Macroeconomics

Due Date: 13/09/2009

I. Multiple Choices

1. A consumption function of the form C = Co + cYD has a positive vertical intercept Co, which indicates that

a. some consumption is unaffected by changes in disposable income

b. the mpc will increase as disposable income increases

c. the apc will always increase as disposable income increases

d. the apc will always be less than the mpc

e. all of the above

2. The marginal propensity to consume (mpc)

a. shows the fraction of total national income that is used for consumption

b. added to the marginal propensity to save (mps) always equals zero

c. is the relationship between a change in consumer purchases and the change in disposable income that allows consumption to change

d. declines as disposable income declines, eventually becoming zero as disposable income reaches zero

e. decreases as autonomous saving increases

3. In a model with no government or foreign sector, if autonomous consumption is Co = 80, investment is Io = 70, and the marginal propensity to save is s = 0.25, equilibrium income is

a. 150

b. 200

c. 225

d. 600

e. 750

4. The expenditure multiplier measures

a. the number of steps it takes to move from one equilibrium to another

b. the rise in saving resulting from a rise in income

c. the change in investment resulting from a change in income

d. the change in induced consumption caused by a change in income

e. none of the above

5. The reason that an increase in autonomous spending leads to an even greater increase in equilibrium level of output is that

a. as firms increase output to meet demand, income increases, and this induces more consumption spending

b. the multiplier increases with an increase in autonomous spending

c. prices rise with increased output and this raises nominal GDP

d. people save less...