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2002PRELIM1rev - PART I Multiple Choice 10 points(each...

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PART I: Multiple Choice: 10 points (each question worth ½ point) 1. Assume planned investment falls by $200 billion and the equilibrium level of national income (Y) falls by $500 billion. Given this information, we know that: a. the MPC = 0.9 b. the MPC = 0.8 c. the MPC = 0.75 d. the MPC = 0.5 e. none of the above. (Answer: e because the MPC is 0.6) Planned Aggreg. Expenditure Potential 2 (billions) GDP 45-degree-line F C+I 5,000 4,000 3,000
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2,000 4,000 5,000 Real GDP (billions) In the figure above, at $ 2,000 billion Real GDP, a. spending exceeds total output b. inventories are rising c. spending falls short of output and inventories will rise d none of the above (Answer: a) Planned 3. Aggreg. Expenditure Potential GDP
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45-degree-line 1 2 3 Real GDP In figure above, if the economy is in a recession, what must happen to reach potential GDP? d. The expenditure level must fall and/or the price level must rise e. The expenditure level must rise and/or the price level must fall f. The expenditure level must rise and/or the price level must rise g. The expenditure level must fall and/or the price level must fall h. None of the above (Answer: b) 4. Whenever there is an increase in autonomous consumption spending, there will be
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5. Which of the following actions by the Fed will result in a decrease in the money supply? 6. When money demand is a positive function of income, which of the following statements in TRUE?
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