Problem 1
What are the variables (the items measured on the axes) in a graph of the \((a)\) consumption schedule and \((b)\) saving schedule? Are the variables inversely (negatively) related or are they directly (positively) related? What is the fundamental reason that the levels of consumption and saving in the United States are each higher today than they were a decade ago?
Problem 2
In year one, Adam earns \(\$ 1,000\) and saves \(\$ 100 .\) In year 2 Adam gets a \(\$ 500\) raise so that he earns a total of \(\$ 1,500 .\) Out of that \(\$ 1,500,\) he saves \(\$ 200 .\) What is \(\triangle\) dam's MPC out of his \(\$ 500\) raise? a. 0.50 b. 0.75 c. 0.80 d. 1.00
Problem 3
If the MPS rises, then the MPC will: a. Fall. b. Rise. c. Stay the same.
Problem 4
In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal? a. A large decrease in real estate values, including private homes. b. A sharp, sustained increase in stock prices. c. A 5 -year increase in the minimum age for collecting Social Security benefits. d. An economy-wide expectation that a recession is over and that a robust expansion will occur. e. A substantial increase in household borrowing to finance auto purchases.
Problem 5
Irving owns a chain of movie theaters. He is considering whether he should build a new theater downtown. The expected rate of return is 15 percent per year. IIe can borrow moncy at a 12 percent interest rate to finance the project. Should Irving proceed with this project? a. Yes. b. No.
Problem 6
Which of the following scenarios will shift the investment demand curve right? Select one or more answers from the choices shown. a. Business taxes increase. b. The expected return on capital increases. c. Firms have a lot of unused production capacity. d. Firms are planning on increasing their inventories.
Problem 8
If a \(\$ 50\) billion initial increase in spending leads to a \(\$ 250\) billion change in real GDP, how big is the multiplier? a. 1.0 b. 2.5 c. 4.0 d. 5.0
