Econ201 - Econ 201 Professor Shea MIDTERM EXAM 2 Spring...

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Econ 201 MIDTERM EXAM 2 Spring 2008 Professor Shea DIRECTIONS: read each question CAREFULLY and choose the best answer. Fill out your answers on the answer sheet using a pencil. Answer all questions; there is no penalty for guessing. You may write on the exam; the last page is scratch paper. You may ask questions during the exam by raising your hand. 1. Which of the following is a recent development in the US economy that would tend to push the economy towards a recession, according to the Keynesian model? (I) Short- term interest rates have risen sharply in recent months; (II) Consumer confidence has declined sharply in recent months. [NOTE: to answer this question, you need to consider both whether the statement refers to a true recent development in the US economy, and whether if true this development would tend to lead to a recession according to the Keynesian model] (a) I but not II (b) II but not I (c) both I and II (d) neither I nor II Questions 2 through 4 use the following information about a Keynesian economy. Suppose in 2006 we observe that disposable income is 95,000 and consumption is 80,000. In 2007 we observe that disposable income is 90,000 and consumption is 76,250. Assume that autonomous consumption and the marginal propensity to consume are unchanged between 2006 and 2007. 2. Autonomous consumption is (a) 8750 (b) 10000 (c) 11250 (d) cannot be determined from information given 3. At what level of disposable income would saving be exactly zero? (a) 8750 (b) 11666.67 (c) 35000 (d) cannot be determined from information given 4. Suppose investment rises by 100 in this economy, holding all other parameters (autonomous consumption, net exports, government spending, transfer payments, the tax rate and the marginal propensity to consume) fixed. How much will equilibrium output rise after the multiplier process is complete? (a) 100 (b) 250 (c) 400 (d) cannot be determined from information given
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Questions 5 and 6 use the pictures below. [The four pictures show production possibilities frontiers with output on the vertical axis and leisure on the horizontal axis. In picture A, the PPF is shown shifting inward. In picture B, the PPF is shown shifting outward. In picture C, the economy is shown traveling up to the left along a single PPF. In picture D, the economy is shown traveling down to the right along a single PPF. In picture D, point F is located inside the production possibilities frontier]. 5. Which of the pictures above depicts the impact of good weather and good agricultural harvests on the economy, according to the Classical model? (a) A (b) B (c) C (d) D 6. According to the Classical model, how could the economy wind up at point F (in picture D)? (a) People decide to quit their jobs voluntarily because of low wages
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This note was uploaded on 02/09/2012 for the course ECON BMGT360 taught by Professor Spina during the Spring '09 term at Maryland.

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Econ201 - Econ 201 Professor Shea MIDTERM EXAM 2 Spring...

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