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Chapter 7
1. What is the difference between a temporary growth slowdown and a recession?

ANS:
During a temporary growth slowdown, the real GDP growth rate declines but does not turn negative.
During a recession, the real GDP growth rate becomes negative.

PTS: 1 DIF: basic NAT: Changes in spending cause fluctuations in


production

2. Graphically show the difference between what is meant by a growth slowdown as opposed to a
recession.

ANS:
The figure below is an example of a growth slowdown. Notice that at point a, the rate of growth slows
down without turning negative. Sooner or later, there is a slump – if the growth rate of spending is less
than the growth rate of potential GDP.

The figure below is an example of a recession. Notice that at point a, the rate of growth becomes
negative.

PTS: 1 DIF: challenging NAT: Changes in spending cause fluctuations in


production

3. The textbook defines economic fluctuations as


a. the rise and fall of real GDP.
b. periods when there is excessive GDP volatility.
c. periods when the economy is in either a recession or a boom.
d. departures of the economy from its long-term growth trend.
e. the rise and fall of unemployment.
ANS: D PTS: 1 DIF: basic
NAT: Introduction

4. Between December 2007 and June 2009


a. the United States economy was in recession and millions of jobs were lost.
b. the United States economy moved upward and millions of jobs were created.
c. the United States economy grew, but not many jobs were created.
d. the United States economy moved downward, but still many jobs were created.
e. the United States economy remained stationary.
ANS: A PTS: 1 DIF: basic
NAT: Introduction

5. Over the15 or 20 years before the global financial crisis, economic fluctuations
a. became more severe than in the past.
b. occurred more often than in the past.
c. had not changed in severity when compared to past economic fluctuations.
d. became less severe than in the past.
e. occurred just as often as in the past.
ANS: D PTS: 1 DIF: basic
NAT: Introduction

6. True or False. Economic fluctuations have been common for at least 200 years, but they have
diminished in frequency and severity in the United States and many other countries, particularly in the
last 25 years.

ANS: T PTS: 1 DIF: moderate


NAT: Introduction

7. T or F. Economic fluctuations have been common only since the beginning of the 20th century, when
governments began to expand their interventions in markets.

ANS: F PTS: 1 DIF: basic


NAT: Introduction

8. Changes in total domestic spending occur when


a. foreign countries are experiencing recession.
b. the government changes the tax laws.
c. the government reduces military spending.
d. consumers become more optimistic about the future and increase their spending.
e. All of these.
ANS: E PTS: 1 DIF: moderate
NAT: Introduction

9. The economist who, in the 1930s, stressed that the Great Depression was a result of insufficient
spending was
a. Milton Friedman.
b. Robert Malthus.
c. Alfred Marshall.
d. Joseph Schumpeter.
e. John Maynard Keynes.
ANS: E PTS: 1 DIF: moderate
NAT: Introduction

10. T or F. An improvement in consumer confidence will affect the growth rate of the economy.

ANS: T PTS: 1 DIF: basic


NAT: Introduction

11. T or F. A recession in other countries has no effect on forecasted growth in this country.

ANS: F PTS: 1 DIF: basic


NAT: Introduction

12. Which of the following is true?


a. Potential GDP is determined by the available supply of labour, capital, and technology
only in the long run.
b. Real GDP is determined by aggregate expenditure only in the short run.
c. Potential GDP is equal to aggregate expenditure in the long run.
d. Real GDP is determined by aggregate expenditure only in the long run.
e. Potential and real GDP are always equal.
ANS: C PTS: 1 DIF: moderate
NAT: Introduction

Exhibit 7.1

13. According to Exhibit 7.1, line abd shows the path of potential GDP. Suppose that the Year 2 spending
balance has the economy at point b where real GDP equals potential GDP. Which of the following
would cause the economy to be at point c in Year 3?
a. There is an increase in wealth.
b. Firms decrease their optimism about the state of the economy.
c. The marginal propensity to consume decreases.
d. The quantity of imports increases.
e. The government increases taxes.
ANS: A PTS: 1 DIF: moderate
NAT: Changes in spending cause fluctuations in production
14. According to Exhibit 7.1, line abd shows the path of potential GDP. In Year 2, suppose the
expenditure line intersects the 45-degree line at the level of spending corresponding to point b. If, in
Year 3, the economy is at point c, then
a. the expenditure line has shifted up the 45-degree line more than it would have if real GDP
equalled potential GDP in Year 3.
b. the expenditure line has shifted down the 45-degree line.
c. the expenditure line has shifted up the 45-degree line and equals a level of income greater
than real GDP.
d. the expenditure line has shifted up the 45-degree line to a point where real GDP equals
potential GDP in Year 3.
e. potential GDP has risen, and we’ve moved to a new point of spending balance.
ANS: A PTS: 1 DIF: moderate
NAT: Changes in spending cause fluctuations in production

15. According to Exhibit 7.1, line abd shows the path of potential GDP. In Year 2, suppose the
expenditure line intersects the 45-degree line at the level of spending corresponding to point b. If, in
Year 3, the economy is at point e, then
a. the expenditure line has shifted up the 45-degree line to a point where real GDP equals
potential GDP in Year 3.
b. the expenditure line has shifted up the 45-degree line, but the level of income is less than
the amount corresponding to real GDP.
c. the expenditure line has shifted down the 45-degree line.
d. the expenditure line has shifted up the 45-degree line more than it would have if real GDP
equalled potential GDP in Year 3.
e. potential GDP has declined, and we’ve moved to a new point of spending balance.
ANS: C PTS: 1 DIF: moderate
NAT: Changes in spending cause fluctuations in production

16. T or F. If the economy is growing along the same path as potential GDP, the expenditure line will not
shift over time.

ANS: F PTS: 1 DIF: moderate


NAT: Changes in spending cause fluctuations in production

17. At the end of a recession, typically


a. real GDP is greater than potential GDP.
b. potential GDP is greater than real GDP.
c. potential GDP is less than real GDP.
d. real GDP is falling.
e. potential GDP equals real GDP.
ANS: B PTS: 1 DIF: moderate
NAT: Changes in spending cause fluctuations in production

Exhibit 7.2
18. According to Exhibit 7.2, which of the following is true?
a. All recessions are of the same duration.
b. In normal times, real GDP is above potential GDP.
c. Aggregate demand fell between year B and year D.
d. Potential GDP fell between year B and year D.
e. Unemployment rose between year D and year F.
ANS: C PTS: 1 DIF: basic
NAT: Changes in spending cause fluctuations in production

19. According to Exhibit 7.2, which of the following best explains the change in real GDP from year B to
year D?
a. The supply of labour fell.
b. Foreigners decided to purchase more of our goods.
c. The government cut taxes.
d. Consumers became more optimistic.
e. Firms became more pessimistic.
ANS: E PTS: 1 DIF: moderate
NAT: Changes in spending cause fluctuations in production

20. In a boom year,


a. potential GDP equals real GDP.
b. prices fall.
c. total spending exceeds potential GDP.
d. prices rise.
e. potential GDP is greater than real GDP.
ANS: C PTS: 1 DIF: basic
NAT: Changes in spending cause fluctuations in production

21. To compare economic fluctuations in different countries, one should look at


a. the per cent difference between real and nominal GDP.
b. the difference between potential and real GDP measured in dollars.
c. the difference between real and nominal GDP measured in dollars.
d. the difference between aggregate demand and real GDP measured in dollars.
e. the per cent difference between potential and real GDP.
ANS: E PTS: 1 DIF: moderate
NAT: Changes in spending cause fluctuations in production
22. T or F. The economy’s long-term growth trend for GDP is known as real GDP and is determined by
the available supply of capital, labour, and technology.

ANS: F PTS: 1 DIF: moderate


NAT: Changes in spending cause fluctuations in production

23. T or F. Potential GDP represents what firms would want to produce in ‘normal times’, when the
economy is in neither a recession nor a boom.

ANS: T PTS: 1 DIF: moderate


NAT: Changes in spending cause fluctuations in production

24. In mature economies, manufacturing capacity utilisation in normal times typically equals
a. 60 per cent.
b. 90 per cent.
c. 70 per cent.
d. 100 per cent.
e. 80 per cent.
ANS: E PTS: 1 DIF: basic
NAT: Changes in spending cause fluctuations in production

25. When the unemployment rate is equal to the natural unemployment rate, capacity utilisation in mature
economies is usually close to
a. 80 per cent.
b. 90 per cent.
c. 70 per cent.
d. 60 per cent.
e. 100 per cent.
ANS: A PTS: 1 DIF: moderate
NAT: Changes in spending cause fluctuations in production

26. If capacity utilisation in a mature industrialised economy is 95 per cent,


a. the unemployment rate will probably be below the natural rate of unemployment.
b. the unemployment rate will approximately equal the natural unemployment rate.
c. real GDP approximately equals potential GDP.
d. workers will be laid off.
e. real GDP is below potential GDP.
ANS: A PTS: 1 DIF: moderate
NAT: Changes in spending cause fluctuations in production

27. When the unemployment rate drops below the natural unemployment rate,
a. the economy is in a recession.
b. real GDP is rising above potential GDP.
c. real GDP is falling below potential GDP.
d. the capacity utilisation rate is declining.
e. All of these.
ANS: B PTS: 1 DIF: moderate
NAT: Changes in spending cause fluctuations in production

28. Which of the following does not occur when real GDP rises above potential GDP?
a. The unemployment rate falls below the natural unemployment rate.
b. The capacity utilisation rate increases.
c. Firms increase their prices.
d. Capacity utilisation exceeds 100 per cent.
e. Demand increases.
ANS: D PTS: 1 DIF: basic
NAT: Changes in spending cause fluctuations in production

29. T or F. When firms are at full capacity, real GDP equals potential GDP.

ANS: F PTS: 1 DIF: moderate


NAT: Changes in spending cause fluctuations in production

30. T or F. In normal times, when the economy is in neither a recession nor a boom, manufacturing
capacity utilisation is at 100 per cent.

ANS: F PTS: 1 DIF: basic


NAT: Changes in spending cause fluctuations in production

31. T or F. The actual unemployment rate will fall below the natural unemployment rate when real GDP
rises above potential GDP.

ANS: T PTS: 1 DIF: basic


NAT: Changes in spending cause fluctuations in production

32. T or F. To forecast real GDP, economic forecasters divide aggregate demand into its four key
components: private sector, public sector, investment sector, and foreign sector.

ANS: F PTS: 1 DIF: basic


NAT: Changes in spending cause fluctuations in production

33. Changes in total domestic spending mean that producers need to consider whether to change output or
change price or both. If price adjustment is small because of ____, the response of production is ____
a. menu costs ; small.
b. implicit contracts ; large.
c. limited information ; zero.
d. All of these.
e. nominal flexibilities ; zero
ANS: B PTS: 1 DIF: moderate
NAT: Limited information and implicit contracts

34. Suppose the economy is booming and many firms begin to experience an increase in the demand for
their goods and services.
a. Suppose the firms do not know whether the change is temporary or permanent. How will
they adjust price and output?
b. Suppose the firms determine that the change is permanent. How will they adjust price
and output?
c. Explain the relationship between imperfect information and economic fluctuations based
on your answers to (a) and (b) above.

ANS:
a. They will increase output first and decide on price later. Many firms have some excess
capacity, so they can easily adjust output first. The price adjustment will come later after
they evaluate whether the change is temporary or permanent. In addition, the idea of
implicit contracts suggests that firms are reluctant to change price frequently.
b. They will increase price. As price increases, some of the increase in demand will be
offset.
c. With imperfect information, firms adjust output first, based on demand, and price later.
Fluctuations are larger than if firms had perfect information, in which case firms would
change price for permanent changes but not for temporary changes.

PTS: 1 DIF: moderate NAT: Understanding and applying economic models

35. Supporters of real business cycle theories argue that economic fluctuations are a response to changes
in
a. money velocity.
b. the money supply.
c. production possibilities.
d. real GDP.
e. aggregate demand.
ANS: C PTS: 1 DIF: basic
NAT: Could economic fluctuations also be due to changes in potential GDP?

36. A macroeconomic theory that stresses the fact that shifts in potential GDP are a primary cause of
fluctuations in real GDP is known as
a. potential GDP theory.
b. real business cycle theory.
c. economic cycle theory.
d. perennial growth theory.
e. None of these.
ANS: B PTS: 1 DIF: moderate
NAT: Could economic fluctuations also be due to changes in potential GDP?

37. Which of the following would a real business cycle theorist emphasise as a primary cause of economic
fluctuations?
a. Changes in the weather that severely impact the agricultural sector
b. Changes in investment spending
c. Changes in technology
d. Changes in taxes
e. Changes in government spending
ANS: C PTS: 1 DIF: moderate
NAT: Could economic fluctuations also be due to changes in potential GDP?

38. Changes in the factors that underlie potential GDP growth


a. are the major sources of economic fluctuations.
b. evolve too quickly to be able to explain economic fluctuation.
c. are as important as changes in aggregate demand in explaining economic fluctuations.
d. evolve too slowly to be able to explain economic fluctuations.
e. were, until the 1920s, a valid explanation of economic fluctuations.
ANS: D PTS: 1 DIF: moderate
NAT: Could economic fluctuations also be due to changes in potential GDP?

39. T or F. Economic fluctuations are largely a result of changes in aggregate demand.


ANS: T PTS: 1 DIF: basic
NAT: Could economic fluctuations also be due to changes in potential GDP?

40. T or F. Real business cycle theories focus on changes in potential GDP as the source of economic
fluctuations.

ANS: T PTS: 1 DIF: basic


NAT: Could economic fluctuations also be due to changes in potential GDP?

41. T or F. In real business cycle theories, changes in tastes are most frequently assumed to be the reason
for changes in potential GDP.

ANS: F PTS: 1 DIF: basic


NAT: Could economic fluctuations also be due to changes in potential GDP?

42. T or F. Potential GDP growth is relatively smoother than aggregate demand growth.

ANS: T PTS: 1 DIF: moderate


NAT: Could economic fluctuations also be due to changes in potential GDP?

43. Explain the connection between fluctuations in the unemployment rate around the natural rate of
unemployment and fluctuations in real GDP around potential GDP.

ANS:
Real GDP rises above potential GDP when aggregate demand rises. This increase in demand causes
firms to increase their capacity utilisation. As production expands, more workers are employed, thus
causing the unemployment rate to fall below the natural rate.

Real GDP falls below potential GDP when aggregate demand falls. The reduction in demand causes
firms to reduce their capacity. As production decreases, the amount of workers employed declines. The
decline in employment causes the unemployment rate to rise above the natural rate.

PTS: 1 DIF: moderate NAT: Measuring the economy

44. Is it possible for economic fluctuations to occur for reasons not associated with changes in aggregate
demand? Explain.

ANS:
Yes. Some economists believe that fluctuations can occur as a result of changes in potential GDP. In
particular, they argue that fluctuations are a response to technological shocks.

PTS: 1 DIF: moderate


NAT: Could economic fluctuations also be due to changes in potential GDP?

45. Why are most economists sceptical about the real business cycle theory of economic fluctuations?

ANS:
They are sceptical because the factors that determine potential GDP grow smoothly and gradually over
time. Aggregate demand, however, exhibits more variability in its growth.

PTS: 1 DIF: moderate NAT: Could economic fluctuations also be due to


changes in potential GDP?
46. Which of the following relationships do forecasters use to make their one-year-ahead predictions for
real GDP?
a. Real GDP is the sum of consumption, investment, government expenditure, and net
exports.
b. Real GDP is determined by the amount of capital, labour, and technology available in the
economy.
c. Real GDP is mostly determined by the growth in the money supply.
d. Real GDP in any year should equal MV/P.
e. Real GDP equals nominal GDP during the base year.
ANS: A PTS: 1 DIF: basic
NAT: Could economic fluctuations also be due to changes in potential GDP?

47. T or F. Consumption is usually the largest component of total spending.

ANS: T PTS: 1 DIF: basic


NAT: Consumption spending during fluctuations in GDP

48. The consumption function originated with


a. Edmund Phelps.
b. John Maynard Keynes.
c. Robert Lucas.
d. Milton Friedman.
e. Joseph Schumpeter.
ANS: B PTS: 1 DIF: basic
NAT: Consumption spending during fluctuations in GDP

49. The consumption function shows the relationship between consumption and
a. the interest rate.
b. the money supply.
c. the price level.

d. potential GDP.
e. income.
ANS: E PTS: 1 DIF: basic
NAT: Consumption spending during fluctuations in GDP

50. According to the consumption function, as income increases, consumption


a. increases by the same amount.
b. decreases by a smaller amount.
c. decreases by a greater amount.
d. increases by a greater amount.
e. increases by a smaller amount.
ANS: E PTS: 1 DIF: moderate
NAT: Consumption spending during fluctuations in GDP

51. The consumption function describes


a. the negative relationship between consumption and government spending.
b. the positive relationship between consumption and income.
c. the negative relationship between consumption and the interest rate.
d. the negative relationship between consumption and income.
e. the positive relationship between consumption and the interest rate.
ANS: B PTS: 1 DIF: basic
NAT: Consumption spending during fluctuations in GDP

52. The relationship describing how consumption depends on income is known by economists as
a. the income function.
b. the budget constraint function.
c. the purchasing power function.
d. the affordability function.
e. None of these
ANS: E PTS: 1 DIF: moderate
NAT: Consumption spending during fluctuations in GDP

53. The slope of the consumption function is equal to


a. the nominal interest rate.
b. the real interest rate.
c. the marginal propensity to consume.
d. the relative price of consumption.
e. the marginal propensity to save.
ANS: C PTS: 1 DIF: moderate
NAT: Consumption spending during fluctuations in GDP

Exhibit 7.3

54. Given the data in Exhibit 7.3, what is the marginal propensity to consume?
a. 0.80
b. 0.90
c. 0.75
d. 1.25
e. 0.60
ANS: A PTS: 1 DIF: moderate
NAT: Consumption spending during fluctuations in GDP

55. Given the data in Exhibit 7.3, what is the level of consumption if income increases to 400?
a. 480
b. 450
c. 515
d. 465
e. 470
ANS: E PTS: 1 DIF: moderate
NAT: Consumption spending during fluctuations in GDP

56. If the consumption function is C = 200 + 0.8Y, which of the following is true?
a. This economy’s consumption is 300 when income is 100.
b. When income increases by 100, consumption increases by 90.
c. This economy’s consumption is 200 when income is 0.
d. The marginal propensity to consume in this economy is .2.
e. When income increases by 100, consumption increases by 20.
ANS: C PTS: 1 DIF: moderate
NAT: Consumption spending during fluctuations in GDP

57. If the consumption function is C = 1,000 + 0.87Y, then what is the marginal propensity to consume?
a. 1,000
b. 0.87
c. 0.13
d. 870
e. None of these
ANS: B PTS: 1 DIF: moderate
NAT: Consumption spending during fluctuations in GDP

58. Which of the following consumption functions has a marginal propensity to consume equal to 0.95?
a. C = 95 + 0.87Y
b. C = 0.95 + 0.87Y
c. C = 1,000 + 0.05Y
d. C = 1,000 + 95Y
e. None of these
ANS: E PTS: 1 DIF: challenging
NAT: Understanding and applying economic models

59. The marginal propensity to consume is best defined as


a. the change in consumption expenditure caused by an increase in the interest rate.
b. the change in consumption expenditure caused by a one-unit increase in income.
c. the change in real GDP caused by a change in consumption expenditure.
d. the change in consumption expenditure caused by a change in some other spending
category.
e. total consumption divided by total income.
ANS: B PTS: 1 DIF: basic
NAT: Consumption spending during fluctuations in GDP

60. When Tom’s income is $20,000, he spends $18,000 and when his income increases to $30,000, he
spends $23,000. His MPC is
a. 0.3.
b. 0.5.
c. 0.65.
d. 0.77.
e. 0.90.
ANS: B PTS: 1 DIF: moderate
NAT: Consumption spending during fluctuations in GDP

61. If two successive levels of disposable personal income are $160 and $190 billion, respectively, and if
the change in consumption spending is $20 billion between these two levels of disposable personal
income, then the MPC will equal
a. 0.50.
b. 0.67.
c. 0.80.
d. 0.20.
e. 1.50.
ANS: B PTS: 1 DIF: challenging
NAT: Consumption spending during fluctuations in GDP

62. If the marginal propensity to consume declines, then


a. for any given change in income, there will be a smaller change in saving.
b. nothing will happen to the consumption function.
c. for any given change in income, there will be a larger change in consumption.
d. for any given change in consumption, there will be a smaller change in income.
e. for any given change in income, there will be a smaller change in consumption.
ANS: E PTS: 1 DIF: challenging
NAT: Consumption spending during fluctuations in GDP

63. Which of the following statements is false?


a. Aggregate income is equal to real GDP.
b. The consumption function is a linear relationship between consumption and income.
c. The consumption function shows the relationship between consumption and disposable
income.
d. The consumption function shows the relationship between consumption and real GDP.
e. The consumption function is represented as a non-linear relationship between
consumption and income.
ANS: E PTS: 1 DIF: basic
NAT: Consumption spending during fluctuations in GDP

64. The consumption function for the whole economy


a. looks different when real GDP is used instead of disposable income.
b. looks similar for either real GDP or disposable income.
c. is non-linear when real GDP is used.
d. is non-linear when aggregate income is used.
e. is non-linear when disposable income is used instead of real GDP.
ANS: B PTS: 1 DIF: moderate
NAT: Consumption spending during fluctuations in GDP

65. Which of the following statements is true?


a. A change in sales tax has no effect on disposable income.
b. Interest and dividend payments are not included in disposable income.
c. A decrease in transfer payments reduces disposable income.
d. Household consumption is not sensitive to changes in disposable income.
e. All of these.
ANS: C PTS: 1 DIF: moderate
NAT: Consumption spending during fluctuations in GDP

66. Disposable income is the income that households


a. save for entertainment purposes and vacations.
b. receive in wages, dividends, and interest payments minus taxes they pay to the
government and minus mortgage payments.
c. have available for saving, once the necessary living expenses have been subtracted from
the wages, dividends, and interest payments they receive.
d. receive in wages, dividends, and interest payments plus transfers they may receive from
the government minus any income-taxes they pay to the government.
e. None of these.
ANS: D PTS: 1 DIF: moderate
NAT: Consumption spending during fluctuations in GDP

67. T or F. The consumption function is a straight-line relationship between consumption and income.

ANS: T PTS: 1 DIF: basic


NAT: Consumption spending during fluctuations in GDP

68. T or F. The marginal propensity to consume is best defined as the change in consumption expenditure
caused by a one-unit increase in income.

ANS: T PTS: 1 DIF: basic


NAT: Consumption spending during fluctuations in GDP

69. T or F. When examining consumption behaviour at the household level, it does not make a difference
whether real household income or disposable income is used.

ANS: F PTS: 1 DIF: moderate


NAT: Consumption spending during fluctuations in GDP

70. The consumption function shifts upwards if


a. wealth rises.
b. income rises.
c. interest rates rise.
d. All of these.
e. banks collapse.
ANS: A PTS: 1 DIF: moderate
NAT: Consumption spending during fluctuations in GDP

71. The consumption function shifts downwards if


a. share prices rise.
b. income falls.
c. interest rates fall.
d. All of these.
e. eligibility for government transfer payments is restricted.
ANS: E PTS: 1 DIF: moderate
NAT: Consumption spending during fluctuations in GDP

72. During economic fluctuations


a. changes in the interest rate are the major factor affecting consumption.
b. income has little effect on consumption.
c. wealth is the major factor affecting consumption.
d. changes in income have a large effect on consumption.
e. there is little movement in total consumption.
ANS: D PTS: 1 DIF: moderate
NAT: Consumption spending during fluctuations in GDP

73. T or F. Interest rates do not affect consumption.


ANS: F PTS: 1 DIF: basic
NAT: Consumption spending during fluctuations in GDP

74. T or F. Income has a strong effect on consumption during a recession.

ANS: T PTS: 1 DIF: moderate


NAT: Consumption spending during fluctuations in GDP

75. Define the marginal propensity to consume. Graphically, how is the marginal propensity to consume
shown?

ANS:
The MPC measures the change in consumption with respect to a change in aggregate income.
Graphically, it is the slope of the consumption function that shows the relationship between income
and consumption.

PTS: 1 DIF: moderate


NAT: Consumption spending during fluctuations in GDP

76. Does it make a difference whether disposable income is used instead of real GDP when working with
the relationship between aggregate consumption and aggregate income? Explain.

ANS:
At the aggregate level, it does not make a difference whether disposable income or real GDP is used.
This is because taxes and transfer payments are nearly proportional to income. Hence, disposable
income and real GDP are both linearly related to consumption.

PTS: 1 DIF: challenging


NAT: Consumption spending during fluctuations in GDP

77. Answer the questions below:


a. Suppose your boss gives you a $100 raise. Identify the three categories or uses among
which you will divide the $100. Hint: Do you get to keep the entire $100?
b. Suppose the consumption function is C = 100 + 75YD, where YD is disposable income.
Prove that the marginal propensity to save is 0.25.

ANS:
a. Consumption, saving, and taxes.
b. Note that YD = C + S. Substitute in for C to get YD = 100 + .75D + S or S = −100 +
.25YD.

PTS: 1 DIF: challenging


NAT: Consumption spending during fluctuations in GDP

Exhibit 7.4
78. Refer to the data in Exhibit 7.4.
a. What is the marginal propensity to consume?
b. If real GDP were $340 billion, what would consumption equal?

ANS:
a. The table shows that, for every $25 billion increase in real GDP, consumption increases
by $15 billion. The .
b. At $315 billion, consumption is $290 billion. If real GDP were $25 billion more, or $340
billion, consumption would be $15 billion more, or $305 billion.

PTS: 1 DIF: challenging


NAT: Consumption spending during fluctuations in GDP

Exhibit 7.5

79. Plot the consumption function based on the data in Exhibit 7.5. What is the marginal propensity to
consume? If the marginal propensity to consume changes to 0.85, show what happens to the
consumption function.

ANS:
The relationship between consumption and income is shown in figure I below. The MPC is 0.7. If the
MPC changes to 0.85, the relationship between income and consumption is shown in figure II. Notice
how the consumption function has pivoted up.
PTS: 1 DIF: moderate NAT: Consumption spending during fluctuations in GDP

80. Which of the following statements is true?


a. A change in income has no effect on consumption, but a change in consumption will cause
income to change.
b. A change in income will affect consumption, but a change in consumption will not affect
income.
c. A change in income has no effect on consumption, and a change in consumption has no
effect on income.
d. A change in income causes consumption to change, and a change in consumption will
cause income to change.
e. None of these.
ANS: D PTS: 1 DIF: moderate
NAT: Consumption spending during fluctuations in GDP

81. If US firms decide to decrease their purchases of US-produced goods,


a. the decrease in investment will have no effect on US income or consumption.
b. the decrease in investment will cause US income to increase, which will cause US
consumption to increase.
c. the decrease in investment will cause US income to decrease, which will cause US
consumption to decrease.
d. US real GDP will increase by the same amount that investment spending decreased.
e. US real GDP will decrease by the same amount that investment spending decreased.
ANS: C PTS: 1 DIF: moderate
NAT: Consumption spending during fluctuations in GDP
82. If foreigners decide to increase their purchases of US-made goods by $15 million, US real GDP will
a. remain unchanged.
b. increase by more than $15 million.
c. increase by less than $15 million.
d. increase by $15 million.
e. decrease by more than $15 million.
ANS: B PTS: 1 DIF: moderate
NAT: Consumption spending during fluctuations in GDP

83. T or F. A decline in government spending causes consumption to decline.

ANS: T PTS: 1 DIF: moderate


NAT: Consumption spending during fluctuations in GDP

84. T or F. Income depends on consumption, but consumption does not depend on income.

ANS: F PTS: 1 DIF: moderate


NAT: Consumption spending during fluctuations in GDP

85. The components that make up aggregate expenditures are


a. consumption and government purchases.
b. investment, government purchases, and net exports.
c. consumption, investment, government purchases, and net exports.
d. income and consumption.
e. consumption and investment.
ANS: C PTS: 1 DIF: basic
NAT: Finding real GDP

86. The expenditure line


a. is steeper than the 45-degree line.
b. slopes upward because consumption depends positively on income.
c. slopes upward because the MPC is less than 1.
d. slopes upward because consumption and investment depend positively on income.
e. shows the relationship between consumption spending and income.
ANS: B PTS: 1 DIF: moderate
NAT: Finding real GDP

87. If adding net exports to C + I + G causes the expenditure line to shift up in a parallel way,
a. imports and exports are not sensitive to changes in income.
b. both exports and imports are sensitive to changes in income.
c. exports are sensitive to changes in income.
d. imports are sensitive to changes in income.
e. imports and exports have an uncertain effect on income.
ANS: A PTS: 1 DIF: moderate
NAT: Finding real GDP

88. The slope of the expenditure line is


a. greater than the slope of the 45-degree line.
b. equal to 1.
c. equal to the MPC.
d. the same as the slope of the 45-degree line.
e. equal to one-MPC.
ANS: C PTS: 1 DIF: basic
NAT: Finding real GDP

89. The slope of the expenditure line is


a. greater than the slope of the 45-degree line.
b. equal to 1.
c. always equal to the MPC.
d. equal to the MPC, when I, G, exports and imports are all autonomous.
e. equal to one-MPC.
ANS: D PTS: 1 DIF: moderate
NAT: Finding real GDP

90. An increase in the marginal propensity to consume results in


a. the expenditure line shifting up in a parallel direction.
b. no change in the expenditure line.
c. the expenditure line becoming steeper.
d. the expenditure line shifting down in a parallel direction.
e. the expenditure line becoming flatter.
ANS: C PTS: 1 DIF: moderate
NAT: Finding real GDP

91. If government expenditures decrease, the expenditure line will


a. shift up in a parallel direction.
b. stay constant.
c. shift down in a parallel direction.
d. pivot down to the right.
e. pivot up to the left.
ANS: C PTS: 1 DIF: basic
NAT: Finding real GDP

92. Which of the following would not shift the expenditure line?
a. An increase in government spending to finance a war
b. An increase in investment
c. A decrease in net exports brought about by an appreciation of the dollar
d. All of these would shift the expenditures curve.
ANS: D PTS: 1 DIF: challenging
NAT: Finding real GDP

93. An increase in investment results in


a. a downward shift of the expenditure line.
b. a steeper expenditure line.
c. a flatter expenditure line.
d. an upward shift of the expenditure line.
e. both the intercept and the slope of the expenditure line increasing.
ANS: D PTS: 1 DIF: basic
NAT: Finding real GDP

94. Which of the following will cause an upward shift of the expenditure line?
a. A decrease in wealth
b. A decrease in government purchases
c. A decrease in taxes
d. An increase in imports
e. An increase in saving
ANS: C PTS: 1 DIF: moderate
NAT: Finding real GDP

95. T or F. Each of the four spending components is assumed to depend on income.

ANS: F PTS: 1 DIF: moderate


NAT: Finding real GDP

96. T or F. The sum of the four spending components depends on income.

ANS: T PTS: 1 DIF: basic


NAT: Finding real GDP

97. T or F. The slope of the expenditure line is greater than 1.

ANS: F PTS: 1 DIF: challenging


NAT: Finding real GDP

98. T or F. Changes in autonomous T, I, G, and X affect only the intercept of the expenditure line.

ANS: T PTS: 1 DIF: basic


NAT: Finding real GDP

99. T or F. The expenditure line will shift if government spending increases, but not if it decreases.

ANS: F PTS: 1 DIF: basic


NAT: Finding real GDP

100. T or F. Only changes in consumption spending will shift the expenditure line.

ANS: F PTS: 1 DIF: moderate


NAT: Finding real GDP

101. T or F. Changes in spending behaviour shift the expenditure line and help explain economic
fluctuations.

ANS: T PTS: 1 DIF: moderate


NAT: Finding real GDP

102. Along the 45-degree line,


a. spending equals income.
b. real GDP equals potential GDP.
c. spending is greater than income.
d. real GDP equals nominal GDP.
e. spending is equal to the marginal propensity to consume times income.
ANS: A PTS: 1 DIF: basic
NAT: Finding real GDP
Another random document with
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he could frame it, in whatever it might consist, that huge man the
Englishman entered the room with his sword drawn and snuffing like
a tiger.
“If I am upon an errand of good steel,” he said, coming in with a
swagger that filled the whole apartment, “I hope there is a proper
valiance in mine adversaries, for I am in a humour to cut and thrust,
to hack and mutilate.”
“Sirrah Richard Red Dragon,” said the duke, with most perfect
dignity, “I would have you pull down that proud hulks off the table
there, and I would have you chastise her with severity; and further I
would have you seize those two malefactors by whom she is
encompassed, and I would have you hang them within a quarter of
an hour.”
Sir Richard Pendragon made one or two ferocious passes with his
sword before laying this order into execution. He then cast his eyes,
which were rolling in a truly terrible manner, towards where we held
our ground. But instead of making the horrible onslaught we had
been led to expect, he opened his mouth in astonishment. He then
turned to gaze at the duke, who stood the picture of calm pride and
dignity, and then back again to the no less calm and prideful
countess.
“Ods my life! Sirrah Red Dragon,” said the duke, “I am minded to be
severe; I will use severity. Pull her down; do not spare her. But I
would have thee see to it, good coz, that she do not stab thee.”
In the meantime the English giant was still looking from the old duke
to the youthful countess, from the youthful countess to the old duke.
At last he threw his sword on the ground, pressed his great hands to
his ribs, and broke into such a report of laughter that it rolled round
the tall ceiling like the voice of the giant Fierabras.
“God’s tomb!” he roared. “If I do not spit blood I shall never need
surgery! If a most desperate fluxion does not surmount my poor
brains I am no man. If I do not perish of an overwrought mind I am a
dog! By the holy ape of Barbary, I shall laugh till I shed large tears!”
“Ods nig and nog!” cried the duke, resuming his querulous manners.
“Sirrah Red Dragon, will you reject me! Will you not do my bidding?
Must I, who am old and a parent, pull down a she-wolf and correct
her with the hand of mine own indignation? Ods nig and nog! is there
no manhood in Spain?”
While the duke continued to fume and splutter in this unworthy
fashion, the great English giant, and you must believe me, reader,
when I tell you he appeared to be as enormous as the heroes and
ogres in the old romances, continued to press on his ribs, and, even
as he had himself predicted, to shed veritable tears of laughter. But
presently the mien of the Countess Sylvia seemed to pacify this
great coarse fellow. For, as she stood gazing from her eminence with
majestic looks, small as she was and fragile, she was indeed a figure
to touch the heart of a gallant warrior.
“By my hand,” said the Englishman, abating his mirth into a true
admiration. “If this is not a piece of true mettle I am a rogue. Why,
thou sweet thing, thou art as red in the cheek as a carnation.”
“Sirrah ruffian!” said the little Countess Sylvia, exposing her stiletto;
“I would have you ’ware me. I will kill you if you come near.”
“There, hearken to her, hearken to her!” cried the duke. “Did I not say
she was a spitfire? Did I not say she was a proud and wicked hulks?”
“Come near thee,” said the English barbarian, “why, thou beautiful
thing, thou art a rose, a flower! Thou hast a light in thy eye like a bud
in June. I’ve a mind to buss thee for thy prettiness.”
“Is there no manhood abroad in the world?” cried the duke; “will no
man pull her down?”
Instead of paying heed to the duke, Sir Richard Pendragon made the
little Countess Sylvia a deep obeisance.
“This is the fairest rose in bud I have seen this moon,” he said, laying
his hand across his doublet. “By this hand you have my love, pretty
titmouse, and your whip and your dagger, they have it too.”
Upon this address a stern and sudden joy flamed in the eyes of the
Countess Sylvia.
The English giant, who even from the low ground towered above her,
table and all, was now come to stand before her. Without heeding
the duke, the soldiers, or Don Luiz, he kept his eyes upon her face,
as if enchained by its beauty, while all seemed so much amazed by
the audacity of his behaviour in standing without arms within striking
distance of her poniard, and yet to address her in such terms, that
none moved a step nor dared to interrupt their intercourse.
“Sirrah Red Dragon,” said the Countess Sylvia, “I know not who you
are, or whence you come, or what is your virtue, or what is your
detriment; but by my two eyes I judge you to be a true man and a
valiant warrior. And here I stand the mistress of this castle and the
whole of its furniture; and I am prepared to enforce my resolve by
power of the sword if the need arise, for I grieve to inform you that
my father, his lordship’s grace, hath fallen suddenly so senile in his
years, that I am called to be his nurse as well as his daughter;
therefore, Sirrah Red Dragon, whoever you may be, I would have
you obey my behests. And they are these. Put out those spawn in
their steel corslets, put them out, I say, into the antechamber; and
then do you take that fat man there, who is so gross as a pig and so
round as a barrel, and do you lock him up in an iron cage, and feed
him upon husks, until you receive our further advice upon the
subject.”
“By the Lord Harry!” cried Sir Richard Pendragon, beaming with joy,
“this is as fine loud speaking as ever I heard. By this hand! this is
Charlemagne in a kirtle and mutch!”
Indeed, scarcely had the Countess Sylvia spoken to this tenor than
this gigantical foreigner, who was as great in his valour as he was in
his girth, fell suddenly upon the fellow that was next to him, who, to
be sure, was a somewhat puny man-at-arms, picked him up by an
ear and a limb, as though he were a truss of fodder, and carried him
out of the room bodily. Whereupon, the other warriors, who, like men
of the ranks, must have a leader before they can act, now having
none—for the duke was impotent before this new affront to his
authority, and Don Luiz was too fat in the wits and swollen with base
living to appear better than a cypher—knew not whether to offer
resistance or to submit. And as it was ever the easier to adopt the
latter than the former course, and as their choice in the matter was
but small, when Sir Richard Pendragon returned and took up his
sword, with the flat of it he drove them before him out of the
chamber, like so many hogs along a lane.
CHAPTER XVI
OF THE GRIEVOUS MISHANDLING OF HIS
LORDSHIP’S GRACE

You are now to remark, gentle reader, that this beautiful creature,
whom three humble courtiers of fortune were about to serve with
their faith, had, in addition to a nature of truly noble valiancy, a
knowledge of affairs that was highly pertinent, and a wit that was
wonderful indeed for one so tender in her years.
So soon as the English giant fell to driving the duke’s men-at-arms
before him like sheep, she ordered the Count of Nullepart and myself
to leave the daïs. We were advised to take up a new position
between the door, Don Luiz, and the duke. And when the
Englishman returned with a smile of humour about his mouth, yet
breathing somewhat hard with his exercise, the Countess Sylvia
addressed her three servants in a low voice.
“Forth of this, my friends. Let the door be secured behind us, so that
they cannot break out; and as there is no other, they shall play with
their thumbs for an hour while we prepare them a strategy.”
In the pursuit of this piece of wisdom, the four of us slipped into the
antechamber, while the foolish old duke, who had appeared utterly to
fail under the stress of these affairs, was still using so much
querulousness to his trusty gentleman-usher that he did not observe
the latest device of his daughter. Thus was he none the wiser for our
escape, nor for the project that was presently to be set afoot for his
undoing.
In the antechamber were the six soldiers who had been so
mishandled by one purposeful man of brawn. They stood in a group,
regarding us with unintelligent goatlike eyes. Her ladyship turned
upon them, and said scornfully, “Do you go and summon the smiths
out of the armoury, you paltry knaves. Send them here with their
tools immediately.”
She then commanded the Count of Nullepart, Sir Richard
Pendragon, and myself to stand with drawn swords before the door
leading to the duke’s apartment, so that neither he nor his councillor
should pass out before it was sealed.
“Why, madam, these precautions?” asked the Count of Nullepart.
“It is my intention to draw out every fang that this old bear hath in his
chaps,” said the Countess Sylvia.
“How so, and why so, madam? Do you propose to wall up your old
father, his lordship’s grace, and do him to death with good Don
Paunch, his trusty fat man?”
“You ought to be wise, sir; you ask many questions,” said madam
imperiously. “But perhaps it were not amiss if I unfolded my design to
my good followers.”
“That is well spoke, thou sweet bud of the rose garden,” said Sir
Richard Pendragon. “Let us hear whether thy dear little poll be a
proper comrade to thy valiance.”
“Stand you to the door then, friends, and this is my design. While his
lordship’s grace is stewing and sweating in durance with that fat
fellow, and braying like an old mule for his liberty, I will have every
one of his three hundred men-at-arms answer to the roster. I will
issue a proclamation, by which they shall learn that in the person of
their mistress they have a new master; and each shall take the oath
of his fealty in his new service. And I will cause the master armourer
and the master treasurer to do the same, for I have to tell you, my
friends, that henceforward this castle is to have only one
generalissimo.”
“Marry and amen!” said the Count of Nullepart, bowing low before
her.
“By my hand!” said the English giant, imitating the Count of Nullepart
in this particular with as much grace as his inches and his nation
could arrange, “Harry of England breathes again in this small thing.
My sweet pretty ladyship, you have a right Pendragon at your elbow,
under whose doublet flows the blood of kings. And if thy
performance, perfect queen of the roses that thou art, be in anywise
equal to thy disposition, one of these sunny mornings they shall
crown thee Queen of all the Spains.”
“No, my good Sirrah Red Dragon,” said this beautiful creature, with a
natural dignity that nought could surpass, “I ask no more than my
right; I covet no dominion above my own. But that will I keep, God
helping me! There is like to come a bitter enemy at the gate; yet
when he rides up the hill and winds his trumpet, he shall find me
within.”
“If there is not statecraft and good politics behind that cheek of
damask,” cried the Englishman, “I am a micher and a thief in the
night.”
“Madam,” said I, feeling the same enthusiasm, “Miguel Jesus Maria
de Sarda y Boegas will yield you no lack in your affairs. They have a
strong hand to guide them, which they appear to need, but upon the
honour of my father, Don Ygnacio, and under the gracious
permission of your ladyship, I will not forswear your service while
blood flows in my veins.”
Hardly had I spoken than Sir Richard Pendragon began to roar like a
heifer.
“That name again!” he cried. “Ods life I can feel a fluxion! A surgeon,
or I perish!”
“Don Miguel,” said the Countess Sylvia with the gravest simplicity,
and paying no heed whatever to this unmannerly outcry of the
English barbarian, “I do need your good service, and I cherish it.”
Upon these words, spoken as became a princess, I fell to my knee
and saluted the hand of this valiant and noble lady.
“If I am not blind like a newt, this is my former squire that ran away
from me,” said Sir Richard Pendragon. “How came you again in this
parish, youthful varlet? But as I am a good Christian man, I am glad
to see thee. My young companion, I prithee, take my hand upon it.”
Although I gave him a smile of courtesy, I did not accede to his
request. For I had a lively recollection of his hand.
The arrival of the smiths put a term to our speeches. As soon as they
began to seal up the door with screws and nails, the duke and Don
Luiz, immured within, were moved to try it. Finding that with all their
shaking and rattling they could not come out, they set up a most
desperate hullabaloo.
“Their throats will wear a little sooner than this honest wood,” said
our mistress sternly.
She then bade the smiths cease their hammering while she spoke
his lordship’s grace and his fat companion.
“My lord,” she cried in her strong and clear young speech, “abate
your old foolishness for the space of one minute. I do but intend to
lock up your lordship’s grace for the term of two hours, while I have
deliverance made of your authority. I would have you play a game at
mumchance with your trusty fat man, while I muster your three
hundred men-at-arms and swear them to my service. If your
lordship’s grace will not babble so, and you will request that fat fellow
whose bulk is so large as a bag, who is so undecent in his
appearance as any sow that grouts in a kennel, if you will request
him not to brawl so much, you will be able to pass the time of day
agreeably, and without that excitement that is so inclement to the
mind.”
“You speak like a physician, madam,” said the Count of Nullepart.
“Your words are as choice as though you held a diploma from the
College of Surgeons.”
“Aye, she speaks shrewd,” said Sir Richard Pendragon, wagging his
beard in cordial admiration of this beautiful and masterful thing. “She
is fit to advise a kingdom; one of these days she shall speak from a
throne to her respectful parliament. My dear and intimate friend, the
Dowager-Empress and Queen-Mother of the Austrian nation, never
spoke better sooth than she; never spoke it with a better use of
tongue and of language; never spoke it with a more subtle
penetration of wit or a more lofty and wise demeanour. I speak thee
fair, sweet ladyship and countess, and he who addresseth thee hath
the blood of kings under his doublet, don’t forget that. By my sword,
if thou wert but of the English nation, I would ask thine hand in
matrimony, thou lovely chit, and Betty Tucker, a good wench who
can handle a tankard as well as another at the sign of the Knight in
Armour public-house, next the town of Barnet, in the kingdom of
Great Britain, should hang herself in her shift or strangle herself in
her garters.”
Much of that which followed of our conversation next the door of the
duke’s apartment was drowned by the incessant beating and
brawling upon the panel of those behind it. But the wood was
staunch, and already the smiths had the most of it screwed up.
When they had finished their task, and the Countess Sylvia was
assured that his lordship’s grace and his fat companion could not
possibly come out, she dismissed the smiths, and sent for the
captain of the guard.
“Caballero,” she said to this worthy, “I would have you assemble
immediately our three hundred men-at-arms. Have them drawn up in
line of battle in the great courtyard, and let them appear in full
accoutrement. For I am about to speak to them, and to swear each
mother’s son to fealty upon the sword.”
“She speaks like a queen!” cried the English giant, with a roar of
delight. “Betty Tucker, if thine ear doth not burn with jealousy as thou
drawest that pot of small ale for that low jack pudding with a ring in
his lug, thou art no true woman. Thou little knowest, good Bet o’ the
Bib and Tucker—a weak jest, yet of mine own contrivance—thou
little knowest the imminent danger of our banns that were asked five
years come Maundy Thursday at St. Clement’s Church in London
City.”
“Sirrah Red Dragon,” said the Countess Sylvia with a sternness that
cowed the English barbarian, “cease your babblements. You are a
big man, but you talk too much. Accompany me to the master
armourer and help inhabit me in a corslet and a steel cap; and if you
will not use the same bulk of language that you have of inches, you
shall choose me a good honest blade that I may bear in mine hand.”
“By cock,” cried Sir Richard Pendragon, “she speaks as shrewishly
as Betty when she hath been drinking cognac.”
The English giant, who might have borne the little Countess Sylvia
within the sleeve of his jerkin, accompanied her to the armoury with
a spreading yet withal something of a crestfallen air.
When they had passed the Count of Nullepart sat himself down on a
settle, and with a face twisted with mirth took forth his instrument and
strove to improvise a melody. Three times did he essay to do so and
three times did he fail.
“I am laughing myself into my tomb,” said he. “That is why I am so
thin and frail, my dear Don Miguel. All my days I have been cursed
with a passion for laughter, and it wears me to the bone. Oh, my
good soul! do you not hear his lordship’s grace beating his loud
tattoos upon yonder panel?”
“Do you still believe, dear Count of Nullepart, that our adorable one
will evanish into the air?”
“Yes, my friend, so far as she is any concern of ours. That English
giant will carry her off.”
“Never, Sir Count, as I am a caballero. He is a barbarian, an uncivil
Goth, a rude fellow. Besides, hath she not already punished the
presumption of his speech?”
“She is a woman, dear Don Miguel, and remark me, she will do
something whimsical. You and I, my dear, are men of the first ton, as
they say at Paris, but this barbarous giant, this ruffling English
swaggerer, is already the apple of that fine bright eye. Mark me, dear
Don Miguel, he is the hero. Did she ask you to choose a piece for
her head at the armoury and a sword for her hand; did she ask me?
Not so, my dear friend. She asks this gigantic island Goth, this
swaggerer. And there you have the whole of the female woman. Her
mind resembles nothing so much as a game of dice. None shall dare
to predict what is turned up in it: the double six at the first cast, at the
second the double one.”
The Count of Nullepart had scarcely got through this prologue to his
philosophy when little madam, his thesis, returned with a proud walk,
wearing a steel cap that was so big that it fitted down over her ears,
a corslet of the same complexion that fell down over her knees, while
in her small hand was a piece of fine Toledo craftsmanship which yet
could not be called too delicate for a lady. How she could stagger
along at all under these accoutrements was a matter for surprise. Yet
not only did she do so, but also she contrived to invest her gait with
its natural dignity. At her side walked Sir Richard Pendragon, as near
seven feet as no matter, while the peak of the little Countess Sylvia’s
helmet appeared to ascend hardly above his leg. Yet, as in
accordance with the Count of Nullepart’s prediction, they already
seemed mighty close and pleasant with one another.
“My friends,” said the Lady Sylvia, “I have duly appointed Sirrah
Richard Red Dragon to the high office of master of my horse,
captain-generalissimo of my three hundred men-at-arms, and
captain of my guard, at an emolument of two thousand maravedis a
month, including his victual.”
“Three thousand, madam and ladyship, under your gracious
pleasure and permission,” said the Englishman.
“Did I say three, Sirrah Red Dragon? Dear, my good soul! my
memory is weak. Well, Sirrah Red Dragon, three it shall be.”
“To be disbursed in advance, worshipful madam and ladyship.”
“So be it, Sirrah Red Dragon. Your first emolument shall be paid to
you so soon as the master treasurer hath delivered to me the keys of
the coffers of his lordship’s grace.”
“And I crave the permission of your ladyship to suggest that sack be
included in the terms touching the victual.”
“Sack shall be included, sirrah.”
“Unlimited and without stint, madam, I trow and trust, and to be
delivered if I knock once on the buttery door.”
“Yes, indeed, good Sirrah Red Dragon, that is quite understood.”
The giant showed his teeth in a grin of broad humour and smacked
his lips complacently.
“Is there no post of honour in your household, madam, for the least
of your servants?” asked the Count of Nullepart in his softest accent.
“You will be keeper of accounts, sir, and also I will appoint you to the
mastership of the treasury.”
“I thank you, madam, and make you my service,” said the Count of
Nullepart.
“I have a mind to be master of the treasury myself, brother,” said Sir
Richard Pendragon, pricking up his ears. “You shall be captain of the
guard, brother, and I will take upon myself to hold the keys of the
mint.”
“Would you traffic in your office, Sirrah Red Dragon?” said his
mistress sternly. “I have a mind to remove you from the position of
master of my horse, and reduce your emolument by a thousand
maravedis.”
A threat of this gravity had an instant effect upon the Englishman,
who fell to silence and the stroking of his beard; yet it was clear
above all things he yearned to hold the keys of the mint.
Our mistress now led the way to the great courtyard of the castle,
where the three hundred men-at-arms were to be assembled. How
she contrived to walk ten paces in her habiliments I know not, for, in
addition to the steel with which her slight person was encumbered,
her long riding skirt trailed over her heels.
However, before she came to the courtyard she must needs dispatch
Sir Richard Pendragon for a milk-white courser, if such a steed was
to be found in the stables of his lordship’s grace; or failing a
quadruped of that chaste hue, the master of the horse was to
procure one as near to that condition as he could discover.
“Statecraft, dear lady, statecraft!” said the Count of Nullepart with an
arch smile. “I perceive you are determined to present to your
warriors the appearance of the goddess of battles.”
Sir Richard Pendragon being unable to discover a courser of milk-
white hue was fain to lead a palfrey of a dubious dapple colour into
the austere presence of his mistress. She directed a glance upon it
of the most instant disapproval.
“Is there no worthier thing than this, Sirrah Red Dragon?” she
demanded haughtily.
“None, good countess, ladyship, and madam.”
“Wherefore, sirrah, wherefore?” she demanded, beating her sword
on her boot in a threatful manner. “You are the master of our horse,
are you not, and you keep no milk-white courser for our use? How
so, Sirrah Horse Master, wherefore and why?”
“Under your ladyship’s good favour,” said the giant humbly, “your
good Dick, an old honest fellow, hath not been in his office more than
twenty minutes.”
“Answer my question, sirrah,” stormed his mistress. “Why is there no
milk-white courser for my use?”
Sir Richard Pendragon plucked at his beard furiously, and directed a
sidelong look at the Count of Nullepart, who stood very upright and
gazing before him as solemnly as an owl in a cold evening.
“I have the greatest mind, Sirrah Red Dragon, do you mark me,” said
the Countess Sylvia, “to proceed on foot to swear my three hundred
men-at-arms. I have the greatest mind, I say, to proceed on foot.
This is no milk-white courser you have brought me; it is the colour of
mud. Am I one of a low condition, Sirrah Red Dragon, that I should
repair to meet my honest lieges on a horse that is the colour of
mud?”
“Under your ladyship’s good favour,” said the giant modestly, “this
matter shall be rectified. I will procure a courser for you that shall be
as white as the driven snow. But you cannot have for asking, good
ladyship and madam, as we English say; therefore your good Dick,
an old honest fellow and a lover of sherris, must first hold a draft on
the treasury of your ladyship. The which, as this old honest fellow
submits duteously, the which would not be necessary were he
entitled to hold the keys of your ladyship’s treasury, as becomes his
true merit and his gentle nurture.”
“Peace, Sirrah Red Dragon,” said his mistress. “We will attend you in
council after a while.”
The weight of her accoutrements rendered it necessary to lift the
Countess Sylvia to the saddle, and there was almost a brawl among
her three devoted followers before this could be arranged. The
Count of Nullepart had the most address, the English barbarian had
the most power, and I myself, if I may make bold to say so, had the
most tenacity. Yet in the end, I believe, each one of us could claim a
share in this courteous operation. The subject of this attention,
although mishandled in some sort, yet retained a superb dignity and
composure through it all; and so far was she from visiting this
procedure with a reproof, that it did not seem to afford her the least
displeasure.
In the great patio of the castle it was a glorious sight to see the
duke’s three hundred men-at-arms ranged around in a single file.
The bright sun wantoned brilliantly upon their arms and breastplates,
and when the Countess Sylvia rode into their midst, almost obscured
in armour except for the tip of her chin, the tip of her nose, a piece of
a damask cheek, and two clear and masterful eyes that glanced from
under their steel canopy with the brightness of the sword she bore in
her hand, they raised a cry from their honest throats. For they had
seen enough to be aware that beauty and genius reigned in that
proud mien. She took her place in their midst with the Count of
Nullepart, Sir Richard Pendragon, and Don Miguel Jesus Maria de
Sarda y Boegas beside her with drawn swords. Such a flashing and
noble glance as she directed along each row could never before
have met these men-at-arms.
“Sirrah Red Dragon,” she said, “do you remove my headpiece that I
may speak them better.”
When the English giant lifted the steel canopy off her ears, and these
warriors, for the most part mercenaries, beheld so much beauty and
disdain, they raised another cry in her honour, for indeed there never
was a more superb thing.
“Lieges and virtuous bearers of my sword,” she said in her clear and
spreading speech, “from this day I am your captain. I will lead ye
truly through all the strait places. When the culverin bellows, the
caliver barks, and the good Toledo blades flash and clang together,
you will find me on my milk-white courser in the forefront of the
battle, vindicating mine own right with mine own puissance. There is
a great work toward, for our cousin John, the rude Castilian prince,
bids us deliver this fair castle into his covetous hand. But I do tell
thee, my honest lieges, it shall not be so. I have good servants; they
shall strike shrewd blows; and if the rude Castilian enters this castle,
if enter he must, he shall come in chains as a captive, or there shall
not be a stick or a stone or a breathing soul to give him welcome.”
At this moment the English giant standing at her side raised his
bonnet, adorned with a great plume, on the point of his sword, and
cried out in a voice that drowned everything: “These be words, these
be words! ’Tis queenly speaking! Give it tongue, friends and rascals!
Let the little queen’s majesty know that ye heed.”
In his own great voice this mad fellow led their shouts.
“I thank you, Sirrah Red Dragon,” said his mistress, “and, my honest
lieges, I say to you marry and amen. That ye will make true service I
see by your shining glances, but I would have you swear your fealty
in the olden manner upon this good sword. For I would have you to
know that my father, his lordship’s grace, fell into a strange senility a
twelvemonth since; there is such a distemper in his wits that he can
no longer ride over his dominion. His old eye, which should be an
eagle’s to look proud at the sun, now watereth readily on a small
occasion. There is no virtue in his mind; his heart hath not the
constancy to make him bold before an adversary. This rude Castilian
prince, this wicked king, would override him as easily as he would a
plain of mustard. Do you mark me, my lieges, his lordship’s grace is
now a figure for your tears. He is a pitiful old man, a babbler of
nothings, his mind is vanity. Therefore, my lieges, he and his trusty
fat man, whose ribs are larded like butter, and who is so slow in his
mind as a snail, will speak ye no more. From this day I am your duke
and captain, your liege lord and liege lady. I will lead ye against the
Castilian host, and if we do not prevail we will fall together with our
swords in our hands.”
“Again, again, brothers, give it tongue!” cried the English giant,
waving his plumed hat on the point of his sword, and leading the
soldiers in their lusty cheers.
“Sirrah Red Dragon,” said his mistress, when their cries had
subsided, “I would have you cause all these good honest men defile
before us, that they may be sworn upon our sword.”
“Would it not be properer, your majesty,” said the English giant, with
a dangerous light of admiration in his eye, “if you first made them
acquainted with their new captain-generalissimo, the captain of the
guard and master of the horse, whose emoluments amount to the
not inconsiderable sum of four thousand maravedis a month?”
“You speak sooth, Sirrah Red Dragon,” said the Countess Sylvia; “I
will do so.”
Again their respectfulness attended her while she recommended Sir
Richard Pendragon to their notice in another clear and ringing
speech.
“A worshipful knight, a true warrior—”
“—And the blood of kings under his doublet, an it please your
majesty. I pray you, out of regard for virtue, to let them know that.”
The Countess Sylvia having condescended to inform her vassals of
this fact, together with many others that the English giant
interpolated into her discourse, somewhat to her impatiency, on
matters touching his many and surprising deeds by sea and land, the
magnificence of his talents and his ancestry, and diverse things of a
like character, he was able at last to bring himself to do her bidding.
And you must believe me, reader, it was one of the bravest sights in
the world to see these fierce men-at-arms, clad in bright steel, defile
before the palfrey of their mistress, and swear their devotion upon
the good sword she held so staunchly in her hand.
CHAPTER XVII
OF OUR ATTENDANCE IN COUNCIL UPON A
GREAT MATTER

When at last this gallant function had come to an end, and madam’s
servants and retainers had been duly sworn and dismissed with
goodwill, and even enthusiasm, upon their side, and a deal of
majesty upon hers, she and her three chief officers—although for
one of them, by name Don Miguel Jesus Maria de Sarda y Boegas,
neither emolument nor employ had been found up to this present—
repaired from the heat of the sun to the coolness of a chamber within
the castle to partake of wine and other refreshment.
“An it please you, madam, it might not come amiss,” said the Count
of Nullepart, “if in my capacity of master of the treasury I ventured to
propose that his lordship’s grace and his trusty fat man be
disinterred from their present situation, which, saving the presence of
your ladyship, may not be without its ignominy.”
“That is well spoken, friend,” said the Countess Sylvia. “Page. Where
is this page of ours? What, have we no page? Come hither, page!
Page, go you to the master armourer, and bid him, as he esteems
his place, to send his smiths immediately to unseal the door of his
lordship’s grace.”
“And of his trusty fat man,” said the Count of Nullepart.
“And of his trusty fat man,” said our mistress; “although that fat man
is so foolish as a dish of butter.”
“Touching my emoluments,” said Sir Richard Pendragon, eating his
meat almost as grossly as he did in the inn; “touching my
emoluments, countess, madam, and ladyship, it has entered my
mind that it would accord with my merit if in addition to my other
honours I received the more signal one of mastership of your
ladyship’s treasury.”
“Peace, Sirrah Red Dragon,” said his mistress sternly; “and do you
endeavour to eat your roast pig like a Christian gentleman.
Endeavour, sirrah, to imitate the courteous delicacy in his feeding of
the worshipful Count of Nullepart. But peace, I say, for I would
engage the officers of my household upon a great affair. This castle
is in peril. I do fear that the rude Castilian and all his men will soon
be knocking on the gate. Would you have me dig pits and lay snares,
Sirrah Red Dragon, for you are our man of war? We have but three
hundred men-at-arms, and our villainous cousin will reckon his host
by the thousand.”
“By my hand,” said the Englishman, “this is a kettle of fish.”
He fell again into the habit of stroking his chin, and it was remarkable
to notice how a certain licence that was formerly to be seen in his
demeanour was suddenly found in it no more. “I am fain to observe,
madam,” said he with his new gravity, that seemed to have worked a
miracle within him, “that here is a pretty work to be done.”
“Done it shall be, Sirrah Red Dragon,” said the Countess Sylvia. “If
we spend every drop of our blood and that of every liege that is
pledged to our service, the Castilian shall not enter here; do you
mark me, sirrah!”
“We must address ourselves,” said the Englishman, “to providing this
garrison with arms and ordnance, sack and sugar, for I am sore to
believe we shall have to stand a siege. Madam, we must look to our
provision without delay, if we are to throw the gauntlet down.”
“It shall be done, sirrah; this Castilian shall have a welcome. How
long, bethink you, sirrah, can we hold this place with our three
hundred men-at-arms?”
“Two years, madam, with sufficient munitions of war. But these are to
obtain.”
“To-morrow,” said the Countess Sylvia, who, considering that she
knew no more of the world than her convent had taught her, showed
a great talent for affairs, “the hinds shall drive in the cattle from our
outlying farms; and arms and every sort of munition shall be
purchased so long as our treasury can provide them.”
“This castle has the appearance of a natural stronghold,” said the
Count of Nullepart, “although it is little I know of war.”
“Three hundred men should give a proud battle,” said I, “if they have
but one half the resolution of their mistress.”
“This is sooth,” said the Englishman; “I think we shall be able to hold
the gate against the king.”
“For mine own part,” said the Count of Nullepart in his winning voice,
“I would suggest that in the beginning we wear a silk gown over our
armour. We have nought to obtain by trying a fall with such an
adversary. Ought we not, bethink you, madam, to see what first can
be done by the gentleness of our address?”
“That is well said, Sir Count,” said she. “He shall have gentle words
in his ears. But remark me, if ever the occasion waits upon us he
shall also learn that we keep a sword.”
“Valiancy in action, subtlety in discourse,” said the Count of
Nullepart. “No kingdom could ask a choicer wisdom, madam. I drink
to you as a proud but as a just and a good princess.”
The sweetness of the Count of Nullepart’s manner made it difficult to
tell whether he toasted the lady in her beauty or the queen in her
statecraft. Before Sir Richard Pendragon and myself, who viewed his
action with no favourable eye, could decide whether such a
behaviour was justified at a moment so grave, for madam in spite of
her dignity had not thought fit to reprove him for it, there came a
grievous interruption to our counsels and the harmony of our board.
His lordship’s grace, with his trusty fat man at his heels, bore down
upon us.
“Ods myself,” he whined, shaking his fist, “if I do not put her in a
dungeon for this I am unfit to wear hose. Soh! there we have you,
little snake, surrounded by your conspirators. Luiz—Luiz; where are
you, Luiz? Go, fetch the guard. These three rogues shall be broke on
the wheel, and then they shall hang on the gate; and madam herself
shall dwell in a dungeon for an hundred days.”
“My lord,” said his daughter calmly, “do not interfere with the
business of the state.”
“Business of the state!” cried the duke. “I would have you to know,
madam, that I am the business of the state. Ods myself! if I had my
sword here I would spill some blood.”
In the violence of his anger the duke became so weak and
incoherent that at last he fell to weeping like a child. And as he was
thus engaged, and wiping his eyes on the sleeve of his rich silk
doublet, Don Luiz had the misfortune to appear with twelve soldiers
of the guard.
“Sirrah Red Dragon,” said the Countess Sylvia, turning to the English
giant with a most masterful insolence, “as you value the command of
my good lieges, I would have you see to it that they take that fat
fellow, who is so beastly in his appearance that I hardly dare to give
him a name, and do you have him placed in a strait jerkin. And do
you see to it that he hath neither sack nor sugar, neither grease nor
butter, nor pig, nor flesh of any kind, nor German forcemeat, nor any
article of victual whatsoever that is likely in any degree to inflame his
bulk.”
“I obey your command, madam and ladyship. I kneel at your feet,”
said the English giant, making a mighty flourish. The next moment
the unfortunate Don Luiz was marched forth, protesting violently,
while the old duke, at the sight of this grievous affront to his
gentleman-usher, fell to gnashing his teeth one moment and
shedding tears the next.
“Where is my authority?” he cried out. “Am I without authority behind
mine own door? Oh, this is grievous, this is grievous! I have a she-
wolf for a daughter and she hath filled my old years with sorrow. Is
there no manhood in Spain! Will none protect a parent from the
machinations of a she-wolf? Do my goodly life and my clement
nature go for nought? Is there no consideration for the aged, who are
blind of eye, who are halt of their gait, who are smitten with ague and

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