Winter 2011 Midterm 2 Answers

Rnom 5 qlf 15 billion d rnom 5 qlf 8 billion page

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Unformatted text preview: c. rnom = 5%, QLF = 15 billion d. rnom = 5%, QLF = 8 billion Page 1 of 11 5. Let rGDP* be the “very” short run equilibrium level of output. If rGDP < rGDP*, then: a. Iu > 0; firms produced too much; consumption was lower than expected. b. Iu < 0; firms produced too much; consumption was higher than expected. c. Iu > 0; firms didn’t produce enough; consumption was lower than expected. d. Iu < 0; firms didn’t produce enough; consumption was higher than expected. 6. The table to the right shows the consumption levels of three consumers at different levels of individual income. Assuming there is no income tax, what is the aggregate marginal propensity to consume? a. 0.1 b. 0.167 c. 0.25 d. 0.833 Consumer Constance William Penelope $200 500 700 800 Individual Income $1,200 $2,200 600 700 850 1,000 1,050 1,300 7. Consider an economy whose aggregate expenditure line has a slope of 0.8. The income tax rate t = 11.1%. What is the spending multiplier in this economy? a. 2 b. 3.46 c. 5 d. 10 8. The full statement of short-run equilibrium output is given by the equation 1 1 ∗ . 1 0.75 1 0.75 When this equation holds true, which of the following options is FALSE? a. MPC = 1 b. t = 0.25 c. TR = 0 d. Iu > 0 9. When Ann’s disposable income is 10 she spends it all on consumption goods. When her disposable income is 15 she spends 12.5 on consumption. Assuming her marginal propensity to consume (MPC) is constant, calculate her MPC and autonomous consumption (A). a. MPC=0.5, A=5 b. MPC=1, A=0 c. MPC=0.125, A=10 d. MPC=0.5, A=2.5 Page 2 of 11 10. An economy has a level of government spending 200, no income tax, and no lump-sum taxes or transfers. Its 0.6 and autonomous consumption 20. Total investment 300 and 100. The planned aggregate expenditure function in this economy is unplanned investment a. 420 0.4 . b. 320 0.4 . c. .. d. 520 0.6 . 11. An economy initially has an income tax rate t of ½, and an MPC of ½. After a financial crisis, the savings rate rises and the MPC falls to ¼ (while all other au...
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