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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
Which fiscal policy actions would be
most effective in combating a
• 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
but then falls below income.
The sector of the economy that is
responsible for Consumption is:
• the
The relationship between
consumption and disposable income is
such that:
• a direct and relatively stable relationship
exists between
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
decrease in savings of
and a
The spending multiplier will have an
effect on any new, additional spending
in the component(s) of
• MPC is greater in
than in
If X’s MPC is .70, this means that X
• spend
of any increase in its
disposable income.
Dissaving occurs where:
• consumption
The saving schedule is drawn on the
assumption that as income increases:
• saving will increase
percentage of
and as a
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
In the late 1990s the U.S. stock market
boomed, causing U.S. consumption to
The wealth effect is shown graphically
as a:
shift of the consumption
propensity to
save (MPS)
propensity to
consume (MPC)
change in saving
change in income
change in consumption
change in income
The investment demand slopes
downward and to the right because
lower real interest rates:
• enable more
undertaken profitably.
projects to be
An increase in the real rate of interest
the level of investment.
The investment demand curve
• there is an
relationship between
the real rate of interest and the level of
investment spending.
A decrease in corporate income taxes
• shift the investment-demand curve to
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
The multiplier is:
• 1/
• 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
• $