ECO 372T Wk 3 – Apply: Quiz

If the MPC in an economy is 0.75 and aggregate expenditures increase by $8 billion, then equilibrium GDP will increase by

Multiple Choice

• $32 billion.
• $2.75 billion.
• $6 billion.
• $40 billion.

Suppose the economy’s multiplier is 5. Other things equal, a $40 billion decrease in government expenditures on national defense will cause equilibrium GDP to

Multiple Choice

• decrease by $200 billion.
• decrease by $80 billion.
• increase by $200 billion.
• decrease by $40 billion.
• remain unchanged.

Suppose that an economy produces 500 units of output. It takes 20 units of labor at $15 a unit and 6 units of capital at $50 a unit to produce this amount of output. The per unit cost of production is

Multiple Choice

• $1.20.
• $0.83.
• $2.40.
• $0.60.

If the marginal propensity to save is 0.1 in an economy, a $30 billion rise in investment spending will increase consumption by

Multiple Choice

• 270.
• 300.
• 30.
• 3.

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $180 billion in the second round, the multiplier in the economy is

Multiple Choice

• 10.
• 5.
• 9.
• 2.

If the MPC is 0.9 and investment increases by $4 billion, the equilibrium GDP will

Multiple Choice

• increase by $40 billion.
• increase by $3.6 billion.
• decrease by $4.44 billion.
• increase by $4.44 billion.

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $88,000. The expected rate of return on this tool is

Multiple Choice

• 10 percent.
• 90 percent.
• 9 percent.
• 1 percent.

Suppose that real domestic output in an economy is 240 units, the quantity of inputs is 10, and the price of each input is $4. The level of productivity is

Multiple Choice

• 24.
• 240.
• 10.
• 20.

If the MPC in an economy is 0.60, government could close a recessionary expenditure gap of $15 billion by cutting taxes by

Multiple Choice

• $25 billion.
• $15 billion.
• $60 billion.
• $9 billion.

Suppose that an economy produces 2,400 units of output, employing 30 units of input, and the price of the input is $20 per unit. The per-unit cost of production is

Multiple Choice

• $0.25.
• $0.50.
• $0.10.
• $0.80.

If the multiplier in an economy is 3, a $10 billion increase in net exports will

Multiple Choice

• increase GDP by $30 billion.
• reduce GDP by $6 billion.
• decrease GDP by $30 billion.
• increase GDP by $10 billion.

(Advanced analysis) Assume the following consumption schedule: C = 20 + 0.9Y, where C is consumption and Y is disposable income. At a(n) $600 level of disposable income, the level of saving is

Multiple Choice

• $40.
• $560.
• $180.
• $18.

Input Quantity       Real Domestic Output

100  200

150  300

200  400

The table gives information about the relationship between input quantities and real domestic output in a hypothetical economy. If the price of each input is $5, the per-unit cost of production in the economy is

Multiple Choice

• $2.50.
• $5.00.
• $2.75.
• $0.40.

Assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,100. The expected rate of return on this machine is

Multiple Choice

• 5 percent.
• 10 percent.
• 20 percent.
• 1 percent.

If investment increases by $30 billion and the economy’s MPC is 0.75, the aggregate demand curve will shift

Multiple Choice

• rightward by $120 billion at each price level.
• rightward by $30 billion at each price level.
• leftward by $120 billion at each price level.
• leftward by $90 billion at each price level.

If a lump-sum income tax of $50 billion is levied and the MPS is 0.2, the consumption schedule will shift

Multiple Choice

• downward by $40 billion.
• upward by $40 billion.
• downward by $50 billion.
• downward by $10 billion.

If investment decreases by $6 billion and the economy’s MPC is 0.9, the aggregate demand curve will shift

Multiple Choice

• leftward by $60 billion at each price level.
• rightward by $6 billion at each price level.
• rightward by $60 billion at each price level.
• leftward by $3 billion at each price level.

Suppose that technological advancements stimulate $14 billion in additional investment spending. If the MPC = 0.8, how much will the change in investment increase aggregate demand?

Multiple Choice

• $70 billion
• $14 billion
• $112 billion
• $22.2 billion

Assume the MPC is 0.6. If government were to impose $30 billion of new taxes on household income, consumption spending would initially decrease by

Multiple Choice

• $18 billion.
• $30 billion.
• $12 billion.
• $6 billion.

If the MPC in an economy is 0.8, a $4 billion increase in government spending will ultimately increase consumption by

Multiple Choice

• $16 billion.
• $4 billion.
• $0.8 billion.
• $20 billion.