Midterm 2 _ECN 1B Winter 2011__KEY_

Midterm 2 _ECN 1B Winter 2011__KEY_ - University of...

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Page 1 of 11 University of California, Davis Department of Economics ECN 1B Midterm Examination 2 Winter 2011 B. Modjtahedi ______________________________________________________________________________ Question 1 Concerning the effect of the Economic Stimulus Act 0f 2008, the recent U.S. data on real personal consumption expenditure and real disposable income is consistent with which of the following statements? A. They support the Keynesian consumption theory by showing a strong positive relationship between income and consumption. B. They support both the life-cycle and the permanent-income theories of consumption by showing that a permanent increase in income has a strong effect on consumption. C. They reject both the life-cycle and the permanent-income theories of consumption by showing that a transitory increase in income has a strong effect on consumption. D. They reject the life-cycle theory of consumption by showing that household wealth has no effect on consumption. E. None of the above. Question 2 Which of the following statements is accurate about the empirical effects of the Economic Stimulus Act 0f 2008 and the Economic Recovery and Reinvestment Act of 2009? A. The acts permanently reduced taxes on a large number of U.S. households; but consumption did not increase because most households thought of the resulting increase in their disposable incomes as temporary. B. The acts permanently reduced taxes on a large number of U.S. households; and consumption increased because most households correctly perceived of the resulting increase in their disposable incomes as permanent. C. The acts temporarily reduced taxes on a large number of U.S. households; but consumption increased because most households thought of the resulting increase in their disposable incomes as permanent. D. The acts temporarily reduced taxes on a large number of U.S. households; but consumption did not increase because most households correctly perceived of the resulting increase in their disposable incomes as transitory. E. None of the above.
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Page 2 of 11 Question 3 Which of the following conclusions do the U.S. data on M2 money supply and nominal GDP support? A. The velocity of circulation is quite volatile, both in the short run and the long run. B. The velocity of circulation is quite volatile in the long run, even though it is somewhat stable in the short run. C. The velocity of circulation is quite stable, both in the short run and the long run. D. The velocity of circulation is quite volatile in the short run, but it is somewhat stable in the long run. E. None of the above. Question 4 Suppose that the marginal propensity to consume equals 0.90. The government raises 100,000,000 units in taxes (TX) and spends the proceeds on goods and services (G). Ignoring the effect of this policy in the financial markets, what will be the increase in
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This note was uploaded on 11/11/2011 for the course ECN 1B taught by Professor Michalowski during the Spring '11 term at UC Davis.

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Midterm 2 _ECN 1B Winter 2011__KEY_ - University of...

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