is2010 m_2 q - Dr. Valerie R. Bencivenga Economics 304L...

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STUDENT NAME: _________________________ Economics 304L UTEID: _________________________ April 1, 2010 MIDTERM EXAM #2 Instructions : Enter your answers to the multiple choice on a SCANTRON. Answer the problems in the space provided. There are 25 multiple choice (100 points), and 2 problems (120 points). You may use a calculator and a one-page help sheet. This is a 75 minute exam. Good luck! Multiple choice (4 points each) 1. Which of the following would shift the consumption function down? An increase in a. the real interest rate c. expected future income b. the purchasing power of net assets d. all of the above 2. An increase in the real interest rate _____ the fraction of disposable income saved by borrowers (households with negative net assets), and _____ the fraction of disposable income saved by lenders (households with positive net assets). a. decreases; increases c. may increase or decrease; increases b. increases; decreases d. increases; may increase or decrease 3. Suppose disposable income increases temporarily (i.e., this year’s disposable income rises by a certain amount, then disposable income goes back to what households had been expecting). Then consumption _____ and saving _____ a. increases; approximately stays the same c. increases; increases b. approximately stays the same; increases d. increases; decreases 4. Which of the following is true? A permanent increase in disposable income _____, and a temporary increase in disposable income _____. a. shifts the consumption function up; moves the economy to the right along the consumption function b. moves the economy to the right along the consumption function; shifts the consumption function up c. moves the economy to the right along the consumption function; both moves the economy to the right along the consumption function, and shifts the consumption function up d. both moves the economy to the right along the consumption function, and shifts the consumption function up; moves the economy to the right along the consumption function 5. Real GDP increases over several years (for example, the 1990’s). How can economists tell whether households view this increase in real GDP as permanent? a. Consumption goes up by about the same amount as real GDP increases. b. Private saving goes up by about the same amount as real GDP increases. c. Consumption increases by a fraction of the increase in real GDP, and the rest is saved. d. Private saving falls, and consumption increases by more than the increase in income. 6. A recession causes real GDP to fall by 100 billion. During this recession, aggregate consumption falls by 68 billion. The proportional tax rate is .2. What is the marginal propensity to consume out of disposable income? a.
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This note was uploaded on 06/15/2011 for the course ECO 304L taught by Professor Bencivenga during the Spring '10 term at University of Texas at Austin.

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is2010 m_2 q - Dr. Valerie R. Bencivenga Economics 304L...

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