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GDP MCQ’s Part 2

11. If a household’s income rises from $46,000 to $46,700 and its consumption spending rises from $35,800 to $36,400, then its

A) marginal propensity to consume is 0.86
B) marginal propensity to consume is 0.99
C) marginal propensity to consume is 0.98
D) marginal propensity to save is 0.01
E) marginal propensity to save is 0.86

12. The interest rate is important to the investment decision

A) only when funds must be borrowed
B) only when firms have the money on hand
C) regardless of whether funds must be borrowed or firms have the funds on hand
D) only when the firm has funds on hand and is ready to lend them
E) only when the firm is purchasing new equipment rather than a new building

13. If the full employment level of income is $1200 billion and the present level of income is $1000 billion

A) an inflationary gap exists
B) autonomous expenditure is too low for a full employment equilibrium
C) autonomous expenditure is too high for a full employment equilibrium
D) a decrease in autonomous expenditure is required
E) government purchases of goods and services should be reduced

14. More of society’s resources will be channeled into capital when

A) interest rates are high
B) households decide to save less of their income
C) businesspeople have optimistic expectations about the future
D) corporate income taxes increase
E) aggregate income decreases

15. If planned spending exceeds planned output, the result is

A) unintended inventory increases
B) a reduction in GDP
C) a decrease in imports
D) an increase in government purchases
E) unintended inventory reductions

16. The consumption function relates consumption spending to

A) the price level
B) interest rates
C) disposable income
D) expectations about the price level
E) household wealth

17. On the aggregate expenditure graph, if autonomous investment increases by $20 billion,

A) the aggregate expenditure line shifts upward by $20 billion
B) planned saving increases by $20 billion
C) the aggregate expenditure line shifts downward by $20 billion
D) planned saving decreases by $20 billion
E) the equilibrium level of real GDP demanded increases by $20 billion

18. The non-income determinants of consumption include all of the following except one. Which is the exception?

A) net wealth
B) the profitability of new investment
C) the price level
D) expectations
E) the interest rate

19. If the marginal propensity to consume is 3/4, the simple multiplier is

A) 3
B) 7
C) 4
D) 25
E) 3/10

20. If the multiplier is 4, a $10 billion increase in autonomous investment will cause a

A) $10 billion increase in equilibrium investment
B) $40 billion increase in equilibrium investment
C) $40 billion increase in equilibrium real GDP demanded
D) $400 billion increase in equilibrium real GDP demanded
E) $40 billion increase in consumption spending

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