Notes About Econ

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The marginal propensity to consume (MPC) is defined as
the additional consumption that results from one dollar increase in disposable income.

Bill's disposable income goes from $100,000 in 2001 to $200,000 in 2002, and his consumption spending goes from $80,000 in 2001 to $140,000 in 2002. Which of the following statements about Bill is true?

Bill's MPC is equal to 0.6.

Which of the following changes in disposable income would lead to the greatest increase in consumption?
a $20,000 increase in disposable income, if MPC equals 0.5


Refer to Exhibit 26-1. Which of the following would tend to move consumer spending from A to B?
increase in debt

Marginal propensity to consume is equal to the change in __________ divided by the change in __________.
consumption spending; disposable income

Marginal propensity to save is equal to the change in __________ divided by the change in __________.
saving; disposable income

Assume that autonomous expenditures in an economy decreased by $10 billion. What is the change in aggregate demand at a given price level if the MPC is 0.5?
decrease by $20 billion

The actual multiplier for the U.S. economy is thought to be:
about 2

How does a change in taxes primarily affect aggregate demand?
A tax change alters disposable income and consumption spending.

Contractionary fiscal policy consists of:
decreased government purchases, increased taxes, decreased transfer payments.

Which of the following measures is associated with an expansionary fiscal policy?
lowering taxes

__________ refers to a chain reaction of additional income and purchases that results in total purchases that are greater than the initial increase in purchases.
Multiplier effect

The federal government buys $15 million worth of surplus farm products from the nation's farmers in order to provide food supplements for the subsidized milk and lunch program. If the MPC is .90 what will be the impact on aggregate...
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