{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Practice Exam Exercises for Chapter 3 key

# Practice Exam Exercises for Chapter 3 key - ‘I’ refers...

This preview shows page 1. Sign up to view the full content.

BEcon 301, 2009 Practice Exam Exercises for Chapter 3 – Answer key 1. smaller / decrease 2. smaller 3. multiplier 4. false. 5. Y = Z Y 0 = 1 1- .8(1- .25) ´ 450 = 2.5 ´ 450 =1,125; multiplier = 1 1- .8(1- .25) = 2.5 6. a) Equilibrium condition: Y = Z Y = 1 1- .5(1- .12) 2,800 @5,000 b) Multiplier = 1 1- .5(1- .12) = 1 .56 =1.7857 Equilibrium level of output: Y = 4821.43 Change in income: Y = 178.57 c) c 0 = 100 but Y = 178.57 The change in income is larger than the initial reduction in autonomous spending due to the multiplier effect. When demand decreases, production will decrease and with that income decreases as well. This is followed by further decrease in demand, production, income and so on. 7. a) Examples for C: clothes, housing, food Examples for I: buildings, machinery
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ‘I’ refers to capital investment, NOT financial investment i.e. stocks, bonds etc.) Examples for G: roads, arms ‘G’ refers to government spending, NOT government transfers (i.e. social security, unemployment, etc.) b) Equilibrium condition in the goods market: Z = Y When the goods market is in equilibrium the inventory investment is zero . Remember that inventory investment is the difference between production (Y) and sales (Z), and it will be zero in equilibrium because Y = Z (See Chapter 3, page 49) c) First, you need to remember that output equals income. Y = 1320 d) From part c) Y = 1320. The 3% increase in output is 1320 * .03 = 39.6; ∆ G = 19.8...
View Full Document

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern