Macroeconomics Canadian 13th Edition Mcconnell Test Bank Full Chapter PDF

Macroeconomics Canadian 13th Edition
MCCONNELL Test Bank

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Chapter 08 Basic Macroeconomic Relationships
1. The most important determinant of consumer spending is:
A. the level of household debt.

B. consumer expectations.
C. the stock of wealth.
D. the level of disposable income.
2. The most important determinant of consumption and saving is the:
A. level of bank credit.

B. level of disposable income.
C. interest rate.
D. price level.
3. The 45-degree line on a chart relating consumption and income shows:
A. all points where the MPC is constant.

B. all points at which saving and income are equal.
C. all the points at which consumption and income are equal.
D. the amounts households will plan to save at each possible level of income.
4. The consumption schedule shows:
A. that the MPC increases in proportion to GDP.

B. that households consume more when interest rates are low.
C. that consumption depends primarily upon the level of business investment.
D. the amounts households plan or intend to consume at various possible levels of aggregate
income.
5. The consumption schedule in the diagram below indicates that:
A. consumers will maximize their satisfaction where the consumption schedule and 45° line
intersect.
B. up to a point consumption exceeds income, but then falls below income.
C. the MPC falls as income increases.
D. households consume as much as they earn.
6. The consumption schedule relates:
A. consumption to the level of disposable income.

B. saving to the level of disposable income.
C. disposable income to domestic income.
D. consumption to saving.
7. A decline in disposable income:
A. increases consumption by moving upward along a specific consumption schedule.

B. decreases consumption because it shifts the consumption schedule downward.
C. decreases consumption by moving downward along a specific consumption schedule.
D. increases consumption because it shifts the consumption schedule upward.
8. The consumption schedule shows:
A. a direct relationship between aggregate consumption and accumulated wealth.

B. a direct relationship between aggregate consumption and aggregate income.
C. an inverse relationship between aggregate consumption and accumulated financial wealth.
D. an inverse relationship between aggregate consumption and aggregate income.
9. The consumption schedule is drawn on the assumption that as disposable income increases
consumption will:
A. be unaffected.
B. increase absolutely, but remain constant as a percentage of income.
C. increase absolutely, but decline as a percentage of income.
D. increase absolutely and as a percentage of income.
10. The relationship between consumption and disposable income is such that:
A. an inverse and stable relationship exists between consumption and income.

B. a direct, but very volatile, relationship exists between consumption and income.
C. a direct and quite stable relationship exists between consumption and income.
D. the two are always equal.
11. The equation C = 35 + .75Y, where C is consumption and Y is disposable income, tells us that:
A. households will consume three-fourths of whatever level of disposable income they receive.
B. households will consume $35 if their disposable income is zero and will consume three-fourths
of any increase in disposable income they receive.
C. there is an inverse relationship between disposable income and consumption.
D. households will save $35 if their disposable income is zero and will consume three-fourths of
any increase in disposable income they receive.
12. If the equation C = 20 + .6Y, where C is consumption and Y is disposable income, were graphed:
A. the vertical intercept would be +.6 and the slope would be +20.
B. it would reveal an inverse relationship between consumption and disposable income.
C. the vertical intercept would be negative, but consumption would increase as disposable
income rises.
D. the vertical intercept would be +20 and the slope would be +.6.
13. Refer to the data below. When plotted on a graph, the vertical intercept of the consumption
schedule in this economy is _____ and the slope is _____.
A. -2 and 1
B. $2 and .18
C. $100 and .5
D. $2 and .9
14. Refer to the diagram below. Consumption will be equal to income at:
A. an income equal to OE.

B. an income equal to OF.
C. point C.
D. point D.
15. Which of the following equations correctly represents the data below?
A. Yd = 40 + .6C
B. C = 60 + .4Yd
C. C = 40 + .6Yd
D. C = .6Yd
16. If the consumption schedule is linear, then the:
A. saving schedule will also be linear.

B. MPS will decline as income rises.
C. MPC will decline as income rises.
D. APC will be constant at all levels of income.
17. As disposable income increases, consumption:
A. and saving both increase.

B. and saving both decrease.
C. decreases and saving increases.
D. increases and saving decreases.
18. If the MPC is .8 and the disposable income is $200, then
A. consumption and saving cannot be determined from the information given.

B. saving will be $20.
C. personal consumption expenditures will be $80.
D. saving will be $40.
19. Given the consumption schedule, it is possible to graph the relevant saving schedule by:
A. subtracting the MPC from "one" at each level of income.

B. subtracting investment from consumption at each level of GDP.
C. plotting the horizontal differences between the consumption schedule and the 45-degree line.
D. plotting the vertical differences between the consumption schedule and the 45-degree line.
20. The saving schedule is drawn on the assumption that as income increases:
A. saving will decline absolutely and as a percentage of income.

B. saving will increase absolutely, but remain constant as a percentage of income.
C. saving will increase absolutely, but decline as a percentage of income.
D. saving will increase absolutely and as a percentage of income.
21. The saving schedule is such that as aggregate income increases by a certain amount, saving:
A. increases by the same amount as the increase in income.

B. does not change.
C. increases.
D. decreases.
22. Dissaving means:
A. the same thing as disinvesting.

B. that households are spending in excess of their current incomes.
C. that saving and investment are equal.
D. that disposable income is less than zero.
23. Dissaving occurs where:
A. income exceeds consumption.

B. saving exceeds consumption.
C. consumption exceeds income.
D. saving exceeds income.
24. At the point where the consumption schedule intersects the 45-degree line:
A. the MPC equals 1.

B. the APC is zero.
C. saving equals income.
D. saving is zero.
25. Refer to the above diagram. At income level F the volume of saving is:
A. BD.
B. AB.
C. CF - BF.
D. DC.
26. Refer to the above diagram. The economy is dissaving:
A. in the amount CD.

B. at all income levels greater than E.
C. at income level H.
D. at income level E.
27. Refer to the above diagram. At disposable income level D, consumption:
A. is equal to CD.
B. is equal to OD minus CD.
C. is equal to CD/OD.
D. is equal to CD plus BD.
28. Refer to the above diagram. Consumption equals disposable income when:
A. disposable income is B.
B. disposable income is D.
C. CD equals A.
D. B equals CD.
29. Refer to the above diagram. The break-even level of disposable income:
A. is zero.
B. is minus $10.
C. is $100.
D. cannot be determined from the information given.
30. The equation for the above saving schedule is:
A. Yd = -20 + .8S.
B. Yd = 20 + .2S.
C. S = 20 + .8Yd.
D. S = -20 + .2Yd.
31. Refer to the above diagram. The break-even level of income is:
A. zero.
B. $150.
C. $60.
D. $120.
32. Refer to the above diagram. The equation for the saving schedule is:
A. S = .6Y.
B. Y = 60 + .6S.
C. S = 60 + .4Y.
D. S = -60 + .4Y.
33. Which of the following equations represents the saving schedule implicit in the data below?
A. S = C - Yd
B. S = 40 + .4Yd
C. S = 40 + .6Yd
D. S = -40 + .4Yd
34. Refer to the diagram below. The average propensity to consume is 1 at point:
A. F.
B. A.
C. D.
D. B.
35. If the equation for the consumption schedule is C = 20 + 0.8Y, where C is consumption and Y is
disposable income, then the average propensity to consume is 1 when disposable income is:
A. $80.
B. $100.
C. $120.
D. $160.
36. The average propensity to consume indicates the:
A. amount by which income exceeds consumption.

B. relationship between a change in saving and the consequent change in consumption.
C. percentage of total income which will be consumed.
D. percentage of a change in income which will be consumed.
37. As disposable income goes up the:
A. APC falls.
B. APS falls.
C. volume of consumption declines absolutely.
D. volume of investment can be expected to diminish.
38. The APC can be defined as:
A. change in consumption/change in income

B. consumption/income
C. change in income/change in consumption
D. income/consumption
39. The APC can be defined as the fraction of a:
A. change in income which is not spent.

B. change in income which is spent.
C. specific level of total income which is not consumed.
D. specific level of total income which is consumed.
40. For all levels of income to the left of the intersection of the 45-degree line and the consumption
schedule, the APC is:
A. greater than 100 percent.

B. less than the APS.
C. equal to the MPC.
D. equal to 100 percent.
41. At the point where the consumption schedule intersects the 45-degree line:
A. the MPC is 1.00.

B. the APC is 1.00.
C. saving is equal to consumption.
D. the economy is in equilibrium.
42. Suppose a family's consumption exceeds its disposable income. This means that its:
A. MPC is greater than 1.

B. MPS is negative.
C. APC is greater than 1.
D. APS is positive.
43. One can determine the amount of consumption at any level of total income by:
A. multiplying total income by the slope of the consumption schedule.

B. multiplying total income by the APC.
C. subtracting the MPS from total income.
D. multiplying total income by the MPC.
44. As aggregate income decreases, the APC:
A. and APS will both increase.

B. will decrease, but the APS will increase.
C. will increase, but the APS will decrease.
D. and APS will both decrease.
45. As aggregate income increases, the APC:
A. and APS will both increase.

B. will decrease, but the APS will increase.
C. will increase, but the APS will decrease.
D. and APS will both decrease.
46. Refer to the above diagram. The MPC and APC are both constant as income increases for:
A. none of the consumption schedules shown.

B. C3 only.
C. C3 and C4 only.
D. C1 and C2 only.
47. Refer to the above diagram. The APC diminishes as income increases for:

B. C3 only.
C. C1, and C2.
D. C4 only.
48. Refer to the above diagram. The MPC is constant as income rises for:

B. C3 only.
C. C1, C2, and C3 only.
D. C4 only.
49. Holly's break-even level of income is $10,000 and her MPC is 0.75. If her actual disposable
income is $16,000, her level of:
A. consumption spending will be $14,500.

B. consumption spending will be $4,500.
C. consumption spending will be $13,000.
D. saving will be $2,500.
50. If Smith's disposable income increases from $1,200 to $1,700 and her level of saving increases
from minus $100 to a plus $100, it may be concluded that her marginal propensity to:
A. save is three-fifths.
B. consume is one-half.
C. consume is three-fifths.
D. consume is one-sixth.
51. With an MPS of .4, the MPC will be:
A. 1.0 minus .4.

B. .4 minus 1.0.
C. the reciprocal of the MPS.
D. .4.
52. The MPC can be defined as the fraction of a:
A. change in income which is not spent.

B. change in income which is spent.
C. given total income which is not consumed.
D. given total income which is consumed.
53. If Ben's MPC is .80, this means that he will:
A. spend eight-tenths of any increase in his disposable income.

B. spend eight-tenths of any level of disposable income.
C. break even when his disposable income is $8,000.
D. save eight-tenths of any level of disposable income.
54. The diagram below shows two different consumption schedules. We can say that the:
A. MPC is greater in B than in A.

B. APC at any given income level is greater in B than in A.
C. MPS is smaller in B than in A.
D. MPC is greater in A than in B.
55. Refer to the above data. The marginal propensity to consume is:
A. .25
B. .75.
C. .20.
D. .80.
56. Refer to the above data. At the $200 level of disposable income:
A. the marginal propensity to save is 21/2 percent.

B. dissaving is $5.
C. the average propensity to save is .20.
D. the average propensity to consume is .80.
57. Refer to the above diagram. The marginal propensity to consume is equal to:
A. AE/0E.
B. CB/AB.
C. CF/CD.
D. CD/CF.
58. Refer to the above diagram. The marginal propensity to save is:
A. CD/EF.
B. CB/CF.
C. CB/AF.
D. EF/CB.
59. Refer to the above data. The marginal propensity to consume is:
A. .80.
B. .75.
C. .20.
D. .25.
60. Refer to the above data. At the $100 level of income, the average propensity to save is:
A. .10.
B. .20.
C. .25.
D. .90.
61. Refer to the above data. The slope of the saving schedule is:
A. .80.
B. .10.
C. .20.
D. .15.
62. Refer to the above diagram. The marginal propensity to save is equal to:
A. CD/0D.
B. 0B/0A.
C. 0D/0D.
D. CD/BD.
63. Refer to the above diagram. At disposable income level D, the average propensity to save is
equal to:
A. CD/BD.
B. CD/OD.
C. OD/CD.
D. OA/OB.
Following is consumption schedules for three private closed economies. DI signifies disposable
income and C represents consumption expenditures. All figures are in billions of dollars.
64. Refer to the above data. The marginal propensity to consume in economy (1):
A. is .5.
B. is .3.
C. is .8.
D. is .7.
65. Refer to the above data. The marginal propensity to consume:
A. is highest in economy (1).

B. is highest in economy (3).
C. is highest in economy (2).
D. cannot be calculated from the data given.
66. Refer to the above data. The marginal propensity to save:

D. cannot be determined from the data given.
67. Refer to the above data. At an income level of $40 billion, the average propensity to consume:

D. cannot be determined from the data given.
68. Refer to the above data. At an income level of $400 billion, the average propensity to save in
economy (2) is:
A. .9125.
B. .0725.
C. .0875.
D. .9305.
69. Refer to the above data. Suppose that consumption increased by $2 billion at each level of DI in
each of the three countries. We can conclude that the:
A. marginal propensity to consume will remain unchanged in each of the three countries.
B. marginal propensity to consume will decline in each of the three countries.
C. average propensity to save will fall at each level of DI in each of the three countries.
D. marginal propensity to save will rise in each of the three countries.
70. Refer to the above diagram. The marginal propensity to consume is:
A. .2.
B. .8.
C. .4.
D. .3.
71. Refer to the above diagram. The average propensity to consume:
A. is greater than 1 at all levels of disposable income above $100.

B. is greater than 1 at all levels of disposable income below $100.
C. is equal to the average propensity to save.
72. Which of the following is correct?
A. APC + APS = 1.
B. APC + MPS = 1.
C. APS + MPC = 1.
D. APS + MPS = 1.
73. Refer to the data below. The MPS is:
A. 7/10.
B. 3/10.
C. 2/5.
D. 3/5.
74. The consumption schedule is such that:
A. both the APC and the MPC increase as income rises.

B. the APC is constant and the MPC declines as income rises.
C. the MPC is constant and the APC declines as income rises.
D. the MPC and APC must be equal at all levels of income.
75. The MPC for an economy is:
A. the slope of the consumption schedule or line.

B. the slope of the savings schedule or line.
C. 1 divided by the slope of the consumption schedule or line.
D. 1 divided by the slope of the savings schedule or line.
Suppose the consumption schedule is: C = 20 + .9Y, where C is consumption and Y is disposable
income.
76. Refer to the above data. The MPC is:
A. .45.
B. .20.
C. .50.
D. .90.
77. Refer to the above data. At an $800 level of disposable income, the level of saving is:
A. $180.
B. $740.
C. $60.
D. $18.
78. Which of the following is correct?
A. MPC + MPS = APC + APS

B. APC + MPS = APS + MPC
C. APC + MPC = APS + MPS
D. APC - APS = MPC - MPS
79. Which of the following relations is not correct?
A. 1 - MPC = MPS
B. MPS = MPC + 1
C. APS + APC = 1
D. MPC + MPS = 1
80. If the marginal propensity to consume is .9, then the marginal propensity to save must be:
A. 1.
B. .1.
C. 1.1.
D. .9.
81. The greater is the marginal propensity to consume:
A. the smaller is the marginal propensity to save.

B. the higher is the interest rate.
C. the lower is the average propensity to consume.
D. the lower is the price level.
82. If the saving schedule is a straight line, the:
A. MPS must be constant.

B. APS must be constant.
C. APC must be constant.
D. MPC must be rising.
83. Which one of the following will cause a movement down along an economy's consumption
schedule?
A. an increase in stock prices

B. a decrease in stock prices
C. an increase in consumer indebtedness
D. a decrease in disposable income
84. Which one of the following will cause a movement up along an economy's saving schedule?
A. an increase in household debt outstanding

B. an increase in disposable income
C. an increase in stock prices
D. an increase in interest rates
85. Which of the following will not cause the consumption schedule to shift?
A. a sharp increase in the amount of wealth held by households

B. a change in consumer incomes
C. the expectation of a recession
D. a growing expectation that consumer durables will be in short supply
86. Which of the following will not tend to shift the consumption schedule upward?
A. a currently small stock of durable goods in the possession of consumers

B. the expectation of a future decline in the consumer price index
C. a currently low level of household debt.
D. the expectation of future shortages of essential consumer goods.
87. If for some reason households become increasingly thrifty, we could show this by:
A. a downshift of the saving schedule.

B. an upshift of the consumption schedule.
C. an upshift of the saving schedule.
D. an increase in the equilibrium GDP.
88. The saving schedule shown in the diagram below would shift downward if, all else equal:
A. the average propensity to save increased at each income level.

B. the marginal propensity to save rose at each income level.
C. consumer wealth rose rapidly because of a significant increase in stock market prices.
D. the real interest rate increased.
89. Following is consumption schedules for three private closed economies. DI signifies disposable
income and C represents consumption expenditures. All figures are in billions of dollars.
Refer to the data below. Suppose the consumption is increased by $2 billion in each of the three
economies. This change could have been caused by:
A. a decrease in consumer wealth.

B. expectations of higher future income.
C. an increase in taxation.
D. an increase in saving.
90. An upward shift of the saving schedule suggests:
A. nothing with respect to changes in the APC and APS.

B. that the APC and APS have both decreased at each GDP level.
C. that the APC and APS have both increased at each GDP level.
D. that the APC has decreased and the APS has increased at each GDP level.
91. If the consumption schedule shifts upward and the shift was not caused by a tax change, the
saving schedule:
A. will not shift.

B. may shift either upward or downward.
C. will shift downward.
D. will also shift upward.
92. If a consumption schedule shifts upward, this means that the:
A. MPC has increased.

B. MPS has decreased.
C. APC is now higher at each level of disposable income.
D. APC is now lower at each level of disposable income.
93. Assume the economy's consumption and saving schedules simultaneously shift downward. This
must be the result of:
A. an increase in disposable income.

B. an increase in household wealth.
C. the expectation of a recession.
D. an increase in personal taxes
94. Suppose the economy's saving schedule shifts from S1 to S 2 as shown in the below diagram. We
can say that its:
A. MPC has increased.

B. MPS has increased.
C. APS has increased at all levels of disposable income.
D. APS has decreased at all levels of disposable income.
95. Suppose an economy's consumption schedule shifts from C1 to C 2 as shown in the diagram
below. We can say that its:
A. MPC has increased but its APC at each income level is unchanged.
B. APC at each income level is increased but its MPC is unchanged.
C. MPC and APC at each income level have both increased.
D. MPC and APC at each income level have both decreased.
96. The ________ of the late 1990s was an example of the wealth effect, while _______ of 2008 was
an example of the reverse wealth effect.
A. declining stock values; skyrocketing market prices.

B. skyrocketing stock values; plunging market prices.
C. declining market prices; plunging market prices.
D. tech bust; real estate boom.
97. The reverse wealth effect will cause the consumption schedule to:
A. shift upward.
B. shift downward.
C. not change at all.
D. shift in the same direction as would occur with the wealth effect.
98. Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose,
also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The
expected rate of return on this tool is:
A. 80 percent.
B. 8 percent.
C. 2 percent.
D. 20 percent.
99. Assume a machine which has a useful life of only one year costs $2,000. Assume, also, that net
of such operating costs as power, taxes, and so forth, the additional revenue from the output of
this machine is expected to be $2,300. The expected rate of return on this machine is:
A. 7.5 percent.
B. 10 percent.
C. 15 percent.
D. 20 percent.
100.If the firm in the previous question finds it can borrow funds at an interest rate of 10 percent the
firm should:
A. not purchase the machine because the expected rate of return exceeds the interest rate.
B. purchase the machine because the expected rate of return exceeds the interest rate.
C. not purchase the machine because the interest rate exceeds the expected rate of return.
D. purchase the machine because the interest rate exceeds the expected rate of return.
101.If the real interest rate in the economy is i and the expected rate of return from additional
investment is r, then more investment will be forthcoming when:
A. r is greater than i.
B. i is greater than r.
C. r falls.
D. i rises.
102.The real interest rate is:
A. the percentage increase in money that the lender receives on a loan.

B. the nominal rate less the rate of inflation .
C. also called the after-tax interest rate.
D. usually higher than the nominal interest rate.
103.If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate
is:
A. 18 percent.
B. 24 percent.
C. 12 percent.
D. 6 percent.
104.If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate
is:
A. 2 percent.
B. zero percent.
C. 10 percent.
D. 22 percent.
105.A high rate of inflation is likely to cause a:
A. high nominal interest rate.

B. low nominal interest rate.
C. low rate of growth of nominal GDP.
D. decrease in nominal wages.
investment is r, then other things equal:
A. investment will take place until i and r are equal.

B. investment will take place until r exceeds i by the greatest amount.
C. r will rise as more investment is undertaken.
D. i will rise as more investment is undertaken.
107.The relationship between the real interest rate and investment is shown by the:
A. investment-demand schedule.
B. consumption of fixed capital schedule.
C. saving schedule.
D. aggregate supply curve.
108.The investment-demand curve suggests:
A. that the amount invested will not be affected by changes in the real interest rate.
B. an inverse relationship between the real rate of interest and the level of investment spending.
C. that an increase in business taxes will tend to stimulate investment spending.
D. a direct relationship between the real rate of interest and the level of investment spending.
109.Assume there are no prospective investment projects (I) which will yield an expected rate of
return (r) of 25 percent or more, but that there are $5 billion of investment opportunities with an
expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20
percent, and so on. The investment-demand curve for this economy is:
A. Column A
B. Column B
C. Column C
D. Column D
110.In view of your answer to the previous question, if the real interest rate is 15 percent in this
economy, the aggregate amount of investment will be:
A. $25.
B. $20.
C. $15.
D. $10.
111.Other things equal, the real interest rate and the level of investment are:
A. related only when saving equals planned investment.

B. unrelated.
C. inversely related.
D. directly related.
112.The above table reflects a(n):
A. interest rate schedule.

B. demand-for-money schedule.
C. investment-demand schedule.
D. profit schedule.
113.The above schedule indicates that if the real interest rate is 8 percent, then:
A. we cannot tell what volume of investment will be profitable.

B. $30 billion will be both saved and invested.
C. $30 billion of investment will be undertaken.
D. $60 billion of investment will be undertaken.
114.Given the expected rate of return on all possible investment opportunities in the economy:
A. an increase in the real rate of interest will reduce the level of investment.
B. a decrease in the real rate of interest will reduce the level of investment.
C. a change in the real interest rate will have no impact upon the level of investment.
D. an increase in the real interest rate will increase the level of investment.
115.A decline in the real interest rate will:
A. increase the amount of investment spending.

B. shift the investment schedule downward.
C. shift the investment-demand curve to the right.
D. shift the investment-demand curve to the left.
116.A rightward shift of the investment-demand curve might be caused by:
A. an increase in the price level.

B. a decline in the real interest rate.
C. a decline in the acquisition, maintenance and operating costs.
D. an increase in business taxes.
117.When we draw an investment demand curve we hold constant all of the following except:
A. the expected rate of return from the investment.

B. the interest rate.
C. business taxes.
D. the present stock of capital goods.
118.Other things equal, a 10 percent decrease in corporate income taxes will:
A. decrease the market price of real capital goods.

B. have no effect on the location of the investment-demand curve.
C. shift the investment-demand curve to the right.
D. shift the investment-demand curve to the left.
119.If business taxes are reduced and the real interest rate increases:
A. consumption and saving will necessarily increase.

B. the level of investment spending might either increase or decrease.
C. the level of investment spending will necessarily increase.
D. the level of investment spending will necessarily decrease.
120.Other things equal, if the real interest rate falls and business taxes rise:
A. investment will rise until it is equal to saving.

B. we will be uncertain as to the resulting change in investment.
C. we can be certain that investment will rise.
D. we can be certain that investment will fall.
121.The investment-demand curve will shift to the right as a result of:
A. an increase in the excess productive capacity available in industry.

B. an increase in business taxes.
C. technological progress.
D. an increase in the acquisition and maintenance cost of capital goods.
122.Technological progress will:
A. shift the investment schedule downward and increase the level of employment.
B. shift the investment schedule downward and decrease the level of employment.
C. increase unplanned investment in inventories.
D. shift the investment schedule upward and increase the equilibrium level of GDP.
123.The investment-demand curve will shift to the left as a result of:
A. an increase in the excess productive capacity available in industry.

B. a decrease in business taxes.
C. increased business optimism with respect to future economic conditions.
D. a decrease in labor costs.
124.The investment-demand curve will shift to the left:
A. if firms plan to increase their inventories.

B. if firms plan to decrease their inventories.
C. if firms expect an increase in their sales.
D. if firms expect no change in their sales.
125.Firms make planned changes to their inventories:
A. if they are expecting either faster or slower sales.

B. if they are expecting a faster sale.
C. if they are expecting a slower sale.
D. if they are expecting a decrease in labor costs.
126.The immediate determinants of investment spending are the:
A. expected rate of return on capital goods and the real interest rate.
B. level of saving and the real interest rate.
C. marginal propensity to consume and the real interest rate.
D. interest rate and the expected price level.
investment is r, then other things equal:
A. more investment will be forthcoming when i exceeds r.

B. less investment will be forthcoming when r rises.
C. r will fall as more investment is undertaken.
D. r will exceed i at all possible levels of investment.
128.Assume that for the entire business sector of a private closed economy there is $0 worth of
investment projects which will yield an expected rate of return of 25 percent or more. But there
are $15 worth of investments which will yield an expected rate of return of 20-25 percent; another
$15 with an expected rate of return of 15-20 percent; and similarly an additional $15 of
investment projects in each successive rate of return range down to and including the 0-5
percent range.
Which of the lines on the above diagram represents these data?
A. A
B. B
C. C
D. D
Assume that for the entire business sector of the economy there is $0 worth of investment
projects which will yield an expected rate of return of 25 percent or more. But there are $15 worth
of investments which will yield an expected rate of return of 20-25 percent; another $15 with an
expected rate of return of 15-20 percent; and similarly an additional $15 of investment projects in
each successive rate of return range down to and including the 0-5 percent range.
129.Refer to the above information. If the real interest rate is 15 percent, what amount of investment
will be undertaken?
A. $15
B. $30
C. $45
D. $60
130.Refer to the above information. If the real interest rate is 5 percent, what amount of investment
will be undertaken?
A. $15
B. $30
C. $45
D. $60
131.Refer to the above information. The expected rate of return curve:
A. shows a direct relationship between the interest rate and investment.

B. is also the investment-demand curve.
C. is indeterminant.
D. cannot be calculated without knowing the level of saving.
132.The investment-demand curve will shift to the right as the result of:
A. the availability of excess productive capacity.

B. an increase in business taxes.
C. businesses becoming more optimistic with respect to future business conditions.
D. an increase in the real interest rate.
133.In comparison with the consumption schedule, the investment schedule is:
A. relatively stable.
B. relatively unstable.
C. upsloping.
D. independent of the price level.
134.In contrast to the investment schedule, the consumption schedule is:
A. relatively stable.
B. relatively unstable.
C. downward sloping.
D. horizontal.
135.Which of the following is the primary explanation for most of the fluctuations in output and
employment over the course of the business cycle?
A. changes in net exports

B. changes in the marginal propensity to consume
C. abrupt changes in stock market prices
D. changes in investment expenditures
136.The simple multiplier is defined as:
A. 1 - MPS.
B. change in GDP × initial change in spending.
C. change in GDP/initial change in spending.
D. change in GDP - initial change in spending.
137.The multiplier effect means that:
A. consumption is typically several times as large as saving.

B. a small change in consumption demand can cause a much larger increase in investment.
C. a small decline in the MPC can cause equilibrium GDP to rise by several times that amount.
D. a small increase in investment can cause national income to change by a larger amount.
138.The multiplier effect indicates that:
A. a decline in the interest rate will cause a proportionately larger increase in investment.
B. a change in aggregate expenditures will change aggregate income by a larger amount.
C. a change in aggregate expenditures will increase aggregate income by the same amount.
D. a small increase in total income will generate a large change in aggregate expenditures.
139.The multiplier effect:
A. reduces the MPC.

B. magnifies small changes in spending into larger changes in output and income.
C. promotes stability of the general price level.
D. lessens upswings and downswings in business activity.
140.The multiplier is useful in determining the:
A. full-employment unemployment rate.

B. level of unintended investment or disinvestment.
C. rate of inflation.
D. change in equilibrium GDP resulting from a change in spending.
141.The practical significance of the multiplier is that it:
A. brings about an equality of planned investment and saving.

B. magnifies relatively small initial changes in spending into larger changes in GDP.
C. keeps inflation within tolerable limits.
D. helps to stabilize the economy.
142.If a $200 billion increase in investment spending creates $200 billion of new income in the first
round of the multiplier process and $160 billion in the second round, the multiplier in the economy
is:
A. 4.
B. 5.
C. 3.33.
D. 2.5.
143.If a $50 billion decrease in investment spending causes income to decline by $50 billion in the
first round of the multiplier process and by $25 in the second round, the multiplier in the economy
is:
A. 2.
B. 3.33.
C. 5.
D. 10.
144.If a $100 billion decrease in investment spending causes income to decline by $100 billion in the
first round of the multiplier process and by $75 billion in the second round, income will eventually
decline by:
A. $400 billion.
B. $300 billion.
C. $200 billion.
D. $500 billion.
145.If a $500 billion increase in investment spending increases income by $500 billion in the first
round of the multiplier process and by $450 in the second round, income will eventually increase
by:
A. $2500 billion.
B. $3000 billion.
C. $4000 billion.
D. $5000 billion.
The following table illustrates the multiplier process in a private closed economy:
146.Refer to the above table. The marginal propensity to consume is:
A. .5.
B. .8.
C. .75.
D. .9.
147.Refer to the above table. The marginal propensity to save is:
A. .5.
B. .25.
C. .2.
D. .1.
148.Refer to the above table. The change in income in round two will be:
A. $4.
B. $16.
C. $20.
D. $24.
149.Refer to the above table. The total change in income resulting from the initial change in
investment will be:
A. $100.
B. $20.
C. $80.
D. $200.
150.Refer to the above table. The total change in consumption resulting from the initial change in
investment will be:
A. $100.
B. $96.
C. $180.
D. $80.
151.Refer to the above table. The multiplier in this economy is:
A. 2.
B. 4.
C. 5.
D. 10.
152.If the marginal propensity to save is 0.2 in a private closed economy, a $20 billion rise in
investment spending will increase:
A. GDP by $120 billion.

B. GDP by $20 billion.
C. saving by $25 billion.
D. consumption by $80 billion.
153.Suppose that the level of GDP increased by $100 billion in an economy where the marginal
propensity to consume is 0.5. The initial change in spending must have been:
A. $100 billion.
B. $50 billion.
C. $500 billion.
D. $5 billion.
154.The simple multiplier is:
A. 1/MPC.
B. 1/(1 + MPC).
C. 1/MPS.
D. 1/(1 - MPS).
155.The above figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has
the highest marginal propensity to consume?
A. 1
B. 2
C. 3
D. 4
156.The above figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has
the largest multiplier?
A. 1
B. 2
C. 3
D. 4
157.The simple multiplier may be calculated as:
A. 1/(MPS + MPC).
B. 1/(1 - MPC).
C. MPC/MPS.
D. 1 - MPC = MPS.
158.The simple multiplier:
A. occurs only in response to a change in the level of investment spending.

B. can be found by taking the reciprocal of the MPS.
C. occurs only when intended investment increases as GDP increases.
D. is measured by the slope of the saving schedule.
159.The size of the simple multiplier is equal to the:
A. slope of the consumption schedule.

B. reciprocal of the slope of the consumption schedule.
C. slope of the saving schedule.
D. reciprocal of the slope of the saving schedule.
160.If the MPS is only half as large as the MPC, the multiplier:
A. is 2.
B. is 3.
C. is 4.
161.The increase in income which results from an increase in investment spending would be greater
the:
A. smaller the MPS.

B. smaller the APC.
C. larger the MPS.
D. smaller the MPC.
162.If the MPC is .6, the simple multiplier will be:
A. 4.0.
B. 6.0.
C. 2.5.
D. 1.67.
163.The simple multiplier is:
A. 1/APS.
B. 1/APC.
C. 1/MPC.
D. 1/MPS.
164.Assume the consumption schedule for a private closed economy is C = 40 + 0.75Y, where C is
consumption and Y is gross domestic product. The multiplier for this economy:
A. is 3.
B. is 4.
C. is 5.
165.Assume the saving schedule for a private closed economy is S = -20 + 0.2Y, where S is saving
and Y is gross domestic product. The multiplier for this economy:
A. is 3.
B. is 4.
C. is 5.
166.A $1 billion increase in investment will cause a:
A. (1/MPS) billion increase in equilibrium GDP.

B. (MPS) billion increase in equilibrium GDP.
C. (1 - MPC) billion increase in equilibrium GDP.
D. (MPC - MPS) billion increase in equilibrium GDP.
167.If the MPC is .70 and gross investment increases by $3 billion, the equilibrium GDP will:
A. increase by about $10 billion.

B. increase by $2.10 billion.
C. decrease by $4.29 billion.
D. increase by $4.29 billion.
168.Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will
increase by:
A. $3 billion.
B. $2/3 billion.
C. $2 billion.
D. $6 billion.
169.If the marginal propensity to consume is 0.9 in a private closed economy, a $20 billion decline in
investment spending will decrease:
A. GDP by $20 billion.

B. GDP by $100 billion.
C. saving by $20 billion.
D. consumption by $200 billion.
170.Refer to the consumption schedules shown in the above diagram for economies 1, 2, 3, and 4.
The MPC is greatest in economy:
A. 1.
B. 2.
C. 3.
D. 4.
171.Refer to the consumption schedules shown in the above diagram for economies 1, 2, 3, and 4.
Other things equal, which economy embodies the greatest degree of macroeconomic stability?
A. 1
B. 2
C. 3
D. 4
172.Suppose the government finds it can increase equilibrium real GDP by $45 billion by increasing
government purchases by $18 billion. On the basis of this information we can say that the:
A. MPS in this economy is .4.

B. MPC in this economy is .4.
C. MPC in this economy is .3
D. multiplier is 3.
173.The multiplier:
A. varies directly with the slope of the investment-demand schedule.

B. is unrelated to the slope of the saving schedule.
C. will be greater, the smaller the slope of the saving schedule.
D. will be greater, the steeper the slope of the saving schedule.
174.The simple multiplier applies:
A. only when an inflationary gap exists.

B. to shifts in the consumption and investment schedules.
C. only to shifts in the investment schedule.
D. only to shifts in the consumption schedule.
175.The numerical value of the multiplier will be smaller the:
A. larger the average propensity to consume.

B. larger the slope of the saving schedule.
C. larger the slope of the consumption schedule.
D. smaller the slope of the saving schedule.
176.The use of 1/MPS formula as the size of the multiplier in the economy, overstates the actual size
of it because:
A. saving is not the only fraction of the domestic income which is not spent.
B. saving is the only fraction of the domestic income which is not spent.
C. imports and taxes create new income in the economy.
D. imports and not taxes creates new income in the economy.
177.If DI is $275 billion and the APC is 0.8, it can be concluded that saving is $55 billion.
True False
178.If the MPC is constant at various levels of income, then the APC must also be constant at all of
these income levels.
True False
179.The average propensity to consume can be defined as income divided by consumption.
True False
180.The slope of the consumption schedule is measured by the MPC.
True False
181.1 - MPC = MPS.
True False
182.1 + MPS = MPC.
True False
183.If the Brown family's marginal propensity to consume is 0.70, then it will consume seven-tenths of
its total income.
True False
184.The slope of the consumption schedule is equal to the marginal propensity to consume.
True False
185.The wealth effect will tend to decrease consumption and increase saving.
True False
186.The reverse wealth effect will tend to decrease consumption and increase saving.
True False
187.A business firm will purchase additional capital goods if the real rate of interest it must pay is less
than the expected rate of return from the investment.
True False
188.A specific investment will be undertaken if the expected rate of returns, r, exceeds the interest
rate, i.
True False
189.The initial costs of capital goods, and the estimated costs of operating and maintaining those
goods, affect the expected rate of return on investment.
True False
190.The business investment is not based on the expected returns.
True False
191.The slope of the saving schedule measures the size of the multiplier.
True False
192.The multiplier is equal to the reciprocal of the MPC.
True False
193.The greater the MPC, the greater the multiplier.
True False
194.If the MPS is 1, the multiplier will be 1.
True False
195.Economists disagree on the actual size of the multiplier.
True False
Chapter 08 Basic Macroeconomic Relationships Key
1. The most important determinant of consumer spending is:

(p. 175)
A. the level of household debt.

B. consumer expectations.
C. the stock of wealth.
D. the level of disposable income.
Learning Objective: 08-01 The income-consumption and income-saving relationships
Level: Easy
McConnell - Chapter 08 #1
Other: Pick-up
Type: Application
2. The most important determinant of consumption and saving is the:

(p. 175)
A. level of bank credit.

B. level of disposable income.
C. interest rate.
D. price level.
Level: Easy
Other: Pick-up
Type: Application
3. The 45-degree line on a chart relating consumption and income shows:

(p. 175)
A. all points where the MPC is constant.

B. all points at which saving and income are equal.
C. all the points at which consumption and income are equal.
D. the amounts households will plan to save at each possible level of income.
Level: Easy
Other: Pick-up
Type: Application
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own I trembled as I said it—I told him I was coming to see you here,
that I would no more forsake you in your trouble than your mother
would have done. She would have clung to you in your darkest hour
because she loved you, and that I did not love you less.”
“And he did not forbid you?” cried the young man in amazement.
He knew Rupert Morrice so well, of a nature singularly kind and
generous, but hard as flint to evil-doers, to those who betrayed his
trust.
“No, he did not forbid me, Dick, and I am almost as amazed as
you are, but I think that reference to your mother softened him. It
was a long time before he spoke, and then his words came very
slowly. ‘If I allow you to do this, at any rate for the present, till I have
thought matters out further, will you give me your solemn promise
that you will only play the rôle of consoler, that you will do nothing
rash?’ Of course I knew what he meant, that we might get secretly
married. So I gave him that promise, Dick; do you blame me?”
“A thousand times No, my darling,” cried Croxton, as he took her
in his arms and kissed away the tears on the sweet face. “And
considering what he believes me to be, nay more, what he is sure I
am, I cannot but marvel at his giving his consent.”
For a long time the young people talked together, and all through
their conversation the one thought uppermost in Rosabelle’s mind
was that her lover should take steps to clear himself, that he should
not be content to rest under the unmerited stigma, that he should not
meekly consent to pass out of their lives.
“If you do not act, I shall act myself,” she told him finally.
The young man listened attentively, and hope and resolution
began to stir in him. He had been so stunned by the damning nature
of the evidence against him, by the stern attitude of his once
benevolent protector, that he had been crushed almost into
insensibility, into a benumbing of his faculties. But, as the girl spoke
in her bright, incisive way, the clouds about his brain seemed to melt.
He seemed to see himself rehabilitated, able to prove to those whom
it concerned that he was the honest man they had always believed
him to be.
“The question is how to go to work,” he said gravely. “Mr. Morrice
is right when he says that to call in Scotland Yard might lead to
disastrous consequences. But we could employ a private detective
to probe the mystery to the bottom. Even if he could not lay his
hands on the actual thief, he might be able to prove my innocence.”
Rosabelle caught eagerly at the idea. “And where can we find the
sort of man we want?”
“One of the cleverest is Gideon Lane; his office is in Shaftesbury
Avenue. I know him a little, and Mr. Morrice knows him too. We
employed him to watch a suspected clerk in our office, and he
trapped him very cleverly.”
“Would it cost much to employ him?” asked the girl anxiously. She
knew that Richard’s capital, like her own, was very small, and it was
hardly likely that Morrice would spend any money on a case he had
already pre-judged. It was not possible for her to help, for her uncle
was her trustee and not likely to allow her to adventure a penny in
such a cause.
But Croxton’s small amount of capital was entirely under his own
control, and now that he was recovering from his despairing mood,
he was fired with the desire to establish his innocence, and had no
hesitation in employing some of it for the purpose.
After a great deal of discussion as to the initial steps to be taken, it
was decided that Rosabelle should visit the detective, tell him the
whole facts, and commission him to undertake the investigation on
her own behalf. Richard would give her a brief letter of introduction to
Gideon Lane, and furnish her with money to pay a preliminary fee.
The enthusiastic girl did not allow the grass to grow under her feet.
Two days later she was seated in the waiting-room of the small suite
of offices in Shaftesbury Avenue. She had sent in her letter of
introduction and was waiting to be summoned to the presence of the
well-known detective who was, fortunately for her impatience,
disengaged. He was not many seconds reading the letter, but it
seemed hours before the restless Rosabelle saw the inner door
open, and was asked by a smart young typist to step in.
Mr. Gideon Lane rose to receive her, a tall, good-looking man with
nothing particularly remarkable about his appearance; with his clean-
shaven face and strong, resolute expression he might have been
taken for an actor, there was certainly nothing about him to suggest
an unraveller of mysteries. The most striking features in an
agreeable countenance were his eyes, which were piercing and
brilliant.
“I remember Mr. Croxton perfectly,” said the detective. “He was the
confidential secretary of Mr. Morrice, and struck me as much above
the ordinary young man in intelligence and quickness of perception. I
hope he is quite well,” he finished politely.
This remark gave Rosabelle an easy opening. “He is quite well in
health, Mr. Lane, but exceedingly unhappy, lying as he is at the
moment under the stigma of a terrible accusation.”
Mr. Lane gathered from these serious words that the girl had come
upon a grave errand. His face reflected her concern at once.
“I am very sorry to hear it, Miss Sheldon. I took rather a liking to
the young man, he seemed so open and frank. Well, please tell me
all the details, I take it you want my assistance in the matter. And
please conceal nothing from me, if you want me to give you of my
best. Let me know everything that tells against him, you will naturally
inform me of everything in his favour.”
The shrewd man of the world divined immediately that there was a
close bond between this charming girl and the accused man, and he
put her at once at her ease by adding: “I need hardly tell you that
what you say will never be divulged; you are as safe with me as if
you were in the confessional.”
He had a very ingratiating manner with him, this calm, self-
possessed man who looked more like an actor than a detective.
Rosabelle felt very much at home with him, and at once launched
forth in her narrative of the details of that eventful morning, as they
had been told her by her lover.
Mr. Lane listened to her attentively without interruption. He judged
it best to let her tell her story her own way, more particularly as she
told it very well, without redundance or repetition. His questions
would come later.
When she had finished, he sat silent for some time, while the girl
regarded him anxiously. “It is, of course, too early for you to form any
opinion?” she asked in a faltering voice, feeling the prolonged
silence somewhat of a strain upon her nerves.
He shook his head. “A great deal too early, Miss Sheldon. Of
course, it is easy to say at first blush, upon the evidence before us,
those articles could only have been abstracted by one of two
persons, Mr. Morrice or his secretary.”
“And it would be absurd to think that my uncle stole his own
property,” cried the girl swiftly.
A rather non-committal smile illumined the calm face of the
detective. “From your point of view, it would be absurd, as you most
rightly say. From mine, it would be so very difficult to discover a
plausible motive for such an act.”
She could not follow him in this subtle explanation, and waited in
silence till he began to put certain questions to her. First, with regard
to the servants, would she give him full particulars of their number,
the nature of their duties, their length of service and so on?
She supplied him with the requested information. He entered all
this in a private notebook, in a shorthand of his own invention which
nobody could read but himself.
What did the family consist of? was his next question.
“My uncle and aunt, Richard Croxton and myself. Two other
people came to the house who were practically of the family, Sir
George Clayton-Brookes, my aunt’s brother-in-law, and young
Archibald Brookes, his nephew and the son of my aunt’s sister.”
These particulars went into the notebook. “I have heard of Sir
George, he is well known on the turf, and reputed to be a man of
substance. I know nothing of the young man. Has he means of his
own, or is he dependent upon his relatives?”
“Dependent upon Sir George, I believe,” answered Rosabelle. “We
have always understood his uncle makes him a handsome
allowance, and will leave him his property.”
Mr. Lane asked a few more questions and then closed his
notebook. “Well, Miss Sheldon, that is as far as we can go at
present. Before I start, I must visit the scene of operations and take a
look at this wonderful safe. I take it that will not be easy to
accomplish without Mr. Morrice’s knowledge and permission. Is he
likely to refuse it?”
Rosabelle, needless to say, was a little dismayed. He had refused
to call in Scotland Yard, would he peremptorily refuse admission to a
private inquirer?
She hazarded her fears to Mr. Lane, who thought that he would
yield in the matter. The fact that Richard Croxton was prepared to
break into his small capital for the purpose of establishing his
innocence, should make a favourable impression upon Mr. Morrice,
however firmly he believed in the young man’s guilt. If Morrice
obstinately refused, he would be forced to revise his opinion of that
gentleman, although he was too diplomatic to say as much to
Rosabelle.
“I will tell you the principal object of my visit, Miss Sheldon. The
theft would have to be committed in a great hurry, and there are sure
to be finger-marks on the safe. I want to take a photograph of them.
If Mr. Morrice does refuse, for reasons sufficient to himself, I shall
have to get a photograph of them somehow, and in this I dare say I
shall have to avail myself of your co-operation.”
He smiled a little as he spoke. It was not the first time by many
dozens that he had gone in at the back door where he had been
refused entrance at the front, or obtained information he required in
spite of every obstacle being put in his way.
Rosabelle was quite sure she understood what he was driving at.
She would have dared anything for her lover, and if it was a question
of smuggling Mr. Gideon Lane into her uncle’s room while he was in
the city, her woman’s wit, sharpened by her love, would find a way.
“Now we will not waste time,” said the genial Mr. Lane as the
excited girl rose to take her leave. “Pending the obtaining of your
uncle’s permission to do the thing openly, I want you to co-operate
with me in a little matter. Pay Mr. Croxton a visit as soon as possible
and get him to give you an impression of his fingers. If you tell him
what you want it for, he cannot refuse.”
“But, of course, he will not refuse,” cried the girl a little indignantly.
“Would he have let me come to you if he was not prepared to face
the ordeal? And if you find, as you will, that the finger-marks on the
safe are not his, that will establish his innocence once and for all, will
it not?”
Mr. Lane seemed a trifle embarrassed by the question. “It will go a
long way,” he said, speaking with some hesitation.
“Why not the whole way?” demanded Rosabelle, and her eyes
flashed a little.
“Miss Sheldon, it is better you should not ask me too many
questions till we are more sure of our ground. We experts require a
great deal of evidence before we venture to say of any accused man
that he is absolutely innocent or absolutely guilty.”
“But if the finger-marks are proved not to be his, how can he be
guilty?” she cried obstinately.
“You force me to say what I would rather leave unsaid. But our
investigations would not be very useful if we refused to weigh not
only every probability, but also every possibility. You say that your
uncle firmly believes in this young man’s guilt, although he loved him
and treated him like a son. If he still maintains that belief, is it not
open to him to say that if Richard Croxton was not the actual thief,
he was an accomplice or an accessory? How otherwise could the
actual thief have got the necessary knowledge of that safe’s
complicated mechanism? Please understand I am not advancing this
as my own opinion, but as one that might be entertained.”
And for the first time poor Rosabelle began to see how very hard
was the task before them. The tears came into her eyes. “Oh, Mr.
Lane, what will be wanted to prove his absolute innocence? I see too
clearly the terrible difficulties in our way.”
The great detective spoke very gravely. “The surest way of proving
Mr. Croxton’s innocence is by discovering beyond any possibility of
doubt the person who opened that safe, and proving that that
person, whoever it may be, had no connection with him. To that point
my investigations will tend, with what results it is impossible for me to
foresee.”
Mr. Morrice gave his permission for the detective’s visit more
readily than Rosabelle had hoped. His attitude towards young
Croxton now seemed to be more one of sorrow and disappointment
than of the deep anger he had at first displayed. But he expressed to
her his sense of the futility of the task on which she was engaged.
She thought she knew what was passing in his keen and analytical
mind. Croxton was playing a game of bluff, perhaps for the purpose
of establishing himself firmly in the esteem of his sweetheart. And if
the finger-marks were those of somebody else, he would fall back on
the theory that Gideon Lane had already anticipated.
With Richard, her task was easy. He gave an impression of his
fingers without a moment’s hesitation, and Rosabelle carried it to
Lane with a certain sense of triumph, which would have been
complete but for those last damping words of the cautious detective.
In due course the visit was paid to the house in Deanery Street;
Rosabelle and her uncle were present. Sure enough in addition to
the recent finger-prints of Morrice and young Croxton, there was a
third set, equally recent.
The development of the photographs proved that Croxton’s finger-
prints were totally different from the third set. Lane announced his
intention of taking them to Scotland Yard in order that a search might
be made amongst their voluminous files.
His investigations on this subject completed, Lane dispatched a
brief telegram to Rosabelle asking her to call at his office. A few
minutes after its receipt, she was seated in his room feverishly
awaiting his news.
“It promises to be a deeper mystery than I thought, Miss Sheldon.
There has been some very clever and deeply thought-out work here.
I have identified the finger-prints, they are those of a well-known
professional thief named Thomas, known amongst his confederates
as ‘Tubby’ Thomas. He is an expert safe-breaker, the cleverest in
England.”
The girl’s eyes sparkled. “An expert safe-breaker!” she repeated
joyfully. “Does one want to pursue the inquiry any further? Is it not
obvious who was the thief?”
But the next moment came the slow words which fell like ice on
her heart.
“Unfortunately, the mystery is deepened, not solved. The finger-
prints are those of ‘Tubby’ Thomas, for finger-prints never lie. But
‘Tubby’ Thomas himself has for the last two years been serving a
sentence for a similar offence in Dartmoor, and he is still there.”
CHAPTER V
ROSABELLE AND LANE CONFER
D AZED as she was, cast in a moment from a feeling of elation

into one of bitter disappointment, she saw the point at once. If
the criminal known as “Tubby” Thomas was safe under lock and key,
he could not have been the thief. They were as far from the solution
of the mystery as ever, in spite of those tell-tale finger-prints which,
according to orthodox belief, never lied.
Gideon Lane was bitterly disappointed too, but he had suffered so
many checks in his time that he never allowed his fortitude to desert
him. When he discovered those finger-prints he really thought the
game was in his hands, and that, with the aid of Scotland Yard, he
could put his hand on the actual thief, as he could have done had
they been those of a criminal actively pursuing his nefarious career.
But the incarceration of the man Thomas provided an impasse.
Narrowing the issue to the only two men who were supposed to be
acquainted with the complicated mechanism of this wonderful safe,
he had thought very deeply, twisting and turning about in his keen
and alert mind the possibilities that suggested themselves.
Taking the young man himself first. According to the flattering
report of Rosabelle, he led a perfectly blameless and open life. In his
habits he was temperate, almost abstemious, he never touched a
card, he never betted, the only gambling habit he indulged in was to
take a ticket in a couple of club sweepstakes. But, of course,
Rosabelle’s report was sure to be coloured a little on the favourable
side. There are plenty of young men who lead double lives; models
of discretion and decorum to all appearances, but secretly addicted
to ruinous and discreditable vices which are only brought suddenly to
light by some accident or fatal false step.
This young man might be one of these. He might be hard pressed
for money, the victim even of some blackmailer who had become
possessed of a terrible secret in his double life, and had risked all his
bright prospects on the chance that Morrice would disbelieve the
evidence of his senses, and accept his bare denial that he was
innocent, in spite of the damning evidence against him.
But if he was clever enough to scheme out such an artfully-
planned robbery, either alone or with the aid of a confederate, would
he not be clever enough to see that scrupulous honesty and fidelity
to his employer was the best policy? For Morrice, according to
Rosabelle’s account, had treated him like a son; there was little
doubt that he intended to take him into partnership at an early date,
and would leave him a considerable slice of his vast fortune. There
was no doubt of his wealth, for, by common consent, he was reputed
to be amongst the half-dozen richest men in England.
Then there was no doubt that the two young people were lovers.
Would a man, capable of a moment’s sane thought, put in certain
jeopardy his chances of happiness with this charming and lovable
girl?
But then, of course, crimes would never be perpetrated if the
criminals could foresee all the consequences likely to flow from their
yielding to sudden impulses. At the fatal moment they appeared to
be driven forward by some blind force which, for the moment, they
were unable to fight against. And so it might have happened in the
case of this young man, who, according to Rosabelle’s testimony,
had led such a regular and blameless life.
Turning his attention to the other of the two men, Rupert Morrice
himself, the detective found the situation one of greater complexity.
Strange as it may sound, men have robbed themselves before now
and done their best to fix the guilt upon others, from more than one
sinister motive. For instance, a man knowing himself to be on the
verge of bankruptcy might, in desperation, purloin some of his own
property to put it in a safe place beyond the reach of his creditors. In
the case of this wealthy financier, whose credit stood so high, such a
theory might be at once dismissed.
At first blush, the refusal to apply to Scotland Yard might seem a
trifle suspicious, might suggest that he had a personal interest in
stifling independent investigation. But when one considered the
unusual circumstances, the action seemed only a natural one.
According to Rosabelle’s statement, Morrice had treated the
young man as a son; not only had he a great affection for him, but
that affection had been accentuated by the elder man’s passionate
love for the mother. However deep his belief in his guilt, a father
does not hand over a son to be dealt with by the stern processes of
justice. He may dismiss him from his house, he may refuse to hold
further intercourse with him, but he shields him, where possible, from
the fatal consequences of his rash act.
There was, however, one point on which he wished to be assured,
and which caused him to put a certain question to the girl.
“I am going to ask you something, Miss Sheldon, not, believe me,
from any spirit of impertinent curiosity, but because it is essential that
I should be acquainted with every little fact. I am assuming that your
interest in Mr. Croxton arises from a warmer feeling than that of mere
friendship. Am I not right in saying that there is a close bond
between you; that, to put it in plain words, you are lovers?”
Rosabelle admitted quite frankly that Lane was right in his
surmise.
“Now for my next question. Did Mr. Morrice know of this
understanding between you, and if so, did he approve of it?”
To this the girl’s answer was equally frank. Up to the day of the
robbery she could not have been absolutely certain that her uncle
did know of it, although she was pretty sure he did. Their interest in
each other was so openly displayed, that it was almost impossible it
could have escaped his observation. If he had disapproved, he
certainly would not have hesitated to express his disapproval, being
a man of the most straightforward character, who never scrupled to
express what was in his mind, or take drastic action when he judged
it necessary.
“All doubt, however, on this point was removed by what he said to
Richard on that terrible morning,” Rosabelle went on in a voice that
trembled a little. “After overwhelming him with his anger at what he
believed to be his baseness, he told him he knew we were attached
to each other, and that he would have put no obstacles in our way. It
was really as I thought. Richard was always a little dubious as to
what his attitude might be, while I never had the slightest fear. We
were both so very dear to him that I was always sure our marriage
would have given him the greatest pleasure.”
The detective considered her reply carefully, as was his invariable
custom. He never accepted any statement without probing it very
deeply, none knew better than he the futility of jumping to rash and
hasty conclusions.
“There would seem to be some reasonable ground for Mr.
Croxton’s doubts in the matter,” he said very quietly. “Kind and
generous as Mr. Morrice was to him, there was no actual blood-tie
between them; you tell me the young man had practically no money
of his own, that his future depended entirely on a continuance of his
benefactor’s favour. You, on the other hand, are a near relative and it
is to be assumed that your uncle will leave you a considerable sum.
It would be a very natural thing that he should have different views
for you, should have wished you to look a little higher than one who,
after all, was not your equal in anything but birth. At any rate, it is
what the ordinary person might think, of course; Mr. Morrice may be
an exceptional man of liberal independent views.”
“Oh, but that is just what he is,” cried the girl warmly. In spite of her
fervent belief in her lover, and perhaps a little natural resentment
against her uncle for his obstinate presumption of Richard’s guilt,
she loved him very dearly and thoroughly appreciated his sterling
qualities.
“That is just what he is, Mr. Lane,” she repeated. “Rich as he is,
hard as he works to make himself so, he does not love money for its
own sake or value the possession of it in others. One or two of his
closest friends are poor men, and he is happier in their society than
in that of millionaires like himself. He loves his business and his
work, it is true, but more for the mental excitement and stimulus they
bring than for their pecuniary results. And he doesn’t attach much
importance to birth or what the world calls position. At heart, I believe
he is a good bit of a democrat.”
“If a millionaire can be truly a democrat!” suggested Mr. Lane with
a smile. “Anyway, if he is one, there must be a good many
reservations.”
The girl’s replies to his questions had rather disposed of a
somewhat fantastic theory that had formed itself in rather nebulous
shape in his astute brain, accustomed to weigh all sorts of
possibilities and probabilities, to search for unusual and far-reaching
motives. Had Morrice engineered this theft, not for the ordinary
sordid reasons, but with the object of fixing upon the innocent
secretary a stigma that would effectually remove him from his niece’s
society? But then again, a man who could in cold blood conceive
such a scheme would be more than the vilest criminal. It would be
impossible that one of such good repute, for even his enemies and
rivals credited Morrice with the highest integrity, should stoop to such
sinister methods.
“Well, Miss Sheldon,” he said as the interview drew to a close, “I
will not disguise that I am very disappointed with the result of my visit
to Scotland Yard. When I found those strange finger-marks on the
safe, I thought we were on the right track. Now, I have got to start
again from the beginning, and I am afraid it will be a long time before
I shall make any considerable headway. I shall do my best, but it
may be that in the end I shall be beaten. I think you said you would
be going abroad very shortly.”
“Yes, we start for Mürren a week before Christmas for the winter
sports. I was so looking forward to it, but now——” The girl’s voice
faltered and she could not finish her sentence.
“I quite understand,” said Mr. Lane soothingly. “All the same it will
be better for you to get away for a time from these painful
associations. I will, of course, keep in touch with you to the day of
your departure, and communicate to you anything of importance. If
you don’t hear from me, you will know that so far I have nothing to
tell you. You will, of course, acquaint Mr. Morrice with the rather
puzzling information about the man Thomas, that while the finger-
prints are undoubtedly his, he is and has been for the last two years
in prison.”
It all seemed very hopeless, she thought, as she rose to leave. It
was useless to ask Lane if he had formed any theory; she had seen
enough of the man to know that he would not say a word till he felt
himself justified in speaking.
“One little thing before you go, Miss Sheldon. Will you kindly let
me know your aunt’s maiden name, and, if you possess them, any
particulars of her family.”
Rosabelle did not know much beyond the fact that she was a Miss
Larchester; that her sister, no longer living, the mother of Archie
Brookes, had married a younger brother of Sir George. She was not
quite sure but she fancied that, as a girl, Mrs. Morrice’s home had
been in Sussex, but she did not know in what part. The lady very
seldom alluded to her past life. Her Christian name was Lettice.
Mr. Lane entered the scanty information in his notebook, then,
after Rosabelle’s departure, he rang up White’s Club and inquired for
a Mr. Sellars. In a few moments this gentleman was speaking to him.
“Good-day, Mr. Sellars. I should be obliged if you would come
round to me as soon as convenient.”
The reply was that the owner of the name would at once put
himself in a taxi and be there in a few minutes.
CHAPTER VI
LANE ENGAGES AN ASSISTANT
M R. SELLARS, Reggie Sellars as he was known to his intimates,

was a tall, good-looking young man of about thirty, of the
aristocratic type, with aquiline features and an elegant figure.
Following no settled occupation or profession, he formed one of that
numerous brigade of men-about-town who belong to good clubs,
frequent respectable society and always seem to have plenty of
money for their personal wants, although nobody knows the exact
source of their incomes, or how they contrive to present such a good
appearance.
These men are usually very scrupulous in money matters, pay
their bets promptly when they lose and expect to be paid as promptly
when they win, are never behindhand in a club subscription, liberal
but not ostentatious in their tips to waiters. Many of them, in fact
most, have a small annuity which forms the nucleus of their income;
how the rest of that income is earned is often a puzzle to even their
most intimate friends.
Mr. Sellars was one of a large family, some twelve in all, sons and
daughters. His father had left capital bringing in about fifteen
hundred a year to be divided amongst this numerous offspring. This
brought Reggie in the modest competence of about a hundred odd
pounds a year. He dressed very well, and his tailor must have taken
more than that. It was obvious, therefore, that he had a knack of
picking up money somehow and somewhere, as he belonged to
several clubs, frequented fashionable society, and was by no means
an anchorite in his tastes.
As a matter of fact, he lived on his wits, using the expression in a
perfectly respectable sense. He furnished gossip to a well-known
Society newspaper for which he received a liberal remuneration; he
was a scientific backer of horses, he played a first-rate hand at
bridge, sometimes he got a handsome fee for initiating some
nouveau riche into the mysteries of fashionable life. Since his
acquaintance with Mr. Gideon Lane, he had often been useful to that
gentleman, and had been paid well for his services.
They had met at a Bohemian club to which both men belonged, for
Reggie Sellars, although of very good family and an aristocrat by
instinct and connection, was by no means exclusive, and was
equally at home in Bohemia and Mayfair.
At first Lane had not been attracted to the young man, whom he
regarded as the usual type of lounger who led a life of aimless
pleasure, a mere idler with whom he was not likely to have anything
in common. And, truth to tell, although in a certain way he was one of
the shrewdest fellows alive, Sellars’ good-looking countenance did
not furnish any striking evidence of mentality or strenuous impulse.
But one night in the smoking-room the two got into a conversation
on the subject of criminals and criminology, and Lane found that this
seemingly idle, pleasure-loving young man, with apparently no
thoughts beyond the race-course and the bridge-table, displayed a
keen knowledge and a swift power of deduction that astonished him.
Lane had a considerable clientèle amongst persons high up in the
social scale, he frequently wanted to obtain special information about
people belonging to or moving in fashionable circles. Into such
quarters he was unable to penetrate himself for obvious reasons.
Here was a man just fitted for the job, keen, quiet, quick in resource;
a man, in short, disguising a considerable mentality under a most
deceptive exterior. Lane suggested that there was certain work in
which his previous knowledge and facilities of approach could be of
material assistance to him. Mr. Reginald Sellars, the good-looking
young man-about-town, jumped at the proposal, and Lane had to
confess that, in his own line, he had never possessed a more
competent lieutenant.
He was just the man for the Morrice job, or at any rate one
particular portion of it, and that was why the busy and brainy
detective had rung him up to-day.
“Not been very long, eh, Lane?” was the young man’s greeting as
he entered the private room. “Always ready for business, you know,
for anything that brings grist to the mill. I hope you’ve got something
good for me.”
At his fashionable clubs, in the society of his aristocratic friends,
he cultivated a rather languid manner. When he talked to practical
people like Lane his tone was brisk, his whole manner alert.
The detective went to the point at once. “Of course, you know of
Rupert Morrice, the big financier, most probably you are personally
acquainted with him?”
“Known him for years, he was rather a pal of my father’s, used to
give him a good tip now and then for his investments,” was the
answer. “Can’t say I’m one of the intimates of the house, but always
get a card for their big things, have been asked twice, I think, to fill
up a dinner-party. What’s up?”
But without answering his question, Lane asked one himself. “We
all know the man’s story, that is public property. But what about Mrs.
Morrice; do you know anything about her antecedents, her family,
her history, before she met her husband?”
Sellars shook his head. “I’ve never heard, I don’t think anybody
has. A very charming woman, well-bred and all that, does the
honours perfectly, but never seems to talk about herself as most of
her sex do. The only thing I can remember is that some few years
ago a nephew was introduced, a young chap named Archie Brookes,
who was also a nephew of Sir George Clayton-Brookes who is as
well-known in London as the Monument. Her sister married his
younger brother, we were told.”
“You don’t know her maiden name?”
“No, but that of course can easily be got at Somerset House,” said
the bright young man who had proved such an able colleague.
“Of course, I know that, but we need not go there. I have got the
name, a rather uncommon one. She was a Miss Lettice Larchester,
and I believe she hails from somewhere in Sussex.”
“And you want me to find out all about her before she became
Mrs. Morrice, eh? He met her and married her abroad, I suppose you
know that. He was awfully gone on Mrs. Croxton, the mother of that
young chap whom he practically adopted and who acts as his
secretary. It is said he remained a bachelor for years because of
her.”
Reggie Sellars’ knowledge of the annals of the people who moved
in certain circles was of the most exhaustive nature. And he had a
memory like a vice; he never forgot a fact or a date, and never
confused one history with another. He was certainly a most
deceptive person. To look at him you would never imagine he would
take the slightest trouble to acquire any knowledge that was not
strictly necessary for his own immediate purposes.
“Yes, I want you to find out all you can about her; of course you will
make your inquiries very discreetly. But, there, I need not warn you
of that. You are always discreet.”
And in truth he was. He could pursue the most delicate
investigations without giving himself away for a second.
“Well, now, you haven’t given me an inkling of what’s up yet, and
you know I’m not fond of working in the dark. Why this sudden
interest in Mrs. Morrice’s past?”
Lane was not addicted to telling more than he could help, for
secrecy had become an ingrained habit with him. But the young man
was a bit touchy on some things. He was especially so on the point
that perfect confidence should be reposed in him, and it must be
admitted that that confidence was never abused. He was a perfectly
honourable young fellow, and his word was better than the bond of a
good many people.
So Lane told him the salient details of the robbery in Deanery
Street, ending with the remarkable discovery of the finger-prints of
“Tubby” Thomas, and the incarceration of that accomplished
criminal.
The quick mind of Sellars speedily grasped the complicated nature
of this puzzling case. “By Jove, it wants a bit of thinking out, doesn’t
it, Lane? In the meantime, according to your invariable custom, you
are suspecting everybody, including Mrs. Morrice; the secretary, of
course, and Morrice himself, and naturally the Brookes’s, uncle and
nephew.”
Lane smiled. “I intend to know everything I can about every one of
them. I exclude the servants, it is too deep a job for any of them.”
“And what about that pretty girl, the niece, what’s her name—eh,
Miss Sheldon? You’ve got your eye on her, of course?” He spoke in
rather a joking manner, for he often rallied Lane on his tendency to
reverse the usual principle of British law and believe everybody to be
guilty till his innocence was fully established.”
“She is a very charming young lady,” replied the detective a little
grimly, for he did not relish being chaffed. “But I shall certainly not
exclude her from the scope of my investigations if all others fail. Well
now, look here, Mr. Sellars, I expect it will take you a little time to get
at Mrs. Morrice’s history. What do you know about this Clayton-
Brookes and his nephew? The uncle is a great racing man, I
understand, and you are amongst the racing set.”
“I know Sir George just a little, we nod to each other when we
meet, but I don’t think I have exchanged half a hundred words with
him in my life. Archie Brookes I know about as well. But I can tell you
this, he is not popular; most people think him a bit of a bounder. Do
you want me to investigate in that quarter too?”
“Yes, I wish you to find out all you can. I want you to discover
particularly what is known about the young man’s father who,
according to what we are told, married Mrs. Morrice’s sister.”
“Right, it shall be done,” replied Sellars. “Now, as I have said, I
don’t know either of the men well, and I can’t get any information
from them. But I do know pretty intimately a man who is a great pal
of Sir George; he’s a member of White’s, a good, garrulous sort of
person, and he’ll talk by the hour when you once get him started. I’ll
tap him as soon as I can get the chance. He’s much older than I, of
course, but we are rather pals, and I’ll make him give me what I
want.”
Lane did not possess a very keen sense of humour, his calling did
not greatly encourage it, but he was a bit tickled by the gusto with
which this remarkable young man, who hid his talents so
successfully under that indifferent exterior, set about the task of
extracting information from his numerous friends and acquaintances.
For it was one of his greatest assets, moving as he did in so many
various circles, that if he could not get what he wanted directly, he
could always do so indirectly. Here, for example, although he did not
know Sir George very well, he was more than intimate with that
gentleman’s great friend, whom, of course, he could pump with
greater freedom than Sir George himself. Presently he took his
leave, promising to let Lane know the result of his investigations at
the earliest moment.
He appeared a couple of days later. “He rose to the fly beautifully,”
he said in that brisk voice which he always assumed when he was
engaged on strict business. “He has got it all pat. Sir George had a
younger brother Archibald, a bit of a rolling-stone. He couldn’t make
good here, so his family packed him off to Australia to try what a
change of climate might do. He didn’t do very well there, but he
didn’t come back. He married—but my friend doesn’t know the
maiden name of his wife; Sir George had either never mentioned it,
or he had forgotten it. Anyway, there was one child, the boy Archie,
named after his father. The mother died a few years after his birth.
The father died later in Melbourne. When the young one was grown
up, Sir George sent for him to come home, and adopted him. There’s
the whole history cut and dried for you.”
“And very lucidly told too,” said Mr. Lane approvingly. Sellars knew
him well now, and he inferred from the careful way in which he
entered the details in his notebook that he attached great importance
to the information. So he did, much more than the young man
guessed; this he was to learn later on.
To be a really great detective a man must have a certain amount
of inspiration and imagination, and Lane possessed both these in a
remarkable degree. While ruminating over the various problems of
this puzzling case, one of these flashes of inspiration had come to

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Macroeconomics Canadian 13th Edition

MCCONNELL Test Bank

A. the level of household debt.

2. The most important determinant of consumption and saving is the:

A. level of bank credit.

3. The 45-degree line on a chart relating consumption and income shows:

A. all points where the MPC is constant.

4. The consumption schedule shows:

A. that the MPC increases in proportion to GDP.

6. The consumption schedule relates:

A. consumption to the level of disposable income.

7. A decline in disposable income:

A. increases consumption by moving upward along a specific consumption schedule.

8. The consumption schedule shows:

A. a direct relationship between aggregate consumption and accumulated wealth.

A. an inverse and stable relationship exists between consumption and income.

A. an income equal to OE.

16. If the consumption schedule is linear, then the:

A. saving schedule will also be linear.

17. As disposable income increases, consumption:

A. and saving both increase.

18. If the MPC is .8 and the disposable income is $200, then

A. consumption and saving cannot be determined from the information given.

A. subtracting the MPC from "one" at each level of income.

A. saving will decline absolutely and as a percentage of income.

A. increases by the same amount as the increase in income.

22. Dissaving means:

A. the same thing as disinvesting.

23. Dissaving occurs where:

A. income exceeds consumption.

A. the MPC equals 1.

26. Refer to the above diagram. The economy is dissaving:

A. in the amount CD.

27. Refer to the above diagram. At disposable income level D, consumption:

30. The equation for the above saving schedule is:

36. The average propensity to consume indicates the:

A. amount by which income exceeds consumption.

37. As disposable income goes up the:

A. change in consumption/change in income

39. The APC can be defined as the fraction of a:

A. change in income which is not spent.

A. greater than 100 percent.

A. the MPC is 1.00.

A. MPC is greater than 1.

A. multiplying total income by the slope of the consumption schedule.

44. As aggregate income decreases, the APC:

A. and APS will both increase.

45. As aggregate income increases, the APC:

A. and APS will both increase.

A. none of the consumption schedules shown.

A. none of the consumption schedules shown.

A. none of the consumption schedules shown.

A. consumption spending will be $14,500.

51. With an MPS of .4, the MPC will be:

A. 1.0 minus .4.

A. change in income which is not spent.

53. If Ben's MPC is .80, this means that he will:

A. spend eight-tenths of any increase in his disposable income.

A. MPC is greater in B than in A.

A. the marginal propensity to save is 21/2 percent.

65. Refer to the above data. The marginal propensity to consume:

A. is highest in economy (1).

A. is highest in economy (1).