Download Investment , Consumption

Investment , Consumption
and Equilibrium
Multiple Choice:
(1) A basic premise of the aggregate expenditures model is that the amount of goods and
services produced and level of employment in an economy depends:
A)
B)
C)
D)
inversely on the level of total spending.
directly on the level of total spending.
inversely on the level of consumption.
directly on the rate of interest.
(2) An inverse relationship between the rate of interest and the level of :
A)
B)
C)
D)
income is suggested by the consumption function .
prices is suggested by the aggregate supply curve .
employment is suggested by the aggregate demand curve .
investment spending is suggested by the investment-demand curve.
(3) An increase in the interest rate will :
A)
B)
C)
D)
shift the investment-demand curve to the right .
shift the investment-demand curve to the left .
shift the investment schedule upward .
decrease the amount of investment spending.
(4) Which would increase investment demand ?
A)
B)
C)
D)
an increase in production costs
a decline in business optimism
a decrease in business taxes
a decrease in the interest rate
(5) If businesses feel more optimistic about the economy, then this change is likely to :
A)
B)
C)
D)
cause a movement up the investment demand curve .
cause a movement down the investment demand curve .
shift the investment demand curve to the left .
shift the investment demand curve to the right.
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(6) The investment demand curve is drawn with the amount of investment on the :
A)
B)
C)
D)
vertical axis and disposable income on the horizontal axis .
horizontal axis and disposable income on the vertical axis .
horizontal axis and the expected rate of return and interest rate on vertical axis.
vertical axis and the expected rate of return and interest rate on horizontal axis.
(7) The investment schedule shows the:
A)
B)
C)
D)
inverse relationship between the expected rate of return and the quantity of
investment demanded.
positive relationship between the expected rate of return and the quantity of
investment demanded.
amounts business firms collectively intend to invest at each possible level of
GDP.
rate of interest that business firms must pay when they make investments in
capital goods.
I
60
I g
40
20
Ig
GDP
0
390 410
430 450 470 490
(8) The above figure indicates that :
A)
B)
C)
D)
I'g is an investment schedule that assumes that the investment plans of business
are independent of the current level of income, whereas Ig does not .
Ig is an investment schedule that assumes that the investment plans of business
are independent of the current level of income, whereas I'g does not .
the equilibrium level of investment is determined at the point where investment
schedule I'g crosses the Ig investment schedule .
the real net domestic product is inversely related to the investment
schedule.
(9) Other things being equal, if the interest rate falls and business taxes fall, investment :
A)
B)
C)
D)
is likely to decrease .
is likely to increase .
is not likely to change .
may increase, decrease, or stay the same.
(10) Saving is kd 40 million and planned investment is kd 28 million at the kd 175
million level of output in a private, closed economy. At this level:
A)
B)
C)
D)
consumption will be kd 147 million.
actual investment will be kd 28 million.
unplanned investment will be plus kd 12 million.
unplanned investment will be minus kd 12 million.
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The data for a closed, private ( no government ) economy.
GDP = DI Consumption
Kd 540
Kd 540
560
555
580
570
600
585
620
600
640
615
660
630
(11) Refer to the above data. The MPC is :
A)
B)
C)
D)
0.80
0.75
0.67
0.60
(12) Refer to the above data. If planned investment is kd 25 million, the equilibrium level
of GDP will be :
A)
B)
C)
D)
kd 600
kd 620
kd 640
kd 660
(13) Refer to the above data. If planned investment is kd 15 million, then at the kd 560
million level of output, there will be :
A)
B)
C)
D)
unplanned increase in inventories of kd 5 million .
unplanned increase in inventories of kd 10 million .
unplanned decrease in inventories of kd 5 million .
unplanned decrease in inventories of kd 10 million.
(14) Saving and investment are, respectively :
A)
B)
C)
D)
an injection and a leakage .
a leakage and an injection .
wealth and income .
income and wealth.
(15) Planned investment is kd 20 million and saving is kd 9 million at the kd 175 million
level of output in a private, closed economy. Actual investment at this level must be :
A)
B)
C)
D)
kd 9 million .
kd 11million .
kd 20 million .
kd 29 million.
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C,Ig
C+Ig
450
C
350
150
50
450
0
50
150
350
450
550
GDP
(16) Refer to the above graph. In this economy, investment is:
A)
B)
C)
D)
kd 50 million.
kd 100 million.
kd 150 million.
kd 200 million.
(17) Refer to the above graph. The equilibrium level of GDP in this economy is:
A)
B)
C)
D)
kd 150 million.
kd 250 million.
kd 350 million.
kd 450 million.
(18) Refer to the above graph. When C is equal to kd 150 million, aggregate:
A)
B)
C)
D)
saving will be equal to zero.
saving will be equal to kd 50 million.
investment will be equal to kd 50 million.
investment will be equal to kd 250 million.
(19) Refer to the above graph. When C + Ig is kd 350 million there will be:
A)
B)
C)
D)
equilibrium GDP.
saving exceeding planned investment.
unplanned increases in inventories.
unplanned decreases in inventories.
(20) When planned investment exceeds saving in a private, closed economy:
A)
B)
C)
D)
aggregate expenditures will equal GDP.
aggregate expenditures will exceed GDP.
aggregate expenditures will be less than GDP.
consumption plus investment will equal GDP.
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(21) When saving is greater than planned investment, then:
A)
B)
C)
D)
the multiplier will tend to decrease.
there will be an increase in the rate of interest.
there will be an increase in the price level.
there will be a decrease in real GDP.
Use the following to answer the next questions :
GDP
Consumption
Kd 240
Kd 244
250
250
260
256
270
262
280
268
290
274
300
280
310
286
320
292
(22) Refer to the above data. The MPS:
A)
B)
C)
D)
is 0.6
is 0.4
is 1.6
varies at different income levels.
(23) Refer to the above data. When there is no investment in this private closed economy, the
equilibrium level of GDP will be:
A)
B)
C)
D)
kd 240 million.
kd 250 million.
kd 260 million.
kd 270 million.
(24) Refer to the above data. If gross investment is kd 12 million, the equilibrium level of
GDP will be:
A)
B)
C)
D)
kd 260 million.
kd 270 million.
kd 280 million.
kd 290 million.
(25) Refer to the above data. Suppose investment is kd 12 million and the economy revises
its saving plans so as to save kd 4 million less at all levels of income. The new
equilibrium GDP will be:
A)
B)
C)
D)
kd 260 million.
kd 270 million.
kd 280 million.
kd 290 million.