Seminar 3 Pt Studenti

7/28/2019 Seminar 3 Pt Studenti

1/4

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 acountry

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


2/4

Multipliers

kI=1/MPS=1/(1-MPC) ; Y= kI* I

kG=1/MPS=1/(1-MPC) ; Y= kG* G

kT=-MPC/MPS=-MPC/(1-MPC) ; Y= kT* T

kTr=MPC/MPS=MPC/(1-MPC) ; Y= kTr* Tr

1. A linear consumption function with a positive slope less than one means that if income

increases, consumption will: a. fluctuate; b. stay constant; c. fall; d. increase; e. none of the

above

2. If the MPC is 0.5, the investment multiplier is: a. ; b. 20; c. 2; d. 0.2; e. 5

3. A familys purchase of furniture belongs to the category of consumption expenditures: a.services; b. nondurable goods; c. durable goods; d. transfer payments; e. wages

4. Buying final goods and services by the population is known as: a. investment; b. public

consumption; c. private consumption; d. net export; e. interest income

5. As a rule, when a familys income increases, expenses for food products: a. absolutely

decrease in developed countries; b. absolutely decrease in poor countries; c. decrease their

weight in total family expenses; d. always increase relatively; e. all of the above

6. If the consumption function is linear, MPC is: a. increasing; b. decreasing; c. constant; d.

variable; e. equal to APC

7. When the disposable income doubles (it increases by 1000) and consumption rate increases

from 60% to 70%, saving: a. stays constant; b. decreases by 1000; c. increases by 1000; d.

increases by 200; e. decrease by 200

8. According to Keynes, the main determinant of consumption is: a. permanent income; b.

current income; c. wealth; d. economic growth; e. interest rate

9. If the income increases: a. the weight of consumption in income diminishes; b.

unemployment decreases; c. inflation cannot be computed; d. all of the above; e. none of theabove

10. If the disposable income increases and 75% of this increase represents consumption

increase, the MPS is: a. 4; b. 1.5; c. 0.25; d. cannot compute; e. none of the above

11. The consumption function expresses : a. the relation between taxes and investments; b. the

relation between consumption and investments; c. the relation between consumption and

disposable income; d. the relation between MPC and investments; e. none of the above

12. If MPC is 0.8, the investment multiplier is: a. 5; b. 1/8; c. 1/0.8; d. 0.2; e. 2

13. If autonomous consumption is zero, MPC is equal to: a. 1; b. a negative value; c. APC; d.

zero; e. MPS


3/4

14. If consumption increases by 50% and the income increases by 60% and APC was 75% in

the previous period, MPC, MPS and the investment multiplier are: a. 0.3, 0.8, 2.5; b. 1, 0.5,

2; c. 0.8, 0.2, 1.25; d. 0.4, 0.6, 1.33; e. 0.62, 0.38, 2.63

15. C=500+0.75Yd. The income level for zero savings (breakeven income) is: a. 500; b. 574;

c. 2000; d. 1000; e. cannot compute

16. C=500+0.75Yd. What is the value of Yd if S=400: a. 1600; b. 1700; c. 3600; d. 5600; e.

1000

17. If autonomous consumption is 50 and k=5: a. C=50+0.2Y; S=50+0.8Y; b)C=-50+0.8Y;

S=-50+0.2Y; c. C=50+0.8Y, S=-50+0.2Y; d) a or b; e) cannot say

18. If S=-10+0.2Yd a. investments increase by 1 and Y by 2; b. investments increase by 2 and

Y by 8; c. investments increase by 3 and Y by 15; d. cannot say; e. none of the above

19. In t0, Yd=100, S=40. If Yd increases by 50% and MPC=0.8, S1 and k will be: a. 100 and 4;

b. 40 and 5; c. 100 and 5; d. 40 and 4; e. 50 and 5

20. If the income increases by 200 and consumption increases by 50, MPS is: a. 0.25; b. 0.5;

c. 0.75; d. 0.8; e. 1

21. MPC=0.75 and the increase in investment is 100. The increase in income is: a. 2500; b.

250; c. 400; d. 100; e. 120

22. If the income increases by 500 and MPC is 0.8, saving will increase by: a. 400; b. 480; c.

500; d. 100; e. none of the above

23. If MPC=0.6 and Y increases by 500, investment increase by: a. 50; b. 100; c. 200; d. 150;

e. 1000

INVESTMENT

Investment depends on: real interest rate (inverse relationship), availability of credits; firms

expected profits; future expected state of the economy, expected technological changes, risk

and uncertainty

For an investment to be profitable (pay off):

-A0+A1/(1-r)+ A2/(1-r)2+...+ AN/(1-r)

N>0, A0 initial investment; A1-ANcash flows for the

years to come, N-number of years; r-real interest rate

1. Investment spending is determined by: a. the nominal exchange rate and assessments of

profitability; b. the real exchange rate and assessments of profitability; c. the nominal interest

rate and assessments of profitability; d. the real interest rate and assessments of profitability

made by business investment committees; e. none of the above

2. When the interest rate increases: a. consumption will increase; b. government expenditureswill increase; c. investment decreases; d. investment increases; e. taxes will increase


4/4

3. Which of the following is part of the equipment category of investment: a. a shopping

centre; b. a residential house; c. an unfinished machine; d. a delivery vehicle; e. an apartment

4. Which of the following is most likely to decrease the amount of business investment: a. a

fall in taxation; b. a fall in interest rates; c. a rise in consumer demand; d. a fall in business

confidence; e. all of the above

5. A fall in investment demand may be generated by: a. higher interest rates; b. lower

expected future profits; c. more expensive capital goods; d. all of the above; e. none of the

above

6. Investment evolves in the same way with: a. interest rate; b. inflation rate; c. unemployment

rate; d. labour cost; e. profitability rate

7. Which of the following discourages investment: a. high saving rates; b. profits increase; c.

high interest rates; d. low taxation; e. economic growth

8. If depreciation is 50 and I=200, net investment is: a. 250; b. 150; c. 50; d. cannot say; e.

none of the above

9. At an inflation rate of 10% and a nominal interest rate of 20%, an investment of 10 million

bringing a net revenue of 1.1 million is: a.justified; b. bad; c. cannot say; d. more data is

needed; e. none of the above

10. An investment amounts to 175. In the first year, the revenue it brings is 50, in the second

year it is 80, in the third year it is 90. The interest rate is 10% and the inflation rate is 7%. a.

the investment is justified; b. the investment is not justified; c. the net economic value is

negative; d. a and c; e. none of the above

GOVERNMENT EXPENDITURE

1. The impact of higher government spending on equilibrium income is identical to the impact

of: a. a decrease in taxation; b. a decrease in autonomous spending; c. an increase in marginal

propensity to consume; d. an increase in investment; e. all of the above

2. The increase in government spending generates: a. the increase of aggregate supply; b. the

reduction of aggregate supply; c. the increase of aggregate supply and the decrease ofaggregate demand; d. the increase of aggregate demand; e. the reduction of aggregate demand

TAXES

1. MPC=0.6. The effect on the national income of an increase in taxes by 100 is: a. increase

by 250; b. increase by 260; c. decrease by 260; d. decrease by 150; e. no effect

SAVING

1. When MPS increases: a. MPC increases; b. the investment multiplier decreases; c. the

employment degree increases; d. inflation decreases; e. any of the above

Documents

Seminar 3 Pt Studenti