MT2MCVersionASol - ECO 320L Spring 2009 Professor Beatrix...

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ECO 320L Spring 2009 Professor Beatrix Paal Midterm 2 name: 3/11/2009 1. At a given level of income, goods market equilibrium in a closed economy is attained by the adjustment of _____. A) the nominal interest rate B) taxes C) the real interest rate D) the dollar prices of goods 2. In a closed economy, the goods market equilibrium condition can be written as _____, or, equivalently, as _____. A) T = TR + INT ; S gmt = 0 B) NX = – NFP ; CA = 0 C) CA = 0; GDP = GNP D) Y = C + I + G ; S = I 3. Michael consumes 1000 in the current period and 212 in the future period. The real interest rate is 6% per period. Michael's present value of lifetime consumption is _____. A) 1260 B) 1272 C) 1200 D) 1212 4. Natalia has $90 in the bank, and earns current after-tax labor income of $70. Her current consumption is $500. Natalia's saving is _____, and Natalia's net lending is _____. A) $–340; $–430 B) $–430; $–340 C) $–340; also $–340. D) $–430; also $–430. 5. Because current and future consumption are both normal goods, A) consumers prefer current consumption to future consumption. B) the marginal propensity to consume is between 0 and 1. C) an increase in the real interest rate increases aggregate saving. D) higher current income makes lenders better off and borrowers worse off. Version A Page 1
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6. If the consumer's PVLR is 1000, and the real interest rate is 20%, which of the following statements is false ? A) Every unit of the consumption good that the consumer saves will yield additional future consumption of 1.2 units. B) Every unit of the consumption good that the consumer saves will yield additional future consumption of 0.2 units. C) The slope of the consumer's budget set is –1.2. D) The consumer's FVLR is 1200. 7. If the marginal propensity to consume is 0.3, then an additional 20 units of income will induce the consumer to _____ units and _____ units. A) increase consumption by 6; decrease consumption by –14 B) increase consumption by 6; increase saving by 14 C) increase consumption by 14; increase saving by 6 D) increase consumption by 6; decrease consumption by –6 8. If the real interest rate falls, borrowers will be ____, and lenders will be _____. A) worse off;
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MT2MCVersionASol - ECO 320L Spring 2009 Professor Beatrix...

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