1. Macroeconomic Measurement & Basic Concepts
Chapter 8 Review
Macroeconomic Measurement
&
Basic Concepts

2. With an MPS of .5, the MPC will be:
 1.0 minus .5

3. The most important determinant of consumption and saving is:
level of income.

4. As disposable income goes up the
APC falls

5. Which fiscal policy actions would be most effective in combating a recession
Taxes decrease
Government Spending increase

6. The consumption schedule relates:
consumption to the level of disposable income

7.   The consumption schedule in the above diagram indicates that:  up to a point consumption exceeds income, but then falls below income.

8. APC + APS = 1

9. The sector of the economy that is responsible for Consumption is:
the Household sector

10. The relationship between consumption and disposable income is such that:
 a direct and relatively stable relationship exists between consumption and income.

11. If the Government increases Government Purchases by $800 billion dollars and increases taxes by $800 billion dollars the effect on GDP will be
positive.

12. If the marginal propensity to consume is three quarters, then an increase in personal income taxes of $100 will most likely result in
a decrease in consumption of $75 and a decrease in savings of $25.

13. The spending multiplier will have an effect on any new, additional spending in the component(s) of
Investment and Government Purchases

14. MPC is greater in A than in B.

15. If X’s MPC is .0, this means that X will:
spend seven-tenths of any increase in its disposable income.

16. Dissaving occurs where:
consumption exceeds income.

17. The saving schedule is drawn on the assumption that as income increases:
 saving will increase absolutely and as a percentage of income.

18. If the marginal propensity to consume is
If the marginal propensity to consume is .9, then the marginal propensity to save must be:
 .1

19. The greater is the marginal propensity to consume, :
The smaller is the marginal propensity to save.

20. In the late 1990s the U. S. stock market boomed, causing U. S
In the late 1990s the U.S. stock market boomed, causing U.S. consumption to rise.
wealth effect.

21. The wealth effect is shown graphically as a:
 rightward shift of the consumption schedule.

22. MPS/MPC Marginal propensity to save (MPS) change in saving =
change in income
Marginal propensity to consume (MPC)
change in consumption

23. The investment demand slopes downward and to the right because lower real interest rates:
 enable more investment projects to be undertaken profitably.

24. An increase in the real rate of interest will
reduce the level of investment.

25. The investment demand curve suggests:
there is an inverse relationship between the real rate of interest and the level of investment spending.

26. A decrease in corporate income taxes will:
shift the investment-demand curve to the right.

27. Investment spending in the United States tends to be unstable because:
 profits are highly variable.

28. Capital goods, because their purchases can be postponed like durable consumer goods, tend to contribute to instability in investment spending. 

29. The multiplier is:
 1/MPS Or
1/(1 MPC)

30. Which economy has the highest marginal propensity to consume? 4 
Which economy has the largest multiplier?  4

31. The practical significance of the multiplier is that it:
 magnifies initial changes in spending into larger changes in GDP.

32. If the MPC is 0.75 and gross investment increases by $8 billion, GDP will increase by