The Level of Household Debt Answer Key 2

61. Which of the following will not cause the consumption schedule to shift? A) a sharp increase in the amount of wealth held by households B) a change in consumer incomes C) the expectation of a recession D) a growing expectation that consumer durables will be in short supply Answer: B 62. An increase in personal taxes will shift: A) both the consumption and saving schedules downward. B) both the consumption and saving schedules upward. C) the consumption schedule upward and the saving schedule downward. D) the consumption schedule downward and the saving schedule upward. Answer: A 63. If for some reason households become increasingly thrifty, we could show this by: A) a downshift of the saving schedule. B) an up-shift of the consumption schedule. GDP. Answer: C C) an upshift of the saving schedule. D) an increase in the equilibrium 64. Suppose the economy's saving schedule shifts from S1 to S 2 as shown in the above diagram. We can say that its: A) MPC has increased. B) MPS has increased. C) APS has increased at all levels of disposable income. D) APS has decreased at all levels of disposable income. Answer: B 65. If a consumption schedule shifts upward, this necessarily means that the: A) MPC has increased. B) MPS has decreased. C) APC is now higher at each level of disposable income. D) APC is now lower at each level of disposable income. Answer: C 66. Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of: A) an increase in disposable income. B) an increase in household wealth. Answer: C C) an increase in personal taxes. D) the expectation of a recession. 67. Suppose an economy's consumption schedule shifts from C1 to C2 as shown in the above diagram. We can say that its: A) MPC has increased but its APC at each income level is unchanged. B) APC at each income level is increased but its MPC is unchanged. C) MPC and APC at each income level have both increased. D) MPC and APC at each income level have both decreased. Answer: C Use the following to answer questions 68-70: Disposable income $200 225 250 275 300 Consumption $205 225 245 265 285 68. Refer to the above data. The marginal propensity to consume is: A) .25. Answer: D B) .75. C) .20. D) .80. 69. Refer to the above data. At the $200 level of disposable income: A) the marginal propensity to save is 2½ percent. B) dissaving is $5. C) the average propensity to save is .20. D) the average propensity to consume is .80. Answer: B 70. Refer to the above data. If disposable income was $325, we would expect consumption to be: A) $315. B) $305. Answer: B C) $20. D) $290. Use the following to answer questions 71-76: 71. Refer to the above diagram. The average propensity to consume is 1 at point: A) F. Answer: B B) A. C) D. D) B. 72. Refer to the above diagram. The marginal propensity to consume is equal to: A) AE/0E. Answer: C B) CF/CD. C) CB/AB. D) CD/CF. 73. Refer to the above diagram. At income level F the volume of saving is: A) BD. Answer: D B) AB. C) CF-BF. D) CD. 74. Refer to the above diagram. Consumption will be equal to income at: A) an income of E. B) an income of F. C) point C. D) point D. Answer: A 75. Refer to the above diagram. The economy is dissaving: A) in the amount CD. C) at income level H. B) at all income levels greater than E. D) at income level E. Answer: C 76. Refer to the above diagram. The marginal propensity to save is: A) CD/EF. B) CB/CF. Answer: A C) CB/AF. D) EF/CB. 77. The above figure suggests that: A) consumption would be $60 billion even if income were zero. B) saving is zero at the $120 billion income level. C) as income increases, consumption decreases as a percentage of income. D) as income increases, consumption decreases absolutely. Answer: C 78. Refer to the above figure. If the relevant saving schedule were constructed: A) saving would be minus $20 billion at the zero level of income. B) aggregate saving would be $60 at the $60 billion level of income. C) its slope would be 1/2. D) it would slope downward and to the right Answer: A Answer the next question(s) on the basis of the following data for a hypothetical economy. Disposable income $0 50 100 150 200 Saving $-10 0 10 20 30 79. Refer to the above data. The marginal propensity to consume is: A) .80. B) .75. C) .20. D) .25. Answer: A 80. Refer to the above data. At the $100 level of income, the average propensity to save is: A) .10. Answer: A B) .20. C) .25. D) .90. 81. 83. Refer to the above data. If plotted on a graph, the slope of the saving schedule would be: A) .80. B) .10. Answer: C C) .20. D) .15. Use the following to answer questions 82-86 82. Refer to the above diagram. The marginal propensity to save is equal to: A) CD/0D. B) 0B/0A. Answer: D C) 0D/0D. D) CD/BD. 83. Refer to the above diagram. At disposable income level D, the average propensity to save is equal to: A) CD/BD. Answer: B B) CD/D. C) D/CD. D) A/B. 84. Refer to the above diagram. At disposable income level D, consumption is: A) equal to CD. B) equal to D minus CD. C) equal to CD/D. D) equal to CD plus BD. Answer: B 85. Refer to the above diagram. Consumption equals disposable income when: A) disposable income is B. B) disposable income is D. C) CD equals A. D) B equals CD. Answer: A 86. The saving schedule shown in the above diagram would shift downward if, all else equal: A) the average propensity to save increased at each income level. B) the marginal propensity to save rose at each income level. C) consumer wealth rose rapidly because of a significant increase in stock market prices. D) the real interest rate fell. Answer: C Use the following to answer questions 87-94: Answer the next question(s) on the basis of the following consumption schedules. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. (1) DI 0 10 20 30 40 50 (2) C 4 11 18 25 32 39 DI 0 80 160 240 320 400 (3) C 65 125 185 245 305 365 DI 0 20 40 60 80 100 C 2 20 38 56 74 92 87. Refer to the above data. The marginal propensity to consume in economy (1) is: A) .5. Answer: D B) .3. C) .8. D) .7. 88. Refer to the above data. The marginal propensity to consume: A) is highest in economy (1). B) is highest in economy (2). Answer: C C) is highest in economy (3). D) cannot be calculated from the data given. 89. Refer to the above data. The marginal propensity to save: A) is highest in economy (1). B) is highest in economy (2). Answer: A C) is highest in economy (3). D) cannot be determined from the data given. 90. Refer to the above data. At an income level of $40 billion, the average propensity to consume: A) is highest in economy (1). B) is highest in economy (2). Answer: B C) is highest in economy (3). D) cannot be determined from the data given. 91. Refer to the above data. At an income level of $400 billion, the average propensity to save in economy (2) is: A) .9125. Answer: C B) .0725. C) .0875. D) .9305. 92. Refer to the above data. When plotted on a graph, the vertical intercept of the consumption schedule in economy (3) is _____ and the slope is _____. A) minus $2; .9. Answer: D B) $2; .18. C) $100; .5. D) $2; .9. 93. Refer to the above data. Suppose that consumption decreased by $2 billion at each level of DI in each of the three countries. We can conclude that the: A) marginal propensity to consume will remain unchanged in each of the three countries. B) marginal propensity to consume will decline in each of the three countries. C) average propensity to save will fall at each level of DI in each of the three countries. D) marginal propensity to save will rise in each of the three countries. Answer: A 94. Refer to the above data. A $2 billion increase in consumption at each level of DI could be caused by: C) an increase in taxation. A) a decrease in consumer wealth. B) new expectations of higher future income. D) an increase in saving. Answer: B 95. The level of aggregate expenditures in the private closed economy is determined by the: A) expenditures of consumers and businesses. B) intersection of the saving schedule and the 45-degree line. C) equality of the MPC and MPS. D) intersection of the saving and consumption schedules. Answer: A Use the following to answer questions 96-98: Answer the next question(s) on the basis of the following data for a private closed economy. Possible levels of domestic output and income (GDP = DI) 320 330 340 350 360 370 380 Consump tion 320 327 334 341 348 355 362 96. Refer to the above data. The MPS is: A) 7/10. Answer: B B) 3/10. C) 2/5. D) 3/5. 97. Refer to the above data. At the $370 billion level of DI the APS is approximately: A) 4 percent. B) 7 percent. C) 1 percent. D) 16 percent. Answer: A 98. Refer to the above data. If gross investment is $12 billion, the equilibrium level of GDP will be: A) $380. B) $370. Answer: C C) $360. D) $350. 99. Refer to the above diagram for a private closed economy. The equilibrium level of GDP is: A) $400. B) $300. C) $200. D) $100. Answer: B 100. Refer to the above diagram for a private closed economy. At the equilibrium level of GDP, investment and saving are both: A) $50. Answer: A B) $100. C) $20. D) $40. 101. Refer to the above diagram for a private closed economy. The $400 level of GDP is: A) that output at which saving is zero. B) too high because consumption exceeds investment. C) unstable because aggregate expenditures exceed GDP. D) unstable because aggregate expenditures are less than GDP. Answer: D 102. Refer to the above diagram for a private closed economy. Unplanned changes in inventories will be zero: A) only at the $300 level of GDP. C) at all levels of GDP. B) only at the $200 level of GDP. D) only at the $400 level of GDP. Answer: A 103. Refer to the above diagram that applies to a private closed economy. The APC is equal to 1 at income level: A) J. Answer: D B) M. C) H. D) G. 104. . Refer to the above diagram that applies to a private closed economy. If aggregate expenditures are C + Ig2, the amount of saving at income level J is: A) LK. Answer: B B) KN. C) KD. D) JD. 105. Refer to the above diagram that applies to a private closed economy. The slope of the consumption schedule in this figure reveals that the: A) MPS rises as income rises. B) MPC is constant. Answer: B C) APC is constant. D) APC increases as income increases. 106. Refer to the above diagram that applies to a private closed economy. If gross investment is Ig1, the equilibrium GDP and the level of consumption will be: A) H and HB respectively. B) J and JI respectively. Answer: D C) J and JK respectively D) H and HF respectively. 107. Other things equal, the slope of the aggregate expenditures schedule will increase as a result of: A) a decline in the size of the inflationary gap. B) an increase in the MPC. Answer: B C) an increase in the MPS. D) a decline in the general price level. 108. The equilibrium level of GDP in a private closed economy is where: A) MPC = APC. B) unemployment is about 3 percent of the labor force. C) consumption equals saving. D) aggregate expenditures equal GDP. Answer: D 109. In a private closed economy, when aggregate expenditures equal GDP: A) consumption equals investment. B) consumption equals aggregate expenditures. C) planned investment equals saving. D) disposable income equals consumption minus saving. Answer: C 110. In a private closed economy, when aggregate expenditures exceed GDP: A) GDP will decline. B) business inventories will rise. Answer: D C) saving will decline. D) business inventories will fall. 111. If an unintended increase in business inventories occurs at some level of GDP, then GDP: A) entails a rate of aggregate expenditures in excess of the rate of aggregate production. B) may be either above or below the equilibrium output. C) is too low for equilibrium. D) is too high for equilibrium. Answer: D