15. Suppose that there is no government and no international trade. When C + I i
ID: 1138572 • Letter: 1
Question
15. Suppose that there is no government and no international trade.
When C + I is less than the level of real GDP,
A. unplanned inventories equal zero, and there is no change in the level of real GDP.
B. unplanned inventories increase, and real GDP contracts.
C. real planned investment spending equals real planned saving.
D. unplanned inventories decrease, and real GDP expands.
16. Using real GDP on the horizontal axis instead of real disposable income implies that a marginal propensity to consume 0.8 generates for every additional $100 of real GDP
A. $18 of additional saving.
B. $80 of additional consumption spending.
C. $80 of additional real disposable income.
D. $20 of additional saving and taxes.
17. Aging baby-boomers, predisposed to hearing loss because of years of listening to loud music, are now approaching the age range in which hearing loss starts to become apparent.
What effect does this have on investment spending within the hearing aid industry?
A. There will no longer be an opportunity cost associated with investment spending.
B. There will be no change in real investment spending, because hearing aid manufacturers will look only at the interest rate in determining whether to expand production.
C. The investment function relating planned real investment spending to the interest rate can be expected to shift leftward.
D. The investment function relating planned real investment spending to the interest rate can be expected to shift rightward.
18. If real disposable income increases, the average propensity to consume will
A. increase.
B. remain constant.
C. decrease.
D. initially increase, and then decrease.
19. Which of the following statements is FALSE?
A. Consumption = saving - disposable income
B. Saving = disposable income consumption
C. Disposable income - saving = consumption
D. Consumption + saving = disposable income
20. Suppose that when disposable income increases by $2,000, consumption spending increases by $1,500. Given this information, we know that the marginal propensity to consume (MPC) is
A. 4.
B. 0.25.
C. 1.33.
D. 0.75.
21. The investment function would shift outward to the right if
A. real disposable income decreased.
B. interest rates decreased.
C. there was a decrease in business taxes.
D. there was more uncertainty about future economic conditions.
22.If saving equals $200 when real disposable income equals $1,000, the break-even income is
A. equal to $1,000.
B. greater than $1,000.
C. less than $1,000.
D. cannot be determined using the above information.
Explanation / Answer
15) B. unplanned inventories increase, and real GDP contracts.
16) D. $20 of additional saving and taxes.
17) D. The investment function relating planned real investment spending to the interest rate can be expected to shift rightward.
18) C. Increase, The proportion of disposable income which individuals spend on consumption is known as the propensity to consume. MPC is the proportion of additional income that an individual consumes
19) A. Consumption = saving - disposable income, All other statements are true for the equation
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