Chapter 8 Review

Macroeconomic Measurement&

Basic Concepts

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

• 1.0 minus .

The most important determinant of consumption and saving is:

• level of .

As disposable income goes up the

• APC .

Which fiscal policy actions would be most effective in combating a recession

• Taxes . • Government Spending .

The consumption schedule relates:

• consumption to the level of .

The consumption schedule in the diagram indicates that:

• up to a point consumption income, but then falls below income.

APC + APS =

• .

The sector of the economy that is responsible for Consumption is:

• the sector

The relationship between consumption and disposable income is such that:

• a direct and relatively stable relationship exists between and .

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

• .

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 and a decrease in savings of .

The spending multiplier will have an effect on any new, additional spending in the component(s) of

• and Purchases

• MPC is greater in than in .

If X’s MPC is .70, this means that X will:

• spend of any increase in its disposable income.

Dissaving occurs where:

• consumption income.

The saving schedule is drawn on the assumption that as income increases:

• saving will increase and as a percentage of .

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

• .

The greater is the marginal propensity to consume, :

• The is the marginal propensity to save.

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

• effect.

The wealth effect is shown graphically as a:

• shift of the consumption schedule.

?/?

Marginal propensity to save (MPS)

=change in saving

change in income

Marginal propensity to consume (MPC)

=change in consumption

change in income

The investment demand slopes downward and to the right because lower real interest rates:

• enable more projects to be undertaken profitably.

An increase in the real rate of interest will

• the level of investment.

The investment demand curve suggests:

• there is an relationship between the real rate of interest and the level of investment spending.

A decrease in corporate income taxes will:

• shift the investment-demand curve to the .

Investment spending in the United States tends to be unstable because:

• profits are highly .

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

The multiplier is:

• 1/ .Or • 1/(1 - )

• Which economy has the highest marginal propensity to consume?

• • Which economy has the largest multiplier?

The practical significance of the multiplier is that it:

• initial changes in spending into larger changes in .

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

• $ billion.