2.What types of variables are Government Spending and Taxes in a closed economy model?

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A.Endogenous.

B.Rival.

C.Exogenous.

D.Excludable.

3.If the Federal Reserve foresees the economy overheating and decides at the next meeting of the Federal Open Market Committee to raise the Federal Funds rate, what would be the expected response in the level of investment?

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A.Investment will increase as consumers will save more money.

B.Investment will increase as inflation cools and the buying power of the dollar becomes stronger.

C.Investment will decrease as the cost of borrowing will increase.

D.Investment will decrease as the interest rate increase induces a negative shock in the economy.

4.In the US, which component of Aggregate Demand is the largest?

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A.Consumption.

B.Investment.

C.Government Spending.

D.Net exports.

6.What are the components of Aggregate Demand in a closed Economy?

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A.Technology, Capital and Labor.

B.Consumption, Government Spending on goods and services, Investment.

C.Autonomous Consumption, Government Spending, Investment.

D.Consumption, Investment, Government Spending on goods and services, Net Exports.

7.Consumption depends predominantly on:

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A.Income.

B.Taxes.

C.Disposable Income, adjusted by the MPC and the marginal tax rate.

D.Autonomous Consumption.

8.If a household's income increases from 25000 to 200000, what would we expect the MPC of this household to do?

If a household's income increases from 25000 to 200000, what would we expect the MPC of this household to do?

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A.Remain constant.

B.Increase.

C.Decrease.

D.It depends on how much of the increase is provided as transfer payments.

9.If a household has a marginal propensity to consume of 0.6 and is taxed at 30%. With an income of 0, the household's consumption level is 75. If the tax rate falls to 22% and the household income is $900, what is the consumption level?

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A.492.00.

B.421.20.

C.540.

D. 496.20.

11.Which component of Aggregate Demand is the most volatile?

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A.Consumption.

B.Investment.

C.Government Spending.

D.Output.

12.Is the marginal propensity to consume of a high-income household is greater than that of a low-income household?

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A.Yes - high income households consume more, so their MPC must be greater.

B.No - having higher income enables more consumption, so their MPC can be lower and still spend more on consumption.

C.No - MPC is a constant for all households in the economy.

D.None of the above.

13.If an important technological breakthrough is achieved in an economy, what would we expect to happen to investment?

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A.Investment will increase at all interest rates.

B.The quantity of investment will decrease.

C.Marginal Product of Capital will decrease.

D.It depends on the sensitivity to changes in the interest rate.

14.If a household has a marginal propensity to consume of 0.6 and is taxed at 30%. With an income of 0, the household's consumption level is 75. What is the household's consumption level with an income of 1100?

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A.462.

B.660.

C.537.

D.573.

15.The derivative of the Investment Function with respect to the interest rate tells us:

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A.That the level of investment will decrease as the interest rate increases; I/r<0

B.That the level of investment will decrease as the interest rate increases; I/r>0

C.That the level of investment will increase as the interest rate increases; I/r<0

D.That the level of investment will increase as the interest rate increases; I/r>0