# Macoecon test 2 with answers - 1 ANSWER KEY FOR TEST 2...

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1 ANSWER KEY FOR TEST 2 APRIL, 2009 ECON 0110: MACROECONOMICS DR. KENKEL 20 questions worth 12.5 points each. Total Points = 250 1. Assume the following data apply to a certain country: Year Consumer Nominal Price GDP Index (Trillions) 2005 148.9 12.5 2006 158.6 14.2 2007 169.5 17.5 The growth rate of real GDP between 2005 and 2006 is a. Less than 5.0% b. 5.0% to less than 6.0% *c. 6.0% to less than 7.0% d. 7.0% to less than 8.0% e. 8.0% or higher ANSWER: Real GDP in 2005 = (12.5/148.9) x 100 = 8.3949 Real GDP in 2006 = (14.2/158.6) x 100 = 8.9533 Growth rate = (8.9533 – 8.3949)/8.3949 x 100% = 6.6522% 2. When Bill’s disposable income is \$35,000, his consumption spending is \$24,000. Suppose his disposable income increases to \$45,000. Suppose his marginal propensity to consume is .65. His new consumption spending will be: a. Less than \$27,000 b. between \$27,000 and \$28,999 *c. between \$29,000 and \$30,999 d. between \$31,000 and \$33,999 e. \$34,000 or higher ANSWER: Change in income = \$45,000 - \$35,000 =\$10,000 Change in spending = .65 x (\$10,000) = \$6,500 New consumption = \$24,000 + \$6,500 = \$30,500 3. Which of the following is true? a. Value added equals total sales revenue of a firm minus its depreciation. b. Cash payments made by the government to people who do not supply goods, services, or labor in exchange for these payments are called fringe benefits. c. The three main categories of consumption spending are durable goods, nondurable goods, and stock purchases. d. An inflation that results from an initial increase in business costs is called wage pull inflation. *e. A major cost of highly variable inflation is that it causes extreme uncertainty which discourages long term investment

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2 4. Assume the following data apply to a certain country: Civilian Noninstitutional Population 210.0 million Employed 114.6 million Unemployed 9.8 million Not in Labor Force 85.6 million The unemployment rate is a. Less than 3.0% b. 3.0% to less than 5.0% c. 5.0% to less than 6.2% d. 6.3% to less than 7.4% *e. none of the above ANSWER: Labor force = 114.6 + 9.8 = 124.4. Unemp. Rate = (9.8/124.4) x 100% = 7.88% 5. Last year Joe earned \$73,275 in disposable income and his consumption spending was \$54,900. This year his disposable income increased by \$15,000 and his consumption increased to \$66,900. What is Joe'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 ANSWER: Change in C = 66,900 – 54,900 = 12,000 Change in Yd = 15,000 mpc = change in C/ change in Y = 12,000 / 15,000 = .80 or 80% 6. A person was injured in a car accident. The person will need surgery three years in the future. The
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Macoecon test 2 with answers - 1 ANSWER KEY FOR TEST 2...

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