Economics 102

Answers to Practice Questions 4

Spring 2001

Answer Key:

I. Refer to the textbook.

II. True/False and explain

1. T

2. T

3. F. shifts in both are to small over time to explain big changes.

4. F. It is always in Equilibrium as every market.

5. T

6. T

7. T

8. T

9. T

10. F. the consumption function is related to Yd and Consumption - Income line with Y.

11. F. is the fraction of an extra dollar spent in consumption. Then is between cero and one.

12. F. T just affect the ordinate. This is not an percent tax.

13. T

14. T

15. F. increase

16. F. equilibrium Y may be > or < than the full employment level of Y

17. F. that amount times the expenditure multiplier.

18. F. larger Exp multiplier = (1/(1-MPC)).

19. T

20. T.

II. Problems

1.

1. Y=500
2. MPC=0.6
3. Exp multiplier = 2.5
4. Y=550
5. Tax expenditure multiplier = -1.5
6. Change in inventory decrease 50
7. ?T= -100

2. ?GDP= - ?T* (MPC/(1-MPC))

First economy MPC=0.6 then ?GDP= - ?T*(0.6/0.4)= - 1.5*?T

Second economy MPC=0.8 then ?GDP= - ?T*(0.8/0.2)= - 4*?T