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Discus: SAT/ACT Tests and Test Preparation: March 2004 Archive: NEED MACRO HELP
By Deeny1414 (Deeny1414) on Saturday, March 06, 2004 - 01:35 pm: Edit

Hey guys, I have some questions which I have an idea for the answer, but I'm not positive. Please help!

1. The investmen-demand curve will shift to the right as the result of
a. the availability of excess production capacity
b. an increase in business taxes
c. business becoming more optimistic about future business conditions.
d. an increase in the real interest rate

2. In the aggregate expenditures model, it is assumed that investment
a. automatically changes in response to changes in the current level of GDP
b. changes by less in percentage terms than changes in the level of real GDP
c. does not respond to changes in interest rates
d. does not change when the level of real GDP changes

3. If a $500 billion increase in investment spending increases income by $500 billion in the first round of the multiplier process and by $450 in the 2nd round, income will eventually increase by
a.$2500 billion
b. $3000 billion
c. $4,000 billion
d. $5,000 billion

4. If the MPS is .2 in a private closed economy, a $20 billion rise in investment spending will increase:
a. GDP by $120 billion
b. GDP by $20 billion
c. saving by $25 billion
d. Consumption by $80 billion

5. A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because
a. government spending is more employment-intensive than in either consumption or investment spending.
b. government spending increases the money supply and a tax reduction does not
c. a portion of a tax cut will be saved
d. Taxes vary directly with income

6. If MPC in an economy is .9, a $1 billion increase in government spending will ultimately increase consumption by
a. 1 billion
b. .9 billion
c. 10 billion
9. 9 billion

7. If APC=.6 and MPC=.5, a simultaneous increase in both taxes and government spending of $20 will
a. decrease GDP by 20 dollars
b. decrease GDP by 40 dollars
c. increase GDP by 20 dollars
d. Increase GDP by 40 dollars

8. An "inflationary gap" is the amount by which
a. equilibrium GDP falls short of full-employment GDP
b. aggregate expenditures exceed any given level of domestic output
c. aggregate expenditures exceed the full-employment level of dometic output.

9. If MPC=.5, all taxes are lump-sum taxes, and the equilibrium GDP is $40 billion below the full-employment GDP, then the size of the recessionary gap :
a. 40 billion
b. 20 billion
c. 60 billion
d. cannot be determined from given info

10. In a private closed economy the MPS is .25, consumption=income at $120 billion and the level on investment is 40 billion. What is the equilibrium level of income?
a. 280 billion
b. 320 billion
c. 262 billion
d. 198 billion

Ok that's all....any guidance would be greatly appreciated. Thanks!

By Deeny1414 (Deeny1414) on Saturday, March 06, 2004 - 04:22 pm: Edit

Please guys, I really need help.

By Theiceman (Theiceman) on Saturday, March 06, 2004 - 05:53 pm: Edit



By Theiceman (Theiceman) on Saturday, March 06, 2004 - 05:58 pm: Edit

Actually for #4 I got increase of GDP by $100 million so you might have to check your answer choices again....the rest I'm pretty sure (we're on the same exact chapter in our class)

By Deeny1414 (Deeny1414) on Saturday, March 06, 2004 - 11:36 pm: Edit

Ya, I got the same thing that you did for number 4, which is why I'm wicked confused also. Also, can you explain how you got number 7 as D because I was wondering why it wasn't C. I'm happy that I got all but one of those answers myself too! For everyone else, are these absolutely right? Just need a second opinion!

By Deeny1414 (Deeny1414) on Sunday, March 07, 2004 - 11:19 am: Edit


By Theiceman (Theiceman) on Sunday, March 07, 2004 - 12:52 pm: Edit

Actually #7 could be C...I was just reading in the econ textbook that the simple multiplier doesn't take into account "leakage in taxes" you would probably have to subtract taxes from the increase in GDP

By Chillinnigerian (Chillinnigerian) on Sunday, March 07, 2004 - 01:42 pm: Edit

Couldnt 4 be "c" Id think that there is a saving multiplier, although ive never read about it. ANd im assuming itd be 1Amount of Money/MPC. Because wouldnt people keep saving and saving as the case is with consumption? Just a thought.

By Deeny1414 (Deeny1414) on Sunday, March 07, 2004 - 01:49 pm: Edit

Maybe there is, but I don't think that is the answer because this is on certain chapters and I've read nothing about that. I'm thinking the answer is A or B, but I honestly have no clue because I really think it should be 100. Since we're already in a private closed economy where C+Ig equals GDP, do you think I'm just supposed to add 20, making the answer B?

By Chillinnigerian (Chillinnigerian) on Sunday, March 07, 2004 - 01:54 pm: Edit

Im definetly thinking the saving multiplier makes more sense, simplt because $100 billion would be right if Consumption was one of the choices, but because its not, simply create a new equation that makes sense by the standards of the problem that fits one of the answers. Id Ask an algbra teacher before an economist for a problem like this lol.

By Deeny1414 (Deeny1414) on Sunday, March 07, 2004 - 04:29 pm: Edit

Anyone else have some input?

By Theiceman (Theiceman) on Sunday, March 07, 2004 - 10:41 pm: Edit

Note Changes: #4 is D AND #6 is D

Multiply MPC by Change in income (GDP)

Therefore $100 billion increase in GDP times .8 = $80 billion increase in CONSUMPTION

Same reasoning for #6...

By Deeny1414 (Deeny1414) on Sunday, March 07, 2004 - 11:03 pm: Edit

Ok ,I understand your reasoning for 4, but I just looked at 6 again, and isn't government spending technically consumption, making the MPC irrelevent and the answer A?

By Deeny1414 (Deeny1414) on Sunday, March 07, 2004 - 11:05 pm: Edit

Oh, I get're a lifesaver!

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