Question 1: ssume that an increase in a household's disposable income from $40,000 to $48,000 leads to an increase in consumption from $35,000 to $41,000, then the:
A) slope of the consumption schedule is .75.
B) average propensity to consume is .75.
C) marginal propensity to save is .20.
D) marginal propensity to consume is .6.
Question 2: If the MPC in an economy is 0.8, government could eliminate a recessionary gap of $100 billion by cutting taxes by:
A) $80 billion.
B) $100 billion.
C) $125 billion.
D) $200 billion.
Question 3: If the CPI was 120 last year and is 130 this year, what is this year's rate of inflation? Suppose also the economy's nominal GDP is $37,000 last year and $45,000 this year, what is the rate of economic growth?
Question 4: Assume that hypothetical economy with an MPS of 0.4 is experiencing severe recession. By how much would government spending have to increase to shift the aggregate demand curve rightward by $100 billion? How large a tax cut would be needed to achieve the same increase in aggregate demand?
Question 5: Assume that the following data characterize a hypothetical economy: money supply=$200 billion; quantity of money demanded for transactions = $150; quantity of money demanded as an asset = $10 billion at 12 percent interest, increasing by $10 billion for each 2-percentage-point fall in the interest rate. What is the equilibrium interest rate?