Study Guide Midterm _2 B - 2.10

# Study Guide Midterm _2 B - 2.10 - ECON 222: Study Guide B...

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ECON 222: Study Guide B Midterm #2 Name: ___________________________________ 1. Suppose that the marginal propensity to consume is 0.75, and investment spending increases by \$100 billion. The increase in aggregate demand is: A) \$100 billion, the amount of investment spending. B) \$175 billion, composed of \$100 billion in investment spending plus a \$75 billion multiplier effect. C) \$400 billion, composed of \$100 billion in investment spending and \$300 billion in consumption. D) \$500 billion, composed of \$100 billion in investment spending and \$400 billion in consumption. Page 1

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Use the following to answer question 2. Figure: Consumption and Real GDP 2. (Figure: Consumption and Real GDP) If real GDP were \$12 trillion, consumption would be _______ trillion. A) \$5 B) \$7 C) \$9 D) \$11 3. Suppose investment spending increases by \$50 billion, and as a result the equilibrium income increases by \$200 billion. The value of the MPC is: A) 0.8. B) 0.4. C) 0.75. D) 4. Page 2
Use the following to answer question 4. Figure: Consumption and Disposable Personal Income 4. (Figure: Consumption and Disposable Personal Income) The slope of the consumption function is: A) 0.25. B) 0.50. C) 0.60. D) 0.67. Use the following to answer questions 5-6. Scenario: Consumption Spending Suppose that the consumption function is: C = \$500 + 0.8 × YD where YD is disposable income. 5. (Scenario: Consumption Spending) Autonomous consumption is: A) \$500. B) 0. C) 0.8 of disposable income. D) \$1,300, if disposable income is \$1,000. Page 3

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6. (Scenario: Consumption Spending) The marginal propensity to save is: A) \$500. B) 0 C) 0.8. D) 0.2. 7. When David has no income, he spends \$700. If his income increases to \$2,000, he spends \$1,700. Which of the following represents his consumption function? A) C = \$500 + 0.7 × YD . B) C = \$700 + 0.5 × YD . C) C = \$700 + 0.7 × YD . D) C = \$1000 + 0.5 × YD . 8. David receives a tax refund of \$800. He spends \$600 and saves \$200. David's marginal propensity to consume is: A) 0.6. B) 0.75. C) 0.25. D) 0.20. 9. Assume that the marginal propensity to consume is 0.5, autonomous consumption is \$10,000, and disposable income is \$40,000. If disposable income were expected to increase in the future, the consumption function might take the form of: A) C = 10,000 + (0.5 x 40,000). B) C = 12,000 + (0.5 x 40,000). C) C = 10,000 + (0.7 x 40,000). D) C = 10,000 + (0.5 x 42,000). 10. If the marginal propensity to consume is 0.5, individual autonomous consumption is \$10,000, and disposable income is \$40,000, then individual consumption spending is: A) \$20,000. B) \$25,000. C) \$30,000. D) \$45,000. Page 4
Use the following to answer question 11. Figure: Income-Expenditure Equilibrium 11. (Figure: Income-Expenditure Equilibrium) If investment spending increases in this economy, then the: A) AE will shift up, increasing the income-expenditure equilibrium. B)

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## This document was uploaded on 11/03/2011 for the course ECON 222 at Cal Poly.

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Study Guide Midterm _2 B - 2.10 - ECON 222: Study Guide B...

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