Econ 1030 - Principles of Microeconomics » Summer 2021 » Test 4

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Question #1
The most important determinant of consumption and saving is the:
A.   level of bank credit.
B.   interest rate.
C.   level of income.
D.   price level.
Question #2
If Carol'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.   consume is one-half.
B.   consume is three-fifths.
C.   save is three-fifths.
D.   consume is two-fifths.
Question #3
The 45-degree line on a graph relating consumption and income shows:
A.   all the points at which consumption and income are equal.
B.   the amounts households will plan to save at each possible level of income.
C.   all the points at which saving and income are equal.
D.   all the points where the MPC is constant.
Question #4
The consumption schedule shows:
A.   that consumption depends primarily on the level of business investment.
B.   that households consume more when interest rates are low.
C.   that the MPC increases in proportion to GDP.
D.   the amounts households intend to consume at various possible levels of aggregate income.
Question #5
The APC is calculated as:
A.   change in income/change in consumption.
B.   change in consumption/change in income.
C.   consumption/income.
D.   income/consumption.
Question #6
The MPC for an economy is:
A.   1 divided by the slope of the savings schedule or line.
B.   1 divided by the slope of the consumption schedule or line.
C.   the slope of the savings schedule or line.
D.   the slope of the consumption schedule or line.
Question #7
Which one of the following will cause a movement down along an economy's consumption schedule?
A.   A decrease in disposable income.
B.   An increase in consumer indebtedness.
C.   A decrease in stock prices.
D.   An increase in stock prices.
Question #8
Dissaving occurs where:
A.   income exceeds consumption.
B.   saving exceeds consumption.
C.   saving exceeds income.
D.   consumption exceeds income.
Question #9
At the point where the consumption schedule intersects the 45-degree line:
A.   the MPC equals 1.
B.   saving is zero.
C.   saving equals income.
D.   the APC is zero.
Question #10
If the marginal propensity to consume is .9, then the marginal propensity to save must be:
A.   -0.9
B.   0.1
C.   1
D.   1.1
Question #11
If the marginal propensity to consume is 0.9, the multiplier is:
A.   mone of these
B.   10
C.   9
D.   1
Question #12
In the late 1990s, the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the:
A.   wealth effect.
B.   multiplier effect.
C.   Keynes effect.
D.   interest-rate effect.
Question #13
Which of the following will not tend to shift the consumption schedule upward?
A.   The expectation of a future decline in the consumer price index.
B.   A currently low level of household debt.
C.   A currently small stock of durable goods in the possession of consumers.
D.   The expectation of future shortages of essential consumer goods.
Question #14
If for some reason households become increasingly thrifty, we could show this by:
A.   a downshift of the saving schedule.
B.   an upward shift of the saving schedule.
C.   an upward shift of the consumption schedule.
D.   a movement down along a stable consumption function.
Question #15
The investment demand curve portrays an inverse (negative) relationship between:
A.   the price level and the level of investment spending..
B.   the real interest rate and the level of investment spending..
C.   the nominal interest rate and the level of investment spending..
D.   the level of investment spending and real GDP..
Question #16
Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is:
A.   2 percent.
B.   20 percent.
C.   8 percent.
D.   80 percent.
Question #17
A decline in the real interest rate will:
A.   shift the investment schedule downward.
B.   shift the investment demand curve to the left.
C.   shift the investment demand curve to the right.
D.   increase the amount of investment spending.
Question #18
The immediate determinants of investment spending are the:
A.   expected rate of return on capital goods and the real interest rate.
B.   marginal propensity to consume and the real interest rate.
C.   level of saving and the real interest rate.
D.   interest rate and the expected price level.
Question #19
Other things equal, a 10 percent decrease in corporate income taxes will:
A.   have no effect on the location of the investment-demand curve.
B.   shift the investment-demand curve to the left.
C.   shift the investment-demand curve to the right.
D.   decrease the market price of real capital goods.
Question #20
The real interest rate is:
A.   usually higher than the nominal interest rate.
B.   also called the after-tax interest rate.
C.   the percentage increase in money that the lender receives on a loan.
D.   the percentage increase in purchasing power that the lender receives on a loan.
Question #21
If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:
A.   18 percent.
B.   24 percent.
C.   12 percent.
D.   6 percent.
Question #22
A high rate of inflation is likely to cause a:
A.   low nominal interest rate.
B.   decrease in nominal wages.
C.   low rate of growth of nominal GDP.
D.   high nominal interest rate.
Question #23
Investment spending in the United States tends to be unstable because:
A.   innovation occurs at an irregular pace.
B.   capital goods are durable, expected profits are highly variable, and innovation occurs at an irregular pace.
C.   capital goods are durable.
D.   expected profits are highly variable.
Question #24
The multiplier effect means that:
A.   an increase in investment can cause GDP to change by a larger amount.
B.   consumption is typically several times as large as saving.
C.   a change in consumption can cause a larger increase in investment.
D.   a decline in the MPC can cause GDP to rise by several times that amount.
Question #25
The multiplier is useful in determining the:
A.   full-employment unemployment rate
B.   level of business inventories.
C.   change in the rate of inflation from a change in the interest rate.
D.   change in GDP resulting from a change in spending.
Question #26
(Consider This) During the Great Recession of 2007-2009, both real interest rates and investment spending declined. This suggests that:
A.   the investment demand curve shifted inward.
B.   firms were optimistic about future sales.
C.   purchases of capital from abroad increased, and these were not reflected in investment spending figures for that period.
D.   the investment demand curve was positively sloped during this period.
Question #27
John Maynard Keynes created the aggregate expenditures model based primarily on what historical event?
A.   Great Depression.
B.   Economic expansion of the 1920s
C.   Spectacular economic growth during World War II.
D.   Bank panic of 1907
Question #28
The aggregate expenditures model is built upon which of the following assumptions?
A.   Government spending policy has no ability to affect the level of output.
B.   Prices are fixed.
C.   The economy is at full employment.
D.   Prices are fully flexible.
Question #29
In the United States from 1929 to 1933, real GDP _____________ and the unemployment rate ________________.
A.   increased by 21 percent; fell to 2 percent
B.   declined by 40 percent; rose to 50 percent
C.   declined by 27 percent; rose to 25 percent
D.   declined by 21 percent; rose to 27 percent
Question #30
In the aggregate expenditures model, it is assumed that investment:
A.   does not respond to changes in interest rates.
B.   automatically changes in response to changes in real GDP.
C.   changes by less in percentage terms than changes in real GDP.
D.   does not change when real GDP changes.
Question #31
If at some level of GDP the economy is experiencing an unintended decrease in inventories:
A.   the aggregate level of saving will decline.
B.   domestic output will increase.
C.   the business sector will lay off workers.
D.   the price level will fall.
Question #32
In the aggregate expenditures model, technological progress will shift the investment schedule:
A.   upward and decrease aggregate expenditures.
B.   upward and increase aggregate expenditures.
C.   downward and decrease aggregate expenditures.
D.   downward and increase aggregate expenditures.
Question #33
Imports have the same effect on the current size of GDP as:
A.   exports.
B.   saving.
C.   consumption.
D.   investment.
Question #34
If the dollar appreciates relative to foreign currencies, we would expect:
A.   a country's exports and imports to both fall
B.   a country's net exports to fall.
C.   the multiplier to decrease.
D.   a country's net exports to rise.
Question #35
Other things equal, a serious recession in the economies of U.S. trading partners will:
A.   have no perceptible impact on the U.S. economy.
B.   stimulate real output and employment in the U.S. economy.
C.   depress real output and employment in the U.S. economy.
D.   cause inflation in the U.S. economy.
Question #36
The aggregate demand curve is:
A.   horizontal when there is considerable unemployment in the economy.
B.   downsloping because of the interest-rate, real-balances, and foreign purchases effects.
C.   vertical under conditions of full employment.
D.   downsloping because production costs decrease as real output rises.
Question #37
  
A.   an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.
B.   an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.
C.   a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending.
D.   an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending.
Question #38
The real-balances effect indicates that:
A.   a higher price level will increase the real value of many financial assets and therefore increase spending.
B.   an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending.
C.   a lower price level will decrease the real value of many financial assets and therefore reduce spending.
D.   a higher price level will decrease the real value of many financial assets and therefore reduce spending.
Question #39
The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:
A.   increase both U.S. imports and U.S. exports.
B.   increase U.S. imports and decrease U.S. exports.
C.   decrease both U.S. imports and U.S. exports.
D.   increase the amount of U.S. real output purchased.
Question #40
The determinants of aggregate demand:
A.   include input prices and resource productivity.
B.   demonstrate why real output and the price level are inversely related.
C.   explain why the aggregate demand curve is downsloping.
D.   explain shifts in the aggregate demand curve.
Question #41
Which one of the following would not shift the aggregate demand curve?
A.   A change in the price level.
B.   A decline in the interest rate at each possible price level.
C.   An increase in personal income tax rates.
D.   Depreciation of the international value of the dollar.
Question #42
Which of the following would most likely shift the aggregate demand curve to the right?
A.   Increased fear that a recession will cause workers to lose their jobs.
B.   An increase in stock prices that increases consumer wealth.
C.   An increase in personal income tax rates.
D.   A reduction in household borrowing because of tighter lending practices.
Question #43
Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)?
A.   An appreciation of the U.S. dollar.
B.   A reduced amount of excess capacity.
C.   Increased consumer optimism regarding future economic conditions.
D.   Increased government spending on military equipment.
Question #44
What percentage of the average U.S. firm's costs are accounted for by wages and salaries?
A.   75
B.   40
C.   60
D.   85
Question #45
Which one of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left?
A.   A reduction in business taxes.
B.   Deregulation of industry.
C.   An increase in the price of imported resources.
D.   Production bottlenecks occurring when producers near full plant capacity.
Question #46
Productivity measures:
A.   per-unit production costs.
B.   real output per unit of input
C.   the changes in real wealth caused by price level changes.
D.   the amount of capital goods used per worker.
Question #47
The economy's long-run aggregate supply curve:
A.   slopes downward and to the right.
B.   is horizontal.
C.   is vertical.
D.   slopes upward and to the right.
Question #48
Graphically, demand-pull inflation is shown as a:
A.   rightward shift of the AD curve along a downsloping AS curve.
B.   leftward shift of the AS curve along a downsloping AD curve.
C.   leftward shift of the AS curve along an upsloping AD curve.
D.   rightward shift of the AD curve along an upsloping AS curve.
Question #49
Graphically, cost-push inflation is shown as a:
A.   rightward shift of the AD curve.
B.   leftward shift of the AD curve.
C.   leftward shift of the AS curve.
D.   rightward shift of the AS curve.
Question #50
Graphically, the full-employment, low-inflation, rapid-growth economy of the last half of the 1990s is depicted by a:
A.   leftward shift of the aggregate demand curve and a leftward shift of the aggregate supply curve.
B.   rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve.
C.   rightward shift of the aggregate demand curve along a fixed aggregate supply curve.
D.   rightward shift of the aggregate supply curve along a fixed aggregate demand curve.
Question #51
A rightward shift of the AD curve in the very steep upper part of the short-run AS curve will:
A.   reduce the price level by more than real output.
B.   reduce real output by more than the price level.
C.   increase the price level by more than real output.
D.   increase real output by more than the price level.

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