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Questions for Chapter 4 (part 1)

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Q1: If you know that the consumption function is C=110+0.75y

Find the following:

1. the saving function

2. The amount of income when the savings equals zero

3. Draw the income line and saving function and consumption function

4. determine Break Even point

Q2: If the income = 0 ,and consumption = 30 ,and If the income

increased by $ 100 the consumption increases by $ 80

1. Find the consumption function

2. Find the saving function

3. Calculate income when the saving equals zero

4. Draw the income line and saving function and consumption function

5. determine Break Even point

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Q3: If you have the following table:

Y C S MPC MPS

0 80

-40

0

300

320 0.4

1. Complete the table

2. determine Break Even point and the autonomous consumption

3. Find the saving function and the consumption function

4. Draw the income line and saving function and consumption function

Q4: Multiple Choice

1- Refer to the information provided in Figure 8.1 below to answer the questions that

follow.

Refer to Figure 8.1. The MPS for this household is ________ and the MPC is

________.

A) 0.4; 0.6

B) 0.5; 0.5

C) 0.2; 0.8

D) 0.3; 0.7

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Refer to Figure 8.1. The equation for this householdʹs saving function is

A) S = -200 + .8Y.

B) S = -300 + 0.25Y.

C) S = -500 + .5Y.

D) S = -1,000 + 0.8Y.

Refer to Figure 8.1. At income level $1,500, this household's saving is ________ than

(to) zero and this household's consumption is ________ zero.

A) less than; greater than

B) equal to ; equal to

C) greater than; less than

D) greater than; greater than

Refer to Figure 8.1. This householdʹs consumption function is

A) C = 200 + 0.2Y.

B) C = 300 + 0.75Y.

C) C = 500 + 0.5Y.

D) C = 1,000 + 0.2Y.

Refer to Figure 8.1. This household saves -$300 at an income level of

A) $400.

B) $300

C) $250.

D) $125.

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2- Refer to the information provided in Figure 8.2 below to answer the questions that

follow.

Refer to Figure 8.2 The equation for the aggregate consumption function is

A) C = 140 + .5Y.

B)C = 60 + .7Y.

C) C = 80 + .6Y.

D) C = 60 + .4Y.

Refer to Figure 8.2. The equation for the aggregate saving function is

A) S = -60 + .3Y.

B)S = -200 + .6Y.

C)S = -140 + .5Y.

D)S = -80 + .4Y

Refer to Figure 8.2. In this economy, aggregate saving will be zero if income is

A) $100 billion.

B) $200 billion.

C) $300 billion.

D) $400 billion

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Refer to Figure 8.2. For this society, aggregate saving is positive if aggregate income is

A) above zero.

B) between $0 and $150 billion.

C) equal to $200 billion.

D) above $200 billion

3- Refer to the information provided in Table 8.3 below to answer the questions that

follow.

Refer to Table 8.3. The equation for the aggregate consumption function is

A) C = 80 + .95Y.

B)C = 80 + .9Y.

C) C = 80 + .75Y.

D)C = -80 + .45Y

Refer to Table 8.3. Societyʹs MPC is

A) 0.90. B) 0.95. C) 0.80. D) 0.05.

Refer to Table 8.3. Societyʹs MPS is

A) 0.05. B) 0.10. C) 0.20. D) 0.95.

Refer to Table 8.3. At an aggregate income level of $100, aggregate saving would be

A) -$30. B) $30. C) -$70. D) $50.

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4- Suppose consumption is $5,000 when income is $8,000 and the MPC equals 0.9. When

income increases to $10,000, consumption is

A) $4,500.

B) $2,700.

C) $6,800.

D) $7,200.

5- If Lilyʹs consumption function is of the form C = 100 + 0.8Y, her saving equals zero at

an income level of

A) 180.

B) 500.

C) 800.

D) cannot be determined from the given information

6- If the saving function is of the form S = -20 + 0.3Y, consumption at an income level of

200 is

A) 80. B) 120. C) 160. D) 180.

The laws of Chapter

Y=S+C

C=a +by

S= -a+(1-b)y

b=MPC=

1-b=MPS=

MPC+MPS=1

Y

C=a +by

a

-a

S= -a+(1-b)y

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Questions for Chapter 4 (part 2)

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Q1: If you have the following in millions of dollars:

The multiplier = 4

Investment=200

autonomous consumption= 100

Find the following:

1. the consumption function

2. the saving function

3. The equilibrium level of aggregate output

4. What amount of investment required to increase income by 100 million $

5. Explain your answers previous graphically

Q2: If you have the following:

S = -40+ 0.2y

I = 60

Required:

1. Calculate income when the saving equals zero

2. Find the consumption function

3. Find the equilibrium level of aggregate output, Then explained that graphically

4. If the investment increased from 60 to 70 , Find the new equilibrium level of

aggregate output (Graphically and mathematically)

Q3: If the level of aggregate output for one of the States equal 1700, and

MPC=0.8, How much is the required change in investment to increase the level

of aggregate output to 2000.

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Q4: Study the shape and Find the following:

1- MPC

2- MPS

3- autonomous consumption

4- If the economy at equilibrium, what is the level of consumption

5- the amount of investment at equilibrium

Q5: Multiple Choice

1- Refer to the information provided in Table 8.3 below to answer the questions that

follow.

Refer to Table 8.3. At an aggregate output level of $400 billion, planned expenditure

equals

A) $550 billion. B) $450 billion. C) $500 billion. D) $850 billion.

Refer to Table 8.3. At an aggregate output level of $800 billion, aggregate saving

A) equals -$50 billion.

B) equals $0.

C) equals $50 billion.

D) cannot be determined from this information.

Y

C

AE=C+I

200

c 120

200 120 Y

AE

a

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Refer to Table 8.3. At an aggregate output level of $200 billion, the unplanned

inventory change is

A) -$150 billion B) -$200 billion C) -$50 billion D) $100 billion.

Refer to Table 8.3. The equilibrium level of aggregate output equals

A) $400 billion B) $600 billion C) $800 billion D) $1,000 billion.

The MPC in this economy is ?

Refer to Table 8.3. Planned saving equals planned investment at an aggregate output

level

A) of $1000 billion.

B) of $600 billion.

C) of $800 billion.

D) that cannot be determined from this information

2- If C = 100 + .8Y and I = 50, then the equilibrium level of income is

A) 600. B) 375. C) 187.5 D) 750.

3- If C = 1,500 + .75Y and I = 500, then planned saving equals planned investment at

aggregate output level of

A) 8,000. B) 20,000. C) 2,666.67. D) 10,000.

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4- Refer to the information provided in Figure 8.8 below to answer the questions that

follow.

Refer to Figure 8.8. What is the equation for the aggregate expenditure function

(AE)?

A) AE = 200 + .5Y.

B) AE = 150 + .25Y.

C) AE = 200 + .8Y.

D) AE = 350 + .6Y

Refer to Figure 8.8. Equilibrium output equals

A) 100. B) 200. C) 150. D) 300.

Refer to Figure 8.8. At aggregate output level $300 million, there is a

A) $75 million unplanned increase in inventories.

B) $75 million unplanned decrease in inventories.

C) $100 million decrease in inventories.

D) $100 million increase in inventories

Refer to Figure 8.8. Leakages are greater than injections at an aggregate output level

of

A) $300 million.

B) $100 million.

C) $200 million.

D) cannot be determined from the figure

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5- Refer to the information provided in Figure 8.10 below to answer the questions that

follow.

Refer to Figure 8.10. The value of the multiplier is

A) 2. B) 2.5. C) 3. D) 4.

Refer to Figure 8.10. A $10 million increase in investment changes equilibrium

output to

A) $240 million. B) $90 million. C) $225 million. . D) $175 million.

Refer to Figure 8.10. A $20 million decrease in autonomous consumption

A) changes equilibrium expenditure to $120 million.

B) changes equilibrium output to $180 million.

C) will change the MPC.

D) will change the MPS.

Refer to Figure 8.10. If MPC increases to 0.8, equilibrium aggregate output

A) increases to $250 million.

B) remains at $200 million.

C) increases to $400 million.

D) cannot be determined from the given information.

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Assuming no government or foreign sector, if the MPC is 0.9, the multiplier is

A) 0.1 B) 5 C) 9 D) 10

Assume there is no government or foreign sector. If the multiplier is 10, a $10 billion

increase in planned investment will cause aggregate output to increase by

A) $1 billion. B) $5 billion. C) $10 billion. D) $100 billion.

Assume there is no government or foreign sector. If the MPS is 0.2, a $40 billion

decrease in planned investment will cause aggregate output to decrease by

A) $20 billion. B) $50 billion. C) $80 billion. D) $200 billion.