then A) actual investment equals planned investment. B) unplanned inventory investment is negative. C) unplanned inventory investment is positive. D) unplanned inventory investment is zero.

66)

67) If unplanned inventory investment is positive, then A) planned investment must be zero. B) planned aggregate spending must be less than aggregate output. C) planned aggregate spending must equal aggregate output. D) planned aggregate spending must be greater than aggregate output.

67)

68) If aggregate output equals planned aggregate expenditure, then A) unplanned inventory investment is zero. B) actual investment is greater than planned investment. C) unplanned inventory adjustment is positive. D) unplanned inventory adjustment is negative.

68)

Refer to the information provided in Table 8.7 below to answer the questions that follow. Table 8.7 Aggregate Output 200 400 600 800 1,000

All Figures in Billions of Dollars Aggregate Consumption Planned Investment 300 100 450 100 600 100 750 100 900 100

69) Refer to Table 8.7. At an aggregate output level of $400 billion, planned expenditure equals A) $450 billion. B) $500 billion. C) $550 billion. D) $850 billion.

69)

70) Refer to Table 8.7. At an aggregate output level of $800 billion, aggregate saving A) equals - $50 billion. B) equals $0. C) equals $50 billion. D) cannot be determined from this information.

70)

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71) Refer to Table 8.7. At an aggregate output level of $200 billion, the unplanned inventory change is A) - $200 billion. B) - $150 billion. C) - $50 billion. D) $100 billion.

71)

72) Refer to Table 8.7. At an aggregate output level of $600 billion, the unplanned inventory change is A) - $100 billion. B) - $50 billion. C) $0. D) $50 billion.

72)

73) Refer to Table 8.7. If aggregate output equals ________, there will be a $100 billion unplanned decrease in inventories. A) $200 billion B) $400 billion C) $600 billion D) $800 billion

73)

74) Refer to Table 8.7. The equilibrium level of aggregate output equals A) $400 billion. B) $600 billion. C) $800 billion.

74) D) $1,000 billion.

75) Refer to Table 8.7. Which of the following statements is false? A) The MPC for this economy is 0.75. B) At an output level of $400 billion, there is a $150 billion unplanned inventory decrease. C) At output levels greater than $800 billion, there is a positive unplanned inventory change. D) If aggregate output equals $1000 billion, then aggregate saving equals $100.

75)

76) Refer to Table 8.7. Planned saving equals planned investment at an aggregate output level A) of $1,000 billion. B) of $800 billion. C) of $600 billion. D) that cannot be determined from this information.

76)

77) Refer to Table 8.7. Planned investment equals actual investment at A) all income levels below $600 billion. B) all income levels. C) all income levels above $600 billion. D) $1,000 billion.

77)

Refer to the information provided in Table 8.8 below to answer the questions that follow. Table 8.8 Aggregate Output Aggregate Consumption Planned Investment ($ million) ($ million) ($ million) 3,000 2,000 1,600 4,000 2,800 1,600 5,000 3,600 1,600 6,000 4,400 1,600 7,000 5,200 1,600

78) Refer to Table 8.8. At an aggregate output level of $3,000 million, planned expenditure equals A) $2,800. B) $3,000. C) $3,600. D) $4,400.

78)

79) Refer to Table 8.8. The MPC in this economy is A) 0.5. B) 0.6.

79) C) 0.7.

D) 0.8.

80) Refer to Table 8.8. At an aggregate output level of $4,000 million, the unplanned inventory change is A) $1,200 million. B) $400 million. C) $0. D) - $400 million.

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80)

81) Refer to Table 8.8. At an aggregate output level of $7,000 million, the unplanned inventory change is A) $400 million. B) $0. C) - $400 million. D) - $1,200 million.

81)

82) Refer to Table 8.8. If aggregate output equals ________, there will be a $200 million unplanned decrease in inventories. A) $3,000 million B) $4,000 million C) $5,000 million D) $6,000 million

82)

83) Refer to Table 8.8. The equilibrium level of aggregate output equals A) $3,000 million. B) $4,000 million. C) $5,000 million.

83) D) $6,000 million.

84) Refer to Table 8.8. Which of the following statements is false? A) At an output level of $3,000 million, there is a $600 million unplanned inventory decrease. B) At an output level $4,000 million, there is a $400 million unplanned inventory decrease. C) If aggregate output equals $4,000 million, then aggregate saving equals $1000 million. D) The MPC for this economy is 0.8.

84)

85) Refer to Table 8.8. Planned saving equals planned investment at an aggregate output level of A) $4,000 million. B) $5,000 million. C) $6,000 million. D) $7,000 million.

85)

86) Refer to Table 8.8. Planned investment equals actual investment at A) all income levels above $6,000 million. B) all income levels below $6,000 million C) all income levels. D) an income level of $6,000 million.

86)

87) If C = 100 + 0.8Y and I = 50, then the equilibrium level of income is A) 187.5. B) 375. C) 600.

87) D) 750.

88) If C = 500 + 0.9Y and I = 400, then the equilibrium level of income is A) 900. B) 1,000. C) 1,800.

D) 9,000.<...