Question 1

When the economy is in equilibrium, we know with certainty that:

Accepted Answer

A)  total saving equals investment. 
B)  government spending equals taxes. 
C)  private saving equals investment. 
D)  public saving equals investment. 
E)  public saving equals government spending minus taxes. 
A)  total saving equals investment. 
B)  government spending equals taxes. 
C)  private saving equals investment. 
D)  public saving equals investment. 
E)  public saving equals government spending minus taxes. A

Question 2

Which of the following represents total saving for an economy?

Accepted Answer

A)  The sum of private saving and fixed investment. 
B)  The sum of private saving and consumption. 
C)  The sum of private saving and public saving. 
D)  The excess of taxes over government spending. 
E)  The sum of taxes and government spending. 
A)  The sum of private saving and fixed investment. 
B)  The sum of private saving and consumption. 
C)  The sum of private saving and public saving. 
D)  The excess of taxes over government spending. 
E)  The sum of taxes and government spending. C

Question 3

What is the effect when there is an equal and simultaneous increase in G and T ?

Accepted Answer

A)  An increase in output. 
B)  A decrease in investment. 
C)  No change in output. 
D)  A decrease in output. 
E)  An increase in investment. 
A)  An increase in output. 
B)  A decrease in investment. 
C)  No change in output. 
D)  A decrease in output. 
E)  An increase in investment. A

Question 4

An increase in the propensity to save from 0.36 to 0.56 will cause:

Accepted Answer

A)  the ZZ line to become flatter and a given change in autonomous spending (c0) to have a smaller effect on output. 
B)  the ZZ line to become steeper and a given change in autonomous spending (c0) to have a smaller effect on output. 
C)  the ZZ line to become flatter and a given change in autonomous spending (c0) to have a larger effect on output. 
D)  the ZZ line to become steeper and a given change in autonomous spending (c0) to have a larger effect on output. 
E)  the ZZ line to become flatter and a given change in autonomous spending (c0) to have no effect on output. 
A)  the ZZ line to become flatter and a given change in autonomous spending (c0) to have a smaller effect on output. 
B)  the ZZ line to become steeper and a given change in autonomous spending (c0) to have a smaller effect on output. 
C)  the ZZ line to become flatter and a given change in autonomous spending (c0) to have a larger effect on output. 
D)  the ZZ line to become steeper and a given change in autonomous spending (c0) to have a larger effect on output. 
E)  the ZZ line to become flatter and a given change in autonomous spending (c0) to have no effect on output.

Question 5

Consider the consumption function, C = c0 + c1YD, we assume that c1 is

Accepted Answer

A)  larger than c0. 
B)  negative. 
C)  equal to one. 
D)  between zero and one. 
E)  different depending on the levels of disposable income. 
A)  larger than c0. 
B)  negative. 
C)  equal to one. 
D)  between zero and one. 
E)  different depending on the levels of disposable income.

Question 6

Which of the following events will cause an increase in equilibrium output?

Accepted Answer

A)  An increase in investment. 
B)  A decrease in taxes. 
C)  A decrease in the propensity to save. 
D)  An increase in the propensity to consume. 
E)  All of the above. 
A)  An increase in investment. 
B)  A decrease in taxes. 
C)  A decrease in the propensity to save. 
D)  An increase in the propensity to consume. 
E)  All of the above.

Question 7

There are three macroeconomic variables from the closed economy goods market model C, I, and G. Explain whether each variable is endogenous or exogenous.

Accepted Answer

Consumption is the endogenous variable s

Question 8

Discuss the two components of fixed investment.

Accepted Answer

Nonresidential investment repr

Question 9

Use the following information below to answer the following question(s): C = 800 + 0.65YD
I = 750
G = 1500
T = 900
-Refer to the information above. Which of the following events would cause an increase in the size of the multiplier?

Accepted Answer

A)  An increase in the propensity to save. 
B)  A reduction in taxes. 
C)  An increase in investment. 
D)  A reduction in government spending. 
E)  An increase in the propensity to consume. 
A)  An increase in the propensity to save. 
B)  A reduction in taxes. 
C)  An increase in investment. 
D)  A reduction in government spending. 
E)  An increase in the propensity to consume.

Question 10

What is the effect when there is an equal and simultaneous decrease in G and T ?

Accepted Answer

A)  A decrease in investment. 
B)  No change in output. 
C)  A decrease in output. 
D)  An increase in investment. 
E)  An increase in output. 
A)  A decrease in investment. 
B)  No change in output. 
C)  A decrease in output. 
D)  An increase in investment. 
E)  An increase in output.

Question 11

Based on our understanding of the paradox of saving, we know that a decrease in the desire to save will cause:

Accepted Answer

A)  a decrease in equilibrium output. 
B)  an increase in equilibrium output. 
C)  an increase in the desire to invest. 
D)  a permanent decrease in the level of private saving. 
E)  no change in equilibrium output. 
A)  a decrease in equilibrium output. 
B)  an increase in equilibrium output. 
C)  an increase in the desire to invest. 
D)  a permanent decrease in the level of private saving. 
E)  no change in equilibrium output.

Question 12

Which of the following expenditures is not included in fixed investment spending (I)?

Accepted Answer

A)  Ford increases its inventories of unsold automobiles. 
B)  Dell Computer buys a new robot for its assembly line. 
C)  Holden builds a new factory. 
D)  An individual buys a newly built home. 
E)  All of the above. 
A)  Ford increases its inventories of unsold automobiles. 
B)  Dell Computer buys a new robot for its assembly line. 
C)  Holden builds a new factory. 
D)  An individual buys a newly built home. 
E)  All of the above.

Question 13

Discuss what is meant by the paradox of saving.

Accepted Answer

The paradox of saving refers to the effe

Question 14

Suppose the Australian economy is represented by the following equations:
Z = C + I + G C = 1500 + 0.6YD T = 1200 I = 500 YD = Y - T G = 2500
a() Given the above variables, calculate the equilibrium level of output. Illustrate the equilibrium level of output for this economy.
[Hint: First specify (using the above numbers) the demand equation (Z) for this economy. Second, using the equilibrium condition, equate this expression with Y. Once you have done this, solve for the equilibrium level of output. Using the ZZ- Y graph (i.e., a graph that includes the ZZ line and 45- degree line with Z on the vertical axis, and Y on the horizontal axis)]
b() Now, assume that consumer confidence decreases which leads to a decrease in autonomous consumption (c0) from 1500 to 1400. What is the new equilibrium level of output? How much does income change as a result of this event? What is the multiplier for this economy?
c() Graphically illustrate the effects of this change in autonomous consumption on the demand line (ZZ) and Y. Clearly indicate in your graph the initial and final equilibrium levels of output.
d() Briefly explain why this decrease in output is greater than (in absolute terms) the initial decrease in autonomous consumption.

Accepted Answer

(a) The equilibrium condition is Y = C+I

Question 15

Which of the following types of government spending is included when calculating GDP?

Accepted Answer

A)  Spending at the local level. 
B)  Spending at the federal level. 
C)  Spending at the state level. 
D)  All of the above 
E)  Only B and C. 
A)  Spending at the local level. 
B)  Spending at the federal level. 
C)  Spending at the state level. 
D)  All of the above 
E)  Only B and C.

Question 16

A decrease in the propensity to consume from 0.89 to 0.64 will cause:

Accepted Answer

A)  the ZZ line to become flatter and a given change in autonomous spending (c0) to have a larger effect on output. 
B)  the ZZ line to become flatter and a given change in autonomous spending (c0) to have a smaller effect on output. 
C)  the ZZ line to become steeper and a given change in autonomous spending (c0) to have a larger effect on output. 
D)  the ZZ line to become flatter and a given change in autonomous spending (c0) to have no effect on output. 
E)  the ZZ line to become steeper and a given change in autonomous spending (c0) to have a smaller effect on output. 
A)  the ZZ line to become flatter and a given change in autonomous spending (c0) to have a larger effect on output. 
B)  the ZZ line to become flatter and a given change in autonomous spending (c0) to have a smaller effect on output. 
C)  the ZZ line to become steeper and a given change in autonomous spending (c0) to have a larger effect on output. 
D)  the ZZ line to become flatter and a given change in autonomous spending (c0) to have no effect on output. 
E)  the ZZ line to become steeper and a given change in autonomous spending (c0) to have a smaller effect on output.

Question 17

For this question, assume that taxes are independent of income change in taxes. Compare and explain the relative size of the changes in government spending and taxes needed to obtain this desired change in output.

Accepted Answer

While the change in government spending

Question 18

Suppose that C = 300 + 0.75YD. How much of a decrease in government spending must occur for equilibrium output to decrease by 1000?

Accepted Answer

A)  250. 
B)  100. 
C)  1000. 
D)  200. 
E)  500. 
A)  250. 
B)  100. 
C)  1000. 
D)  200. 
E)  500.

Question 19

Explain what factors cause shifts and changes in the slope of the ZZ curve in the goods market model.

Accepted Answer

The ZZ curve represents the level of dem

Question 20

Suppose consumer confidence falls causing a decrease in consumption. From the goods market model we know with certainty that a decrease in consumption will cause:

Accepted Answer

A)  a reduction in the multiplier. 
B)  a decrease in the propensity to save. 
C)  an increase in the multiplier. 
D)  an increase in the propensity to save. 
E)  a decrease in output. 
A)  a reduction in the multiplier. 
B)  a decrease in the propensity to save. 
C)  an increase in the multiplier. 
D)  an increase in the propensity to save. 
E)  a decrease in output.

Exam 3: The Goods Market

When the economy is in equilibrium, we know with certainty that:

Which of the following represents total saving for an economy?

What is the effect when there is an equal and simultaneous increase in G and T ?

An increase in the propensity to save from 0.36 to 0.56 will cause:

Consider the consumption function, C = c0 + c1YD, we assume that c1 is

Which of the following events will cause an increase in equilibrium output?

There are three macroeconomic variables from the closed economy goods market model C, I, and G. Explain whether each variable is endogenous or exogenous.

Discuss the two components of fixed investment.

Use the following information below to answer the following question(s): C = 800 + 0.65YD I = 750 G = 1500 T = 900 -Refer to the information above. Which of the following events would cause an increase in the size of the multiplier?

What is the effect when there is an equal and simultaneous decrease in G and T ?

Based on our understanding of the paradox of saving, we know that a decrease in the desire to save will cause:

Which of the following expenditures is not included in fixed investment spending (I)?

Discuss what is meant by the paradox of saving.

Which of the following types of government spending is included when calculating GDP?

A decrease in the propensity to consume from 0.89 to 0.64 will cause:

For this question, assume that taxes are independent of income change in taxes. Compare and explain the relative size of the changes in government spending and taxes needed to obtain this desired change in output.

Suppose that C = 300 + 0.75YD. How much of a decrease in government spending must occur for equilibrium output to decrease by 1000?

Explain what factors cause shifts and changes in the slope of the ZZ curve in the goods market model.

Suppose consumer confidence falls causing a decrease in consumption. From the goods market model we know with certainty that a decrease in consumption will cause:

A Tour of the World

A Tour of the Book

Financial Markets

Goods and Financial Markets: the Islm Model

The Labour Market

Putting All Markets Together: the Asad Model

The Phillips Curve, the Natural Rate of Unemployment and Inflation

The Crisis

The Facts of Growth

Saving, Capital Accumulation and Output

Technological Progress and Growth

Technological Progress: the Short, the Medium and the Long Run

Expectations: the Basic Tools

Financial Markets and Expectations

Expectations, Consumption and Investment

Expectations, Output and Policy

Openness in Goods and Financial Markets

The Goods Market

Output, the Interest Rate and the Exchange Rate

Exchange Rate Regimes

Should Policy-Makers Be Restrained

Fiscal Policy: a Summing up

Monetary Policy: a Summing up

Epilogue: the Story of Macroeconomics

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