Preliminary comments Aggregate expenditure (AE)=C+I+G+NX (for an open economy) ; AE=C+I+G (for a closed economy)=DA (domestic absorption) Aggregate income (AY)=C+S+T At equilibrium

, AE=AY (A) GDP=C+I+G+NX => GDP-C-G=I+NX C+G=final consumption (private and public consumption) => GDP-C-G= national saving (A) => GDP=C+I+G+NX=C+S+T GDP-T-C=S = private saving (B) T-G=public saving (C) (B)+ (C) = GDP-C-G=national saving The balance of payments reflects the transactions between the residents and non-residents of a country CURRENT ACCOUNT (CA)=NX+NFP+NT DA+NX=C+I+G+NX=GDP GDP+NFP=GNP GNP+NT=GNDI (Yd) = DA+ CA GNDI=C+I+G+CA GNDI-C-G=I+CA S-I=NX; if S-I>0, the extra is lent abroad, trade surplus; if S-I<0 the deficit is financed from abroad, trade deficit CONSUMPTION Yd=C+S C=C0+MPC*Yd, where C-consumption function; C0 autonomous consumption; MPC – marginal propensity to consume; Yd disposable income MPC – the slope of the consumption function=ΔC/ΔYd= ΔC/(ΔC+ΔS)<1 Consumption depends on: expected evolution of prices, employment, income; credit conditions, interest rate, structure of stock assets, traditions, psycho-social, historic, geographic, geopolitical conditions S= S0+MPS*Yd, where S-saving function; S0 autonomous saving; MPS – marginal propensity to save; Yd disposable income MPS – the slope of the saving function=ΔS/ΔYd= ΔS/(ΔC+ΔS)<1 MPC+MPS=1 Yd=C+S S= S0+MPS*Yd= -C0+(1-MPC)*Yd APC=average propensity to consume = C/Y=consumption rate APS=average propensity to save=S/Y=saving rate

the MPS is: a. d. stays constant. d. b. transfer payments. 1/0. b. 0. none of the above 10. consumption will: a. decreases by 1000. the weight of consumption in income diminishes. e. If autonomous consumption is zero. c. If the MPC is 0. saving: a. According to Keynes. zero. the main determinant of consumption is: a. As a rule. none of the above 12. investment. decrease their weight in total family expenses. e. ΔY= kI* ΔI kG=1/MPS=1/(1-MPC) . public consumption. d. b. c. decrease by 200 8. ΔY= kTr* ΔTr 1. d. e. d.5. interest rate 9. when a family’s income increases. b. 2. the relation between MPC and investments. fall. A linear consumption function with a positive slope less than one means that if income increases. economic growth. The consumption function expresses : a. all of the above. the investment multiplier is: a. c. ½. e. increase. A family’s purchase of furniture belongs to the category of consumption expenditures: a. MPC is equal to: a. c. b. 1. b. private consumption. When the disposable income doubles (it increases by 1000) and consumption rate increases from 60% to 70%. d. d. e. increases by 1000. 5. b. ΔY= kG* ΔG kT=-MPC/MPS=-MPC/(1-MPC) . d. increases by 200. e. b. c. nondurable goods. If the consumption function is linear.25. b. ΔY= kT* ΔT kTr=MPC/MPS=MPC/(1-MPC) . constant. always increase relatively. d. b. 0. e. increasing. e. MPC is: a. unemployment decreases.Multipliers kI=1/MPS=1/(1-MPC) . 20. services. b. If the income increases: a. current income. wealth. c. c. c. Buying final goods and services by the population is known as: a. b. c. c. e.2. variable. net export. e. c. the investment multiplier is: a. e.8. the relation between consumption and disposable income. If the disposable income increases and 75% of this increase represents consumption increase. stay constant. the relation between consumption and investments. d. none of the above 11. d.8. decreasing. 4. durable goods. MPS . a negative value. fluctuate. c. 1/8.2. cannot compute. absolutely decrease in poor countries. d. equal to APC 7.5. inflation cannot be computed. permanent income. all of the above 6. d. none of the above 2. e. e. c. APC. the relation between taxes and investments. wages 4. 2 13. absolutely decrease in developed countries. 0. b. expenses for food products: a. 5 3. If MPC is 0. 1. interest income 5.

c. 2500.5. 200. b. 2000. d. investments increase by 3 and Y by 15. If the income increases by 200 and consumption increases by 50. taxes will increase . S=-50+0. d. 5600. 50 and 5 20. 500. b.2Y.2.6.63 15. expected technological changes. If consumption increases by 50% and the income increases by 60% and APC was 75% in the previous period. C=50+0. 100 and 5. 574. 480. d. 0.8. d. 1600. b)C=-50+0.75. c. r-real interest rate 1..+ AN/(1-r)N>0. c. c. 400. none of the above 23. 40 and 4.25. MPC. The income level for zero savings (breakeven income) is: a. S=50+0. S=-50+0. 1000 17. 0. 1. 0. 2. the real exchange rate and assessments of profitability.8Y.14. 0. When the interest rate increases: a. saving will increase by: a. e. A1-AN –cash flows for the years to come. e) cannot say 18. What is the value of Yd if S=400: a. 1700. e. c. If autonomous consumption is 50 and k=5: a. e. the nominal interest rate and assessments of profitability. If MPC=0. the real interest rate and assessments of profitability made by business investment committees. 100. firms’ expected profits. investment increase by: a. 0. investment increases. availability of credits. investment decreases. 2. c. c.8.38. Yd=100. 0. consumption will increase.62.8. 100. e. C=500+0. c. MPS and the investment multiplier are: a. b.5. 150. b. N-number of years. 2. 0. 1. c.. 1000 INVESTMENT Investment depends on: real interest rate (inverse relationship). risk and uncertainty For an investment to be profitable (pay off): -A0+A1/(1-r)+ A2/(1-r)2+. c. future expected state of the economy. MPC=0. 0.75Yd. 0. b.6 and Y increases by 500. e. If the income increases by 500 and MPC is 0.8. 400. 0. d. cannot compute 16.4. d. C=50+0.2Y. b. 0. 50. If S=-10+0. 1.75 and the increase in investment is 100. b. b. S1 and k will be: a. e. e. investments increase by 1 and Y by 2. the nominal exchange rate and assessments of profitability. c. 100. C=500+0. none of the above 2. e. none of the above 19. d. 500. 0. 40 and 5. b. 100 and 4.2Y. Investment spending is determined by: a.2Yd a. S=40. MPS is: a. In t0. d) a or b. 3600. d.25.8Y. b. d.8Y. d. 250.3. A0 initial investment. cannot say. c. investments increase by 2 and Y by 8.8. e. 1000. d.33. government expenditures will increase. 1 21. b.75Yd. If Yd increases by 50% and MPC=0. The increase in income is: a. e.5. 120 22. 0. e.

d. c. d. a shopping centre. b. a delivery vehicle. e. profitability rate 7. in the second year it is 80. the reduction of aggregate supply. in the third year it is 90. decrease by 150. d. Which of the following is most likely to decrease the amount of business investment: a. e. bad. the investment is not justified. e. b. In the first year. MPC=0. a. The increase in government spending generates: a. c. A fall in investment demand may be generated by: a. a fall in business confidence. b. b. the increase of aggregate demand. Which of the following is part of the equipment category of investment: a. inflation decreases. net investment is: a. 150. c. Which of the following discourages investment: a. all of the above. a decrease in taxation. b. e. a rise in consumer demand. c. more expensive capital goods. The effect on the national income of an increase in taxes by 100 is: a. an investment of 10 million bringing a net revenue of 1. c. d.3. cannot say.justified. all of the above 2. c. b. all of the above 5. When MPS increases: a. an unfinished machine. e. The interest rate is 10% and the inflation rate is 7%. the investment multiplier decreases. d. e. d. high saving rates. the reduction of aggregate demand TAXES 1. the increase of aggregate supply. profits increase. d. more data is needed. a residential house. an increase in marginal propensity to consume. Investment evolves in the same way with: a. none of the above GOVERNMENT EXPENDITURE 1. inflation rate. an apartment 4. high interest rates. e. c. none of the above 10. 250. b. the investment is justified. increase by 260. the revenue it brings is 50. e.6. none of the above 9. d. low taxation. At an inflation rate of 10% and a nominal interest rate of 20%. labour cost. c. b. unemployment rate. b. economic growth 8. 50. the increase of aggregate supply and the decrease of aggregate demand. cannot say. a fall in taxation. d. increase by 250. e. c. d.1 million is: a. b. b. MPC increases. lower expected future profits. c. If depreciation is 50 and I=200. any of the above . c. c. an increase in investment. decrease by 260. no effect SAVING 1. The impact of higher government spending on equilibrium income is identical to the impact of: a. An investment amounts to 175. interest rate. a fall in interest rates. d. d. a and c. e. none of the above 6. a decrease in autonomous spending. e. b. e. higher interest rates. the net economic value is negative. the employment degree increases.

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