Quiz 2 FEEDBACK - 1. The key assumption of the basic...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1. The key assumption of the basic Keynesian model is that in the short run, firms: a. meet demand at preset prices. b. adjust prices to bring sales in line with capacity. c. change prices frequently. d. operate just as they do in the long run. e. change prices rather than quantities. The basic Keynesian model is a short-run model in which demand determines output and firms supply output at given prices. 2. Suppose a household’s marginal propensity to consume out of disposable income is 0.75 and its exogenous consumption is $250. If household income is $2000 and taxes are a flat $200, how much will the household save each period? a. $200. b. $250. c. $400. d. $1,000. e. $1,500. S = - 250 + 0.25 (2000 – 200) = 450 – 250 = 200 Or S = Y – T – C = 2000 – 200 – [250 + 0.75(2000 – 200)] = 1800 – 250 – 1350 = 200 3. A$100 million increase in government purchases will have a bigger impact on equilibrium output a. The larger are the marginal tax rate and marginal propensity to import and the larger is the marginal propensity to consume. b. The larger are the marginal tax rate and marginal propensity to import and the smaller is the marginal propensity to consume. c. The smaller are the marginal tax rate and marginal propensity to import and the smaller is the marginal propensity to consume. d. The smaller are the marginal tax rate and marginal propensity to import and the larger is the marginal propensity to consume. e. The smaller are the marginal tax rate and marginal propensity to consume and the larger is the marginal propensity to import. See lecture note and textbook 4. If the marginal propensity to consume equals 0.75, then a $100 increase in after- tax disposable income leads to a _____ increase in consumption. a. $0.25 b. $0.75 c. $25 d. $75 e. $100
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
MPC times the extra income 5. Planned aggregate expenditure is total: a. value added in the economy. b. planned spending on final goods and services.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/18/2011 for the course ECON 1002 taught by Professor Markmelatos during the Three '10 term at University of Sydney.

Page1 / 6

Quiz 2 FEEDBACK - 1. The key assumption of the basic...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online