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UNIVERSITY OF SOUTH AUSTRALIA SCHOOL OF COMMERCE ECON1007 MACROECONOMICS Study period 2, 2010. TAKE-HOME TEST, Part 2 This booklet contains 8 questions. You are required to answer all questions. Please record your answers in the Answer Section at the back of the Assignment. PLEASE SUBMIT ANSWER SHEET only. You are advised to keep a photocopy of the ANSWER SHEET. This Assignment counts for 8% of the overall mark. This will add to the score you attained for Part 1 (maximum of 7%). No extensions are granted. DUE DATE: Postmarked Friday June 4th, 2010 PLEASE DO NOT SEND TO COURSE COORDINATOR AND DO NOT EMAIL AS ASSIGNMENTS HAVE TO GO THROUGH AN ADMINISTRATIVE LOGGING PROCESS : POST TO: The Assignments Officer School of Commerce University of South Australia City West Campus North Terrace ADELAIDE SA 5000 ECON1007 Macroeconomics Take Home Test SP2 2010 Page 1
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Q1. Consider the following statements and decide which are true. Record the correct combination from the possibilities listed below the list of statements. 1. In an open economy without a government sector, GDP will be equal to the sum of consumption, investment and net exports. 2. Wages tend to be downwardly rigid in capitalist societies because workers are reluctant to accept lower wages and firms fear that there will be declines in labour productivity if they cut wages. 3. When the APS is 0.38, it suggests that consumption spending will be $310m for a household disposable income of $500m. 4. The MPS is measured by the change in saving divided by the level of disposable income. 5. A reduction in lump sum taxes will shift the consumption schedule upwards. 6. The rate of interest is the major determinant of consumption spending. 7. If the APC equals 0.62, savings will change by $31m when disposable income changes by $100m. 8. Businesses can be expected to demand less investment if the real rate of interest exceeds the expected rate of net profits. 9. At levels of spending above equilibrium businesses experience unintended increases of inventories. 10. The intercept of the consumption schedule measures the value of the APC when disposable income is zero. 11. Investment for a particular company is dependent on the success of its shares on the stock market. 12. Optimistic forecasts of the future state of the economy are likely to lead to an downward shift of the consumption schedule. 13. Investment spending is intrinsically stable although its financing will be unstable if the market for funds fluctuates. 14. A rise in consumer wealth shifts the consumption schedule upward. 15. The break- even level of disposable income (when S equals zero) also coincides with an MPC of zero. Choose the combination of statements that you think contains the largest number of TRUE statements. A 4 6 7 10 11 12 13 B 1 2 3 5 8 9 14 C 2 5 8 9 12 14 15 D 1 3 5 7 9 11 15 E 1 4 6 10 12 14 15 F 2 3 4 6 8 11 13 ECON1007 Macroeconomics Take Home Test SP2 2010 Page 2
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