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PRACTICE TEST 2

# PRACTICE TEST 2 - PRACTICE TEST 2 1 When John earned...

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PRACTICE TEST 2 1. When John earned \$42,500 in disposable income last year, his consumption spending was \$35,500. This year his disposable income increased to \$50,700 and his consumption increased to \$40,600. What is John's marginal propensity to consume? a. less than 60% *b. 60% to less than 65% c. 65% to less than 70% d. 70% to less than 75% e. 75% or higher 2. Suppose the consumption function is C = 2500 + .70 Yd, where Yd is disposable income. Suppose Yd = 32,600. Saving is equal to 3. Assume there are no taxes in an economy. If the MPC is .68, then the multiplier is 4. Suppose the CPI in Year 0 was 164.4. In Year 1, it rose to 171.2. The inflation rate during the year was:

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PRACTICE TEST 2 - PRACTICE TEST 2 1 When John earned...

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