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CHAPTER 9
Basic Macroeconomic Relationships

TopicQuestion numbers
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1.Consumption function/APC/MPC1-39
2.Saving function/APS/MPS40-53
3.Shifts in consumption and saving functions54-69
4Graphs/tables: mixed consumption and saving70-106
5.Investment demand107-145
6.Multiplier effect146-181
Consider This182-183
Last Word184-185
True-False186-200
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Multiple Choice Questions

Consumption function/APC/MPC

Type: A Topic: 1 E: 152 MA: 152
1.The most important determinant of consumer spending is: A)the level of household debt. C)the stock of wealth. B)consumer expectations. D)the level of income.
Answer: D

Type: D Topic: 1 E: 152 MA: 152
2.The most important determinant of consumption and saving is the: A)level of bank credit. B) level of income. C) interest rate. D) price level. Answer: B

Type: A Topic: 1 E: 156 MA: 156
3.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, her marginal propensity to: A)save is three-fifths. C)consume is three-fifths.

B)consume is one-half. D)consume is one-sixth.
Answer: C

Type: A Topic: 1 E: 156 MA: 156
4.With an MPS of .4, the MPC will be:
A)1.0 minus .4. B) .4 minus 1.0. C) the reciprocal of the MPS. D) .4. Answer: A

Type: D Topic: 1 E: 156 MA: 156
5.The MPC can be defined as that fraction of a:
A)change in income that is not spent. C)given total income that is not consumed. B)change in income that is spent. D)given total income that is consumed. Answer: B

Type: A Topic: 1 E: 154 MA: 154
6.The 45-degree line on a graph relating consumption and income shows: A)all points where the MPC is constant.
B)all points at which saving and income are equal.
C)all the points at which consumption and income are equal. D)the amounts households will plan to save at each possible level of income. Answer: C

Type: A Topic: 1 E: 154 MA: 154
7.As disposable income goes up the:
A)APC falls. C)volume of consumption declines absolutely. B)APS falls. D)volume of investment diminishes.
Answer: A

Type: D Topic: 1 E: 153 MA: 153
8.The consumption schedule shows:
A)that the MPC increases in proportion to GDP.
B)that households consume more when interest rates are low. C)that consumption depends primarily on the level of business investment. D)the amounts households plan or intend to consume at various possible levels of aggregate income. Answer: D

Type: D Topic: 1 E: 153 MA: 153
9.The consumption schedule relates:
A)consumption to the level of disposable income. C)disposable income to domestic income. B)saving to the level of disposable income. D)consumption to saving. Answer: A

Type: A Topic: 1 E: 153 MA: 153
10.A decline in disposable income:
A)increases consumption by moving upward along a specific consumption schedule. B)decreases consumption because it shifts the consumption schedule downward. C)decreases consumption by moving downward along a specific consumption schedule. D)increases consumption because it shifts the consumption schedule upward. Answer: C

Type: D Topic: 1 E: 154 MA: 154
11.The APC is calculated as:
A)change in consumption / change in income C)change in income / change in consumption B)consumption / income D)income / consumption
Answer: B

Type: A Topic: 1 E: 153 MA: 153
12.The consumption schedule shows:
A)a direct relationship between aggregate consumption and accumulated...
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