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Unformatted text preview: Student: Instructor: Sandra Hadler Assignment: MEL QuizSet 4 Chapter 8
Date: Colu'se: EconlOl Spring 3010
Time: Book: Case"Fair: Principles of
1\Iacroec«.nnnnics 9e
1_ Which of the following best describes the relationship between aggregate expenditure and real GDP?
[:JA. If aggregate expenditure falls short of real GDP, inventories will decrease and real GDP and
aggregate income will increase in future
[:1 B. If aggregate expenditure falls short of real GDP, inventories will decrease and real GDP and
aggregate income will fall in future
[:1 C. If aggregate expenditure falls short of real GDP, inventories will accumulate and real GDP and
aggregate income will fall in future
[:1 D. If aggregate expenditure falls short of real GDP, inventories will accumulate and real GDP and
aggregate income will increase in ﬁJture
Answer: C
2_ When interest rate increases:
[:JA. only the dollar amount ofcredit card purchases increases
[:1 B. the consumption function shifts down since individuals face larger debt
[:1 C. cost of borrowing increases and the consumption ﬁJnction shifts up
[:1 D. cost of borrowing increases and the consumption function shifts down
Answer: D
3. Assume there are no taxes. The equation for the consumption function is given to be:
C = 100 + ORGY,
where Y represents aggregate income.
Determine the equation for the saving function:
3 = D + jv
Answers — IOO
0.30
4_ The equation for a consumption function in a simple economy, where there are no taxes, is given by C = 240 + 0.?2Y, where Y denotes aggregate income. Autonomous consumption, or the vertical intercept of the consumption function, is , and MPC is Answers 240
0 . 72 Page 1 Student: Instructor: Sandra Hadler Assignment: MEL QuizSet 4 Chapter 8
Date: Course: EconlOl Spring 3010
Time: Book: Case"Fair: Principles of 1\Iacroeconolnics 9e LII Textbook Problem #6a You are given the following data concerning Freedonia, a legendary country: Consumption Function: C = 200 + 0.90Y
Investment Function: I = 300 Aggregate Expenditure Function: AB = C + I
Equilibrium: AE = Y Calculate the following: MPC = . (Enter your response rounded to two decimal places). MPS = (Enter your response rounded to two decimal places). The Level of Equilibrium Income, Y = $ The value ofthe Investment Multiplier = (Enter your response rounded to two decimal places). The change in the level of equilibrium income if investment increases by $5. AY = $:. Answers 0.90
0.10
5000
10.00
50.00 Page 3 Student: Instructor: Sandra Hadler Assignment: MEL QuizSet 4 Chapter 8
Date: Colu'se: Ec011301 Spring 3010
Time: Book: Case."Fair: Principles of Macroeconomics 9e 6_ Textbook Problem #6b You are given the Tncome Determination
Plan:th Aggregate Expcttdintrc following data concerning Freedonia, a legendary
country: Consumption Function: C = 250 +0.75Y
Investment Function: l = 150 Aggregate Expenditure Function: AB = C + I
Equilibrium: AE = Y Draw the following: 1) Use the line drawing tool to draw the
Consumption Function. Label this line 'C'. 2) Use the line drawing tool to draw the Aggregate
Expenditure Function. Label this line 'AE'. . . . _ 3.606 't .5'00' '16:}:
3) Use the pomt drawmg tool to identify the Aggregate Output equilibrium level of income. Note: t'fyou are not promptedfbr tine label's. you
have used the wrong drawing tool. Income Determination
Planned Aggregate Expenditure 1,600 3.606 3.50 '2.o'oo Answer: Aggregate Output Page 3 Student: Instructor: Sandra Hadler Assignment: MEL QuizSet 4 Chapter 8
Date: Colu'se: EconlOl Spring 2010
Time: Book: Case"Fair: Principles of 1\Iacroeconomics 9e I Textbook Problem #4 Consider the following information on the levels of income, consumption and
planned investment for a country: Aggregate Consumption Planned
IncomefOutput Expenditure Investment
$3,200 $2,900 $500
3,400 3,050 500
3,600 3,200 500
3,800 3,350 500
4,000 3,500 500
4,200 3,650 500
4,400 3,800 500
4,600 3,950 500 a. When income is $4,400, [HJA Saving is $100 and unplanned investment (inventory change) is $500.
[:1 B. Saving is  $600 and unplanned investment (inventory change) is $500.
[:1 C. Saving is $600 and unplanned investment (inventory change) is $100.
C1D. Saving is 40 and unplanned investment (inventory change) is $100. The equilibrium level of outputs“ income is = $l:. b. Based on the above information calculate MPC and MP8. Also calculate the Multiplier. MPC = (E m‘er your response rounded to two decima! places). MPS = C . (Enter your response rounded to two decimal places). The Multiplier = c. Suppose there is no change in the level of MPC and the MP8, and planned investmentjumps by
$400, calculate the change in the equilibrium value of incomex’output. The change in equilibrium incomefoutput = $D. Answers C
4,000
0.75
0.25
4
1,600 Page 4 Student: Instructor: Sandra Hadler Assignment: MEL QuizSet 4 Chapter 8
Date: Colu'se: Ec011301 Spring 3010
Time: Book: Case."Fai1': Principles of Macroecononncs 9e
8_ Textbook Problem #7 Consider the following model of a very simple economy: Household saving and investment behavior depend in part on wealth (accumulated savings and inheritance). In the late
1990's many were concemed with very large increases in stock values (a form of wealth) and its
possible effect on saving and investment. The following Consumption Function incorporates wealth
(W) as a determinant ofconsumption. We have the following information on Consumption (C) and
Investment (I): (1 =15 + 0.60Y + 0.05w
I: 200
w = 1,000, We are ignoring thefiict that saving adds to the Stock ofweaith. Calculate the values of equilibrium Y, C and S. Suppose that wealth increases by 50%. Calculate the values of equilibrium Y, C and S. NewY=$_;
NewC=$ ;
New S =$ As a result of the wealth accumulation, GDP . Answers 663
463
200
725
525
200 increases Page 5 Student: Instructor: Sandra Hadler Assignment: MEL QuizSet 4 Chapter 8
Date: Colu'se: EconlOl Spring 3010
Time: Book: Case"Fair: Principles of
1\Iacr«.1economics 9e
9_ The following Consumption Function incorporates wealth (W) as a determinant of consumption. We
have the following information on Consumption (C) and Investment (I):
C =10 + 0.75Y + 0.04W
l = 100
A Y
Calculate the value of the Wealth Multiplier, Aw _. and the increase (or change) in Y (AY) if wealth
increases by 500.
A_Y _ D.
AW ’
A Y =
Answers 0.16
80
1()_ If Logan received a $2,500 bonus and his MP5 is 0.20, his consumption rises by $ and his
saving rises by $
[:JA. 2,000; 500
[:1 B. 2,500; 200
[:1 C. 500; 100
[:1 D. 2,500; 20
Answer: A
1 1_ Consumption is L1A. positively related to household income and wealth, interest rates, and households‘ expectations
about the future. [:1 B. negatively related to household income and wealth, interest rates, and households' expectations
about the future. [:1 C. determined only by income. [:1 D. positively related to household income and wealth and households' expectations about the
future, but negatively related to interest rates. Answer: D Page 6 Student: Instructor: Sandra Hadlel' Assignment: MEL QuizSet 4 Chapter 8
Date: Coln'se: Ec011301 Spring 3010
Time: Book: Case."Fai1': Principles of
1\*IacroecononIics 9e
12_ Refer to the information provided in theﬁgure a!
right to answer the question thcztfolt'ows.
Positive saving occurs along the line segment
0 Jerrj
F" . DC. .
___.I A L1 5 C
{'13 B. BA. ‘3 E
 E E
QC. AC. 5 f
A BC :3 E
L) D. .. .5" :
E1
:2.
D 3’1 3’2
Jerry's Income. 3;
Answer: C
13_ If Zander‘s saving function is of the form S =  150 + 0.5 Y, his consumption equals his income at an
income level of
Cm. 225.
{:13 B. 300.
(3 c. 150.
(:3 D. 1.500.
Answer: B
14_ Refer to the information provided in the table at right to answer the question thatfbil'ows. Aggregate Income (35 Aggregate Consumption ( billion) billion)
The equation for the aggregate consumption 0 30
function is 50 125
100 170
{:3A. C : — 80 + 0.45 Y. 150 215
{33. C = 80 + 0.9 Y. 200 260 O c. C = so — 0.?5 Y.
(:3 D. C = 80  0.95 Y. Answer: B Page 7  Student: Instructor: Sandra Hadler Assignment: MEL QuizSet 4 Chapter 8
Date: Colu'se: Ec011301 Spring 3010
Time: Book: Case."Fai1': Principles of
1\Iacroeconomics 9e
15_ In 2006 Happyland's planned investment was $90 billion and its actual investment was $140 billion.
In 2006 Happyland's unplanned inventory change was
CIA.  $1 15 billion.
(:3 B.  $50 billion.
(:31 C. $230 billion.
{:3 D. $50 billion.
Answer: D
16_ If unplanned inventory investment is positive, then
(IDA. planned aggregate spending must equal aggregate output.
C} B. planned investment must be zero.
{:3 C. planned aggregate spending must be greater than aggregate output.
(:3 D. planned aggregate spending must be less than aggregate output.
Answer: D
11 Refer to the information provided in the tabie at
right to answer the question thotjoi’to ws. All Figures in Billions of Dollars
Aggregate Aggregate Planned
At an aggregate output level oti$200 billion, the Output Consumption Investment
unplanned inventory change is 200 300 100
400 450 100 — $200 billlOI‘l. 600 600 100
c: B. — $150 billion. 800 750 100
_ ‘ I 1.000 900 100
L} C. $ l 00 billion.
{:3 D.  $50 billion.
Answer: A
1 8_ Refer to the information provided in the tabie at right to answer the question thotfoito ws. The equilibrium level of aggregate output equals
CIA. $800 billion. C: B. $1.000 billion. C10. $600 billion.
CID. $400 billion. Answer: B Page 8 All Figures in Billions of Dollars Aggregate
Output
200
400
600
800 1.000 Aggregate
Consumption
300
450
600
750 900 Planned
Investment IOO
100
100
100
IOO Student: Instructor: Sandra Hadlel' Assignment: MEL QuizSet 4 Chapter 8
Date: Colu'se: Ec011301 Spring 3010
Time: Book: CaseFair: Principles of hIacroecononlics 9e 19_ Refer to the information provided in the table at
right to answer the question tkrztfolt'ows. All Figures in Billions of Dollars
Aggregate Aggregate Planned Which of the following statements is FALSE? Output Consumption Investment
200 300 100
[EA The MPC for this economy is 0.?5. 400 450 '00
{:3 B. At output levels greater than $800 billion, 600 600 100
there is a positive unplanned inventory 800 750 100
change. 1,000 900 100 L} C. At an output level of $400 billion, there is a
$150 billion unplanned inventory decrease. if 2' D. If aggregate output equals $1,000 billion,
then aggregate saving equals $100. Answer: B 2()_ Refer to the information provided in theﬁgure at
right to answer the question that‘fotlows. At aggregate output level $100 million, there is a ti 13A. $75 million unplanned decrease in
inventories. t jB. $100 million decrease in inventories.
L} C. $l00 million increase in inventories. tij. $75 million unplanned increase in
inventories. gregate expenditures (S millions) u
D A 45 i100 i200 i300
Aggregate output (3 millions} Answer: A Page 9 ...
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 Spring '08
 SHEA
 Macroeconomics, Consumption function, Capital accumulation

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