Question

73. Using your knowledge of economics, answer the following:

73a. The most comprehensive (inclusive of goods) measure of the rate at which prices are changing is:

a. the CPI

b. the balance-of-payments index.

c. the GDP Chain Price Index.

d. the index of wage.

73b.

An index of prices of all domestically produced goods in the economy is the

a. Consumer Price Index.

b. GDP Chain Price Index.

c. Producer Price Index.

d. Wholesale Price Index.

73c. In the income-expenditure analysis, an increase in investment:

a. Shifts down the aggregate expenditures schedule, decreasing equilibrium national income by a multiple of the increase in investment.

b. Has no effect on either the aggregate expenditures schedule or the equilibrium level of national income.

c. Shifts up the aggregate expenditures schedule, increasing equilibrium national income by a multiple of the increase in investment.

d. Shifts up the aggregate expenditures schedule, increasing equilibrium national income by the amount of the increase in investment.

73d. Assume a closed economy with no government, in which the aggregate consumption function is C = 100 + .75Y (C, measured in millions of dollars, is the household’s consumption expenditures, and Y is its disposable income) and investment (I) is $100 million. In income- expenditure analysis, the equilibrium level of national income is:

a. $200 million.

b. $300 million.

c. $500 million.

d. $650 million.

e. $800 million.

73e. The difference between a household’s disposable income and its consumption:

a. equals the taxes the household pays.

b. equals any saving by the household.

c. equals the taxes the household pays plus its saving.

d. equals the amount the household spends on imports.

e. is what is left after the household has bought its food.

73f. An economy grows if:

a. labor expands at a more rapid pace than capital.

b. capital expands at a more rapid pace than labor.

c. capital and labor expand at a constant rate.

d. none of the above.

73g. Which of the following correctly describes the effects of fiscal instruments (measures)?

a. Government spending increases aggregate expenditures; taxes increase disposable income, and hence consumption.

b. Government spending decreases aggregate expenditures; taxes increase disposable income, and hence consumption.

c. Government spending increases aggregate expenditures; taxes reduce disposable income, and hence consumption.

d. Government spending decreases aggregate expenditures; taxes reduce disposable income, and hence consumption.

e. Government spending increases aggregate expenditures; taxes have no effect on disposable income or consumption.

Answer 1

73a. Ans: The CPI

73b. Ans: Consumer Price Index.

Explanation:

CPI measures changes in the price level of a weighted average market basket of consumer goods and services purchased by households. Calculation of CPI includes all domestically produced goods in the economy.

73c. Ans: Shifts up the aggregate expenditures schedule, increasing equilibrium national income by a multiple of the increase in investment.

Explanation:

Increase in investment leads to increases in employment, aggregate demand which in turn lead to increase in national income and will have a multiplier effect on national income. Thus, an initial increase in investment leads to Shifts up the aggregate expenditures schedule, increasing equilibrium national income by a multiple of the increase in investment.

73d. Ans: $800 million

Explanation:

Y = C + I

Y = 100 + 0.75Y + 100

Y - 0.75Y = 200

0.25Y = 200

Y = 200 / 0.25 = $800 million

73e. Ans: equals any saving by the household.

Explanation:

Y = C + S

S = Y - C

73f. Ans: capital and labor expand at a constant rate.

73g. Ans: Government spending increases aggregate expenditures; taxes reduce disposable income, and hence consumption.