1.Disposable income

A)Increases when net taxes increase.

B)Increases when income increases.

C)Decreases when saving increases.

D)Increases when saving decreases.

2.Capital, as economists use the term,

A)Is the money the firm spends to hire resources.

B)Is money the firm raises from selling stock.

C)Refers to the process by which resources are transformed into useful forms.

D)Refers to things that have already been produced that are in turn used to produce other goods and services.

3.In the circular flow diagram, the different payments made by firms to households include

A)Wages and profits.

B)Interest and taxes.

C)Transfer payments and dividends.

D)Taxes and transfer payments.

4.GD P is not a perfect measure of social welfare and the society's economic well-being because

A)it does not say anything about the distribution of income.

B)GDP accounting rules do not adjust for production that causes negative externalities.

C)it does not include all economic activities in the economy.

D)all of the above

5.If the MPS is 0.60, MPC

A)is 1.60.

B)is 0.40.

C)is 0.30.

D)cannot be determined.

6.If planned investment exceeds actual investment,

A)there will be an accumulation of inventories.

B)there will be no change in inventories.

C)there will be a decline in inventories.

D)none of the above

7.Which of the following is subtracted from national income to get to personal income?

A)retained earnings

B)personal interest income

C)depreciation

D)personal Taxes

8.In a closed economy with no government, aggregate expenditure is

A)Consumption plus investment.

B)Saving plus investment.

C)Consumption plus the MPC.

D)MPC + MPS.

9.If no foreign companies produce in a country, but many of the country's companies produce abroad, then

A)the country's GNP will tend to exceed its GDP.

B)the country's GDP will tend to exceed its GNP.

C)the country's GNP and GDP will tend to be equal.

D)the country's GDP will tend to be equal to its domestic income.

10.Fiscal policy refers to

A)the techniques used by a business firm to reduce its tax liability.

B)the behavior of the nation's central bank, the Federal Reserve, regarding the nation's money supply.

C)the spending and taxing policies used by the government to influence the economy.

D)the government's ability to regulate a firm's behavior in the financial markets.

11.The aggregate consumption function is C = 100 + .8Yd. If income is $600 and net taxes are zero, consumption equals

A)zero.

B)460.

C)580.

D)360.

1.The MPC is

A)the change in consumption divided by the change in income.

B)consumption divided by income.

C)the change in consumption divided by the change in saving.

D)the change in saving divided by the change in income.

2.Assume that in Scandal Ville, planned investment is $80 billion but actual investment is $60 billion. Unplanned inventory investment is

A)-$20 billion.

B)-$10 billion.

C)$70 billion.

D)$140 billion.

1.In a closed economy that has a government sector

a.prove that S + T = I + G(2 marks)

2.Assume that Northern Ville is a two-sector economy with no intervention from the Government.

a.If C = $150 + 0.75Y and I = $400.

i.Calculate the equilibrium level of output for this hypothetical economy. (3 marks)

ii.if the economy were operating at 2400, what would be the levels of consumption and savings? (4 marks)

iii.What would be the amount of unplanned investment at this level? (3 marks)

b.The Northern Ville Government has decided to have an active role in the economy with G=100 and T=100

i.Re-write the consumption function for the economy. (1 marks)

ii.Calculate the equilibrium level of output for this hypothetical economy. (3 marks)

iii.Given the Government intervention, calculate and explain the multiplier.(5 marks)