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AP Macro Economics Unit Review The Aggregate Expenditures Model 1. What is the most important determinant of consumer spending? __________________________________________________________________ 2. What happens to APC as disposable income goes up? __________________________________________________________________ 3. The consumption schedule relates consumption to; __________________________________________________________________ 4. The consumption schedule shows a direct relationship between; __________________________________________________________________ 5. APC is defined as; __________________________________________________ 6. What happens is disposable income increases? __________________________________________________________________ 7. The slope of the consumption schedule or line represents; ___________________ 8. The above diagram shows consumption schedules for economies A and B. Which curve has a greater MPC? ____________. 9. Holly's break-even level of income is $10,000 and her MPC is 0.75. If her actual disposable income is $16,000, her level of consumption spending will be; _________________ 10. If Mr. Walton spends eight-tenths of any increase in his disposable income, then is MPC is equal to; _____________ 11. When we dissave that means our APC is; ______________________________ 12. Which of the following is correct? A) MPC + MPS = APC + APS B) APC + MPS = APS + MPC C) APC + MPC = APS + MPS D) APC - APS = MPC – MPS 13. Which of the following relations is not correct? A) B) C) D) 1 - MPC = MPS APS + APC = 1 MPS = MPC + 1 MPC + MPS = 1 13. What happens to APC and APS if aggregate income decreases? __________________________________________________________________ 14. Which one of the following will cause a movement up along an economy's saving schedule? A) an increase in household debt outstanding C) an increase in stock prices B) an increase in disposable income D) an increase in interest rates 14. In the late 1990s the U. S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the; ____________________________ 15. Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of; ___________________________________ 16. The above figure suggests that: A) B) C) D) consumption would be $60 billion even if GDP were zero. saving is zero at the $120 billion GDP. as GDP increases, consumption decreases as a percentage of GDP. as GDP increases, consumption decreases absolutely. 17. Refer to the above figure. If the relevant saving schedule were constructed, one would find that: A) B) C) D) saving would be minus $20 billion at the zero level of GDP. aggregate saving would be $60 at the $60 billion level of income. its slope would be 1/2. it would slope downward and to the right 18. Refer to the above diagram. The marginal propensity to save is equal to: A) CD/0D. B) 0B/0A. C) 0D/0D. D) CD/BD. 19. Refer to the above diagram. At disposable income level D, the average propensity to save is equal to: A) CD/BD. B) CD/D. C) D/CD. D) A/B. 20. Refer to the above diagram. At disposable income level D, consumption is: A) B) C) D) equal to CD. equal to D minus CD. equal to CD/D. equal to CD plus BD. 21. Refer to the above diagram. Consumption equals disposable income when: A) B) C) D) disposable income is B. disposable income is D. CD equals A. B equals CD. (1) DI $ 0 10 20 30 40 50 (2) C $ 4 11 18 25 32 39 DI $ 0 80 160 240 320 400 C $ 65 125 185 245 305 365 (3) DI C $ 0 $ 2 20 20 40 38 60 56 80 74 100 92 22. Refer to the above data. The marginal propensity to consume in economy (1) is; ___________ 23. Refer to the above diagram. The break-even level of GDP (= income) is: _______ 24. Refer to the above diagram. The average propensity to consume is: A) greater than 1 at all levels of GDP above $150. C) B) greater than 1 at all levels of GDP below $150. D) zero. .6. 25. Assume there are no prospective investment projects (I) that will yield an expected rate of return (r) of 25 percent or more, but that there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20 percent, and so on. The investment-demand curve for this economy is: _______________ (a) r I 25% $10 20 15 15 20 10 25 5 30 0 35 (b) r I 25% $ 0 20 5 15 10 10 15 5 20 0 25 (c) r I 20% $10 15 20 10 30 5 40 0 50 (d) r 25% 20 15 10 5 0 I $ 5 10 15 20 25 30 26. In a private closed economy, when aggregate expenditures exceed GDP: A) GDP will decline. B) business inventories will rise. C) saving will decline. D) business inventories will fall. 27. The equilibrium level of GDP is associated with: A) B) C) D) an excess of planned investment over saving. no unintended changes in inventories. an unintended decrease in business inventories. an unintended increase in business inventories. C+Ig $200 Private spending (billions) 180 C 160 140 120 100 80 60 40 20 0 45 $20 40 60 80 100 120 140 160 180 200 GDP (billions) 28. Refer to the above diagram for a private closed economy. The equilibrium GDP in this economy is; _______________________________ 29. Refer to the above diagram for a private closed economy. In this economy investment is; _________________________________________________ 30. The formula for the expenditure multiplier is; ___________________________ 31. If 100 percent of any change in income is spent, the multiplier will be: ________________________________________________________________ 32. The practical significance of the multiplier is that it: A) brings about an equality of planned investment and saving. B) magnifies relatively small initial changes in spending into larger changes in GDP. C) keeps inflation within tolerable limits. D) helps to stabilize the economy. 33. If the MPC is .6, the multiplier will be: ______________________ 34. If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the multiplier in the economy is; ________________________________ 35. Suppose that the level of GDP increased by $100 billion in an economy where the marginal propensity to consume is 0.5. Aggregate expenditures must have increased by; ____________________________________________________