Unit 3 Test

Identify the choice that best completes the statement or answers the question. The marginal propensity to consume is:

• increasing if the marginal propensity to save is increasing.

• the proportion of total disposable income that the average family consumes.

• the change in consumer spending divided by the change in aggregate disposable income.

• the change in consumer spending less the change in aggregate disposable income.

• equal to 1.

Identify the choice that best completes the statement or answers the question. The MPS plus the MPC must equal:

• zero

• one

• total income

• saving

• disposable income

If the MPS = .1, then the value of the multiplier equals:

• 1

• 5

• 9

• 10

• 100

• A. 20

• B. 0.8

• C. 1.25

• D. 9

• E. 0.2

If the interest rate rises, then:

• A. planned investment spending rises.

• B. more investment projects have a rate of return greater than the interest rate.

• C. the opportunity cost of investment is greater.

• D. investment spending will fall, causing an increase in GDP.

• E. households will decrease the amount of money saved.

According to the wealth effect, when the price level decreases, the purchasing power of assets:

• decreases and consumer spending decreases.

• increases and consumer spending decreases.

• decreases and consumer spending increases.

• remains constant and consumer spending is unchanged.

• increases and consumer spending increases.

An increase in government spending on health care is likely to shift the:

• short-run aggregate supply curve to the right.

• short-run aggregate supply curve to the left.

• long-run aggregate supply curve to the left.

Aggregate demand will decrease if:

• the aggregate price level falls.

• net exports rises.

• productivity declines.

• the money supply increases.

• the government raises tax rates on personal income.

Aggregate demand will shift to the right if:

• the public becomes more optimistic about future income.

• the aggregate price level falls.

• government spending is reduced.

• household wealth decreases.

• interest rates rise.

A decrease in aggregate demand is seen as a(n):

• downward movement along the aggregate demand curve.

• upward movement along the aggregate demand curve.

• shift to the left in the aggregate demand curve.

• shift to the right in the aggregate demand curve.

• movement from a vertical to a horizontal aggregate demand curve.