1. If private investment increases from 40 million to 60 million and it results in national income increasing from 500 million to 600 million then the multiplier is

A. 3

B. 5

C. 4

D. 6

2. if the short-run macroeconomic equilibrium is _________ of the economy's potential output, then there is a/an ______

and the aggregate price level is expected to ________.

A. to the left; recessionary gap; fall

B. to the right; inflationary gap; fall

C. to the left; inflationary gap; fall

D. to the right; recessionary gap; rise

3. if actual investment is greater than planned investment, inventories decrease more than planned

Select one

True

False

4. Which of the following would make investment spending fall?

A. increase in the investment tax credit from 4% to 12%

B. decrease in real interest rates from 7% to 4%

C. increase in the corporate profits tax rate from 24% to 38%

D. Sales rising in relation to capacity from 50 to 80%

5. Assume that the economy is initially at its equilibrium level of GDP. What will happen to the equilibrium level of GDP if:

• planned investment decrease by 20
• government spending increases by 30
• and the MPC = 0.8

A. GDP will decrease by 10

B. GDP will decrease by 50

C. GDP will increase by 50

D. there will be no change in GDP

6. The accelerator principle is given as the function I = a Y. if the accelerator in the economy is 10, and output moved from $50 million to $75 million after net investment expenditure, calculate investment:

A. 40 million

B. 2.5 million

C. 25 million

D. 250 million

7. According to Keynes's General Theory, which of the following is true?

A. Prices and wages adjust when markets are in disequilibrium

B. Government has no role to play in an economic recession

C. Aggregate demand determines an economy's output and employment

D. Aggregate supply determines an economy's output and employment