1) Given autonomous consumption = $200, MPC = .75; Calculate consumption & savings levels for the following levels of disposable income:
Y: C: S:
0
200
1000
5000
2) Given that marginal propensity to consume = .8, calculate the following:
a) The MPS
b) The government spending multiplier
c) The tax multiplier
d) The balanced budget multiplier
e) The impact of an increase in government spending of $1000.
f) An increase in government spending of $500 matched by an equal increase in taxes. Show the impact on national income.
g) A decrease in taxes of $1000.
3) Calculate real & nominal GDP for a fictional economy with only two commodities: lemons & limes. Compare nominal & real GDP for the three years using 2015 as the base year.
YR 2000 P/lb. Q of lbs. Nom GDP
Lemons $3 100,000
Limes $2 50,000
YR 2015 P/lb. Q of lbs. Nom GDP
Lemons $4 110,000
Limes $3 60,000
YR 2018 P/lb. Q of lbs. Nom GDP
Lemons $5 110,000
Limes $3.50 60,000
What has happened with nominal and real GDP over the three years?
4) Define and explain the four types of unemployment and what should be done about them.
5) Explain why demand drives supply. How does this show the importance of the individual consumer? Explain. Think about the case studies on shark fin soup and elephant ivory.
6) Describe Demand-Pull inflation and illustrate it with the Phillips Curve. If policy makers try to increase inflation in the hopes of decreasing unemployment what will happen? Illustrate graphically.
7) Calculate the yield for a government bond with a face value of $1000 that sold for $980.
8) Show graphically the impact of a lower interest rate on investment demand.
9) Graphically illustrate the effect of positive demand expectations on investment.
10) Define the Study of economics and the “Economic Problem.”
