First Year, Second Semester University Year:

2020/2021
Mid-term Exam Date: 4/5/2021
Time: 60 Minutes
Program: English Section, Economics Objective Questions:
100%
Principles of Macroeconomics Model 1

Answer the following questions:

The First Question (20 points)

Under each of the following statements are a number of possible answers, only
one of which is correct and you are asked to select it (by shading the correct
letter in the answer sheet):

1. Which of the following are considered as injections to the circular flow?

A) Consumption and investment.
C) Exports and government expenditure.
2. Equilibrium GDP is expected to increase if:
A) Exports > imports
C) Saving < Investment
B) Taxes and government expenditure.
D) All the above.
B) Taxes < government expenditure
D) All of the above.

Use consumption function: C=300+0.70 Y , and investment function I = 100, to answer

the following questions from 3 to 13.
3. The saving function will be:
A) S=−300+0.30 Y B) S=300−0.30 Y
C) S=−300+0.35 Y D) S=−300+0.70 Y
4. The income level at which savings are zero:
A) $300 B) $1000 C) $7000 D) None of the above.
5. The average propensity to consume APC if income is $600:
A) 0.30 B) 0.70 C) 1.2 D) none of the above
6. The average propensity to save APS if income is $600:
A) -0.2 B) 0.70 C) 0.30 D) none of the above
7. The increase in GDP is expected to:
A) Decrease MPC. B) Increase APS. C) Increase APC. D) Decrease APS.
8. Aggregate expenditure function will be:
A) AE = 200 + 0.7Y B) AE = 300 + 0.7Y
C) AE = 400 + 0.7Y D) AE = 400 + 0.3Y
9. Equilibrium income will be:
A) 1333 B) 571 C) 1200 D) 1500
10. Consumption level at equilibrium:
A) 1200 B) 1233 C) 1400 D) 571
11. Saving level at equilibrium:
A) 60 B) 120 C) 100 D) 150

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 12. If investment increased to 120, the new equilibrium will be:
A) 1500 B) 1200 C) 1233 D) 1400
13. The value of simple multiplier is:
A) 4.44 B) 5.33 C) 3.33 D) 2.33
14. Which of the following is expected to shift investment function downward?
A) Lower interest rate. B) Higher level of sales.
C) Higher interest rates. D) Higher business confidence.
15. If aggregate expenditure is more than production, it is expected that:
A) Inventories will increase and production will decrease.
B) Inventories will decrease and production will decrease.
C) Inventories will decrease and production will increase.
D) Inventories will increase and production will increase.
16. Which of the following is expected to shift saving function up?
A) Lower interest rate. B) An increase in wealth.
C) Pessimistic consumers’ expectations D) Optimistic consumers’ expectations.
17. Which of the following is expected to increase the value of simple multiplier?
A) An increase in MPC B) An increase in investment.
C) An increase in MPS. D) A decrease in MPC

Consider the following information in a hypothetical economy and answer questions

from 18 to 20

S, I

50 I

Y
100-

18. If you informed that the MPC=0.75, the income in this economy at which saving is zero:
A) 300 B) 400 C) 600 D) none of the above
19. If you informed that the MPC=0.75, the equilibrium level of income is
A) 400 B) 300 C) 600 D) none of the above
20. If investment increases by 20, the new level of equilibrium income is:
A) 80 B) 680 C) 480 D) none of the above

The Second Question (10 points)

Illustrate whether the following statements are true or false (by shading T for
true or F for false in the answer sheet):
51. Government expenditure and taxes are considered as withdrawals from the circular flow.
52. In the case of open economy with government and banking sector in which: C = 500, G =
200, X = 400, S = 100, I = 300, IM = 600 and T = 250, income is expected to decrease.

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53. If the Marginal propensity to consume MPC is 0.66, marginal propensity to save MPS
will be 0.43.
54. If the level of income increases along the same linear consumption function, the MPC
increases and less than one.
55. When the value of multiplier is one, the MPS is one as well.
56. Disposable income equals aggregate income plus saving minus net taxes.
57. If nominal GDP is 240, and real GDP is 200, the GDP deflator is 120 and there is an
inflationary environment in the economy.
58. If payments to foreigners inside the country exceed payments to citizens abroad, then the
GNP will be greater than the GDP.
59. If the MPC increases, the desired aggregate expenditure line becomes steeper.
60. When the consumption function intersects with the 45-degree line, we know that the
APC equals one.
61. The value added method is used to calculate GDP to avoid double counting.
62. An unexpected rise in household’s wealth is predicted to shift the consumption function
downward and the saving function upward.
63. The change in total saving divided by change in disposable income is called the APC.
64. If saving function is given by: S = -50 + 0.30Y, so we know that if the economy has no
current income, consumption is zero.
65. Farmers take $0 worth of inputs and cultivate wheat, which they sell to the Mills for
$400. The Mills then sell flour to the bakeries for $700, and the bakeries then sell $1200
worth of bread. The contribution of this sector to the GDP is $1200.
66. If the MPS increases, consumption rotates downwards.
67. An increase in interest rate will increase consumption and investment and shift aggregate
expenditure upwards.
68. If the consumption function is given by: C = 30 + 0.75Y, therefore the multiplier is 4; to
increase equilibrium income by $2000 billion, we should increase investment by 1000.
69. When desired expenditure is greater than output, therefore investment is more than
saving.
70. If the consumption is positive, saving must be negative.

Good Luck!

Dr. Mohamed Abed

Dr. Shereen Nosier

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