HW3answers - EEGS 202, Gupta Home-work 3 Answers Part A:...

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EEGS 202, Gupta Home-work 3 Answers Part A: Multiple Choice 1. The Keynesian model of aggregate expenditure assumes that A) individual firms’ prices are flexible but the price level is fixed. B) both individual firms’ prices and the price level are flexible. C) both individual firms’ prices and the price level are fixed. D) individual firms’ prices are fixed but the price level is flexible. Answer: C 2. The consumption function relates consumption expenditure to A) the interest rate. B) disposable income. C) saving. D) the price level. Answer: B 3. Which of the following will NOT shift the consumption function upward? A) an increase in disposable income. B) a fall in the real interest rate. C) an increase in wealth. D) none of the above shift the consumption function upward. Answer: A 4. In the above figure, consumption and disposable income are equal at A) any point along the consumption function. B) a saving level of $100 billion and disposable income level of $400 billion. C) a disposable income level of $0. D) a disposable income level of $200 billion. Answer: D 5. In the above figure, at a disposable income level of $200 billion, saving equals A) disposable income. 1
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C) $40 billion. D) consumption expenditures. Answer: B 6. In the above figure, the line AB is called A) the saving function. B) the consumption function. C) the 45-degree line. D) the expenditure function. Answer: C 7. An increase in disposable income shifts A) both the consumption and savings functions upward. B) the consumption function upward and leads to a movement along the savings function. C) both the consumption and savings functions downward. D) neither the consumption function or the savings function because it leads to a movement along both the consumption and savings function. Answer: D 8. If the marginal propensity to consume is 0.8, every $10 increase in disposable income increases A) consumption expenditure by $0.80. B) consumption expenditure by $18.00. C) saving by $0.20. D) consumption expenditure by $8.00. Answer: D 9. For a household, the marginal propensity to save plus the marginal propensity to consume A) equals 1. B) equals 0. C) equals a number that is larger the larger the household’s disposable income. D) equals a number that is smaller the larger the household’s disposable income. Answer: A 10. If an increase in a household’s disposable income from $10,000 to $12,000 boosts its consumption expenditure from $8,000 to $9,000, the A) household is dissaving. B) slope of the consumption function is 0.2 C) slope of the consumption function is 0.5 D) slope of the consumption function is 1000. Answer: C 11. If wealth increases, the consumption function A) shifts upward. 2
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HW3answers - EEGS 202, Gupta Home-work 3 Answers Part A:...

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