Question 1 True

If planned investment increases, equilibrium will be restored only when saving has increased by
exactly the amount of the initial increase in planned investment, assuming there is no
government or foreign sector.

Question 2 True
If the MPC is .75, then the multiplier is 4.

Question 3 False
As interest rates fall, spending decreases

Question 4 False
If aggregate expenditure decreases, then equilibrium output increases

Question 5 False
Uncertainty about the future is likely to increase current spending.

Question 6 True
Assuming there is no government or foreign sector, the economy will be in equilibrium if, and
only if, planned investment equals actual investment.

Question 7 False
If the marginal propensity to consume is .8 the marginal propensity to save is .8

Question 8 False
If actual investment is greater than planned investment, unplanned inventories decline

Question 9 True
Actual investment equals planned investment plus unplanned changes in inventories.

Question 10 True
Firms react to negative inventory investment by increasing output.