fall2007.econ1012.midterm3 - Economics 1012A: Introduction...

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Page 1 Economics 1012A: Introduction to Macroeconomics FALL 2007 Dr. R. E. Mueller Third Midterm Examination November 15, 2007 Answer all of the following questions by selecting the most appropriate answer on your bubble sheet. Be sure to read each question carefully. Each question is worth 2 points (100 points total) and will count as 20 per cent of your final course grade. 1. The marginal propensity to consume ( mpc ) tells us A) the fraction of income consumed. B) the percentage of income consumed. C) the level of induced expenditures. D) the fraction of an additional dollar of income that is spent. 2. If the marginal propensity to consume is 0.9 and a decline in household wealth reduces autonomous expenditures by $75 billion, equilibrium real GDP will A) increase by $300 billion. B) increase by $750 billion. C) decrease by $750 billion. D) decrease by $500 billion. 3. The multiplier equation can be used to determine how changes in A) autonomous expenditures affect consumption. B) autonomous expenditures affect income. C) output affect consumption. D) output affect autonomous expenditures. 4. The multiplier equation shows the relationship between A) autonomous expenditures and savings. B) autonomous expenditures and government spending. C) autonomous expenditures and the equilibrium income level. D) investment spending and savings. Use the following to answer question 5: Income Expenditures $ 0 $ 500 1,000 1,167 1,500 1,500 2,000 1,833 2,500 2,167
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Page 2 5. In the table above, the marginal propensity to consume is A) $500. B) $1,500. C) 0.167. D) 0.667. 6. Say foreign income increases and this pushes U.S. exports up. The U.S. AE curve will likely A) become steeper. B) become flatter. C) shift up. D) shift down. 7. If saving increases at a particular income level, it follows that A) consumption and total expenditures must decrease. B) consumption must decrease but total expenditure need not. C) total expenditure must decrease but consumption need not. D) neither consumption nor total expenditure need decrease. 8. In the aggregate expenditure model, if the mpc is 0.75, then the multiplier is A) 1.25. B) 1.75. C) 3. D) 4. 9. According to the multiplier equation, an increase in the marginal propensity to consume A) raises output because it leads to an increase in autonomous expenditure. B) reduces aggregate expenditure because it reduces the multiplier. C) increases output because it increases the multiplier. D) increases aggregate expenditure because it increases autonomous expenditure. 10. If the permanent income hypothesis is true, i.e., if people spend their income based on their lifetime income, A) the mpc would be relatively small. B) the mpc would be relatively large. C) the
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This note was uploaded on 12/08/2009 for the course ACCT 101 taught by Professor Jim during the Spring '09 term at CSU Channel Islands.

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fall2007.econ1012.midterm3 - Economics 1012A: Introduction...

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