AECO 301 Intermediate Macroeconomics, Spring 2010
Instructor: Yangyi Shan
Sample Exam for Midterm II
ANSWER KEY
Part 1. Multiplechoice Questions (10*3=30 points)
1. With no inflation and a nominal interest rate (i) of .03, a person can trade off one unit
of current consumption for ________ units of future consumption.
A) 0.97
B) 1.03
C) 0.03
D) 0.03
Answer:
B
2. Aunt Agatha has just left her nephew $5000. The most likely response is for her
nephew to
A) increase current consumption, but not future consumption.
B) decrease current consumption, but increase future consumption.
C) increase future consumption, but not current consumption.
D) increase both current consumption and future consumption.
Answer:
D
3, Last year, Linus earned a salary of $25,000 and he spent $24,000, thus saving $1000.
At the end of the year, he received a bonus of $1000 and he spent $500 of it, saving the
other $500. What was his marginal propensity to consume?
A) .96
B) .50
C) .04
D) .02
Answer:
B
4, If the substitution effect of the real interest rate on saving is larger than the income
effect of the real interest rate on saving, then a rise in the real interest rate leads to a
________ in consumption and a ________ in saving, for someone who's a lender.
A) fall; fall
B) fall; rise
C) rise; rise
D) rise; fall
Answer:B
5, According to Ricardian Equivalence Proposition, if the government cuts taxes today,
issuing debt today and repaying the debt plus interest next year, a rational taxpayer will
A) spend the full amount of the tax cut today and reduce consumption next year.
B) increase consumption today, before taxes go up next year.
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 Spring '10
 TED
 Economics, Capital accumulation, per capita consumption

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