02 Elementary Keynesian Model
HKAL – ECONOMICS PAST PAPER – MACRO – SECTION A
1.
90(2)
In a hypothetical closed economy,
C
=
50 + 0.8Y
I
Y
=
=
20
10N
where
C = consumption expenditure, Y = national income
I = investment expenditure
N = employed labour force
If the total labour force is 50, how much will the government have to
spend so that national income will reach its full employment level?
2.
A.
B.
C.
30
150
350
D.
500
90(6)
Which of the following is the least inflationary measure to reduce a
budget deficit?
A.
B.
C.
open market sales of government bonds.
raising sales tax.
raising income tax.
D.
borrowing from foreign financial institutions.
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3.
90(17)
The L-shaped Keynesian aggregate supply curve suggests that
(1) there is downward rigidity in wages.
(2) inflation emerges only when the economy reaches full
employment.
(3) unemployment, if it ever exists, must be voluntary.
A.
B.
C.
D.
4.
1 & 2 only
2 & 3 only
2 & 3 only
1, 2 & 3
90(23)
A _____ in the interest rate will raise the desired stock of capital in an
economy; the schedule of marginal efficiency of capital will _____ as a
result.
A.
fall; not change
B.
C.
D.
rise; not change
fall; rise
rise; rise
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5.
90(25)
The diagram below shows the aggregate expenditure in a closed
economy
At the equilibrium income level, the average propensity to consume is
shown by the ratio
6.
A.
B.
UQ/0Q
TP/0P
C.
D.
SQ/0Q
US/0Q
91(1)
In a closed economy without government, consumption rises by $40
million when national income rises by $100 million. This shows that
(1) the marginal propensity to consume is 0.4
(2) savings will rise as national income rises.
(3) the average propensity to save is 0.6
(4) investment increases as national income increases.
A.
1 & 2 only
B.
C.
D.
1 & 3 only
2 & 4 only
3 & 4 only
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7.
91(2)
The marginal propensity to save of an economy that has no taxes is 0.2,
and half of the consumption goods are imported. What is the value of
the multiplier in this economy?
8.
A.
B.
C.
1
1.67
2.5
D.
5
91(21)
When the consumption line changes from Cl to C2, it means
(1) the autonomous consumption level increases.
(2) the value of the multiplier increases.
(3) the average propensity to consume increases.
(4) the marginal propensity to save increases.
A.
B.
1 & 2 only
1 & 4 only
C.
D.
2 & 3 only
3 & 4 only
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9.
92(3)
Discretionary fiscal policy which increases the budgetary surplus has
the same effect upon the equilibrium income as does
A.
an increase in saving.
B.
C.
D.
an increase in investment.
an increase in private consumption.
a decrease in imports.
10. 92(6)
Financing government spending by increasing taxation is the preferred
method when
A.
B.
the interest rate is low.
corporate profits are low.
C.
D.
the economy is experiencing inflation.
the economy is experiencing a recession.
11. 92(10)
The marginal propensity to consume out of disposable income of an
economy is 0.8 and there is a proportional tax of 15% on income. What
is the value of the tax multiplier in this economy?
A.
B.
C.
D.
- 2.5
- 2.86
- 3.125
–5
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12. 92(11)
Given
C
I
=
=
$30 + 0.8Yd
$50
G
=
$20
where
C = consumption expenditure,
Yd = disposable income
I = investment expenditure
G = government expenditure
If the government collects a lump-sum tax of $15 and gives an
unemployment benefit of $10, what will be the equilibrium level of
income?
A.
B.
C.
$400
$440
$480
D.
$520
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13. 92(13)
In the above diagram, PQ is the amount of _____ and RS is the amount
of _____.
A.
B.
C.
dissaving; inventories piled up in the current year
dissaving; saving
past inventories sold; saving
D.
past inventories sold; inventories piled up in the current year.
14. 92(19)
If an economy is characterised by a higher marginal propensity to
import, then its expenditure multiplier would be _____, and an
expansionary fiscal policy would be _____, other things being equal.
A.
B.
C.
smaller; more effective
smaller; less effective
larger; more effective
D.
larger; less effective
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15. 93(4)
According to the graph above, which of the following is correct?
A.
Consumption decreases as disposable income increases.
B.
The marginal propensity to save increases as disposable income
increases.
Equilibrium national income is Y0.
The average propensity to consume increases at first but
C.
D.
eventually decreases.
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16. 93(6)
Refer to the following equations about a hypothetical economy.
C = $100 + 0.75Yd
I = $150 – 30r
G = $30
T = $0.2Y
M = $20 + 0.1Y T : taxation
C : consumption,
Yd : disposable income
I : investment
G : government expenditure, Y = national income
M : expenditure on imports
The income multiplier for this economy is
A.
B.
1.66.
1.92.
C.
D.
2.
4.
17. 93(7)
Which of the following are examples of built-in stabilisers?
(1)
(2)
(3)
(4)
the recurrent expenditure on education
the unemployment allowance
the allowance for the aged
the progressive tax system
A.
1 & 2 only
B.
C.
D.
1 & 3 only
2 & 4 only
3 & 4 only
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18. 93(9)
From the above graph, the value of the multiplier is equal to
A.
B.
C.
D.
PQ/ST.
PQ/TQ
ST/RT
ST/PQ
19. 93(11)
In an open economy with government intervention, which of the
following will ensure full employment?
A.
saving = investment
B.
C.
saving = government expenditure
saving + taxation + imports = investment + government
D.
expenditure + exports
None of the above.
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20. 93(12)
Suppose the value of imports of an open economy increases by ten
cents for even-one dollar increase in income. If its marginal propensity
to consume is 0.8 and the tax rate is 10% of income, an increase in
national income of $100 will result in _____ increase in consumption
spending on domestic goods.
A.
$62
B.
C.
D.
$64
$72
$91
21. 93(13)
Refer to the following diagram of an open economy with no
government sector.
Which is the equilibrium level of national income?
A.
B.
C.
0A
0B
0C
D.
0D
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22. 93(14)
Refer to the following diagram of a closed economy with no
government sector.
Which of the following are true?
(1) Saving must be negative when income is less than Y1.
(2) The average propensity to save is one at Y1.
(3) The vertical distance between C and AE at Y2 represents saving at
Y2.
(4) There is an unintended reduction in inventory at Y3.
A.
1 and 2 only
B.
C.
D.
1 and 3 only.
2 and 4 only
3 and 4 only.
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Refer to the following equations which describe a hypothetical
economy for 94(1) and 94(2).
C
I
=
=
150 + 0.8Y
100 + 0.1Y
G
=
50
where
C = consumption expenditure
Y = income
I = investment
G = government expenditure
23. 94(1)
If the government expenditure increases by 1, the income of the
economy will increase by
A.
B.
C.
1.
5.
8.
D.
10.
24. 94(2)
Suppose the production function of the economy is :
Y = 10N, where N is labour employment.
If the labour supply is 400, which of the following statements is correct?
A.
B.
C.
D.
There is an excess demand for labour.
There is an excess supply of labour.
The equilibrium income is equal to the full employment income.
The equilibrium income cannot be determined with the given
information
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25. 94(4)
A shift of the saving curve from S1 to S2 implies that
(1) the marginal propensity to consume has decreased.
(2) the autonomous consumption expenditure has increased.
(3) at each disposable income level, the average propensity to
consume has increased.
A.
B.
C.
1 & 2 only
1 & 3 only
2 & 3 only
D.
1, 2 & 3
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26. 94(6)
Which of the following statements about an elementary Keynesian
model without government and external trade is correct?
A.
B.
C.
D.
At Y2, the economy is at full employment.
At Yl, the stock of the economy will increase.
At Y3, there will be an unintended increase in stock.
At Yl, realised saving is greater than realised investment.
27. 94(7)
After the imposition of a proportional income tax, the after-tax
consumption curve would _ ____ the before-tax consumption curve.
A.
B.
C.
D.
be sleeper than
be flatter than
be parallel to
coincide with
28. 94(8)
A decrease in the marginal propensity to import will have the same
effect on the size of the income multiplier as
A.
B.
C.
D.
a decrease in the marginal propensity to consume.
a decrease in the marginal propensity to save.
a decrease in the marginal propensity to invest.
an increase in the marginal propensity to save.
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29. 94(9)
The existence of a deflationary gap indicates that
(1) the equilibrium income is below the full employment income.
(2) a surplus budget should be used to eliminate the gap.
(3) the economy has insufficient aggregate demand to achieve
(4) the real income is smaller than the nominal income.
A.
B.
C.
D.
1 & 3 only
1 & 4 only
2 & 3 only
2 & 4 only
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30. 95(3)
Consumption
C
Disposable
Income
0
The above diagram shows the consumption function of an economy.
Which of the following statements are correct?
(1) The marginal propensity to consume is equal to the average
propensity to consume.
(2) The average propensity to consume is equal to the average
propensity to save.
(3) The marginal propensity to consume is greater than the marginal
propensity to save.
(4) The average propensity to consume and marginal propensity to
save are constant.
A.
B.
C.
D.
1 & 2 only
1 & 4 only
2 and 3 only
3 & 4 only
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31. 95(4)
Which of the following would reduce the multiplier effect of
investment on national income?
(1) a reduction in the lump-sum tax
(2) a rise in the marginal propensity to import
(3) a decrease in the marginal propensity to consume
A.
B.
C.
D.
1 & 2 only
1 & 3 only
2 & 3 only
l, 2 & 3
32. 95(5)
Which of the following statements is true?
A.
B.
C.
D.
If the national income is $120 billion and the consumption is $96
billion, the marginal propensity to consume is 0.8.
The slope of the investment function is equal to the slope of the
saving function when the national income is at its equilibrium
level.
The average propensity to consume is determined by the slope of
the consumption function.
The marginal propensity to consume is determined by the slope of
the consumption function.
33. 95(6)
Suppose the national income (Y) is 1000. The consumption function
and the investment function are C = 100 + 0.8Y and I = 80 respectively.
Then the realised investment is ______ and the unplanned inventory
investment is ______.
A.
B.
C.
D.
100; 20
80; 2
80; 0
100; 0
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34. 96(1)
Consider the following model :
C = 200+ 0.6Yd
I = 100 + 0.2Y
C = consumption, Yd = disposable income
I = investment, Y = income
T = 0.1Y
G = 10
T = tax
G = government expenditure
The government expenditure multiplier is
A.
B.
1.66.
2.17.
C.
D.
3.85.
4.26.
35. 96(4)
What will be the result of a fall in the marginal propensity to consume?
(1) a smaller government expenditure multiplier
(2) a contractionary effect on the economy
(3) a fall in the government tax revenue under a proportional tax
system
A.
B.
C.
D.
1 & 2 only
1 & 3 only
2 & 3 only
1, 2 & 3
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Answer questions 96(2) and 96(3) with reference to the diagram below.
C = consumption, I = investment and Y = income
36. 96(2)
Which of the following statements are true?
(1) Average propensity to consume falls as income increases.
(2) Marginal propensity to save increases as income increases.
(3) Marginal propensity to save plus marginal propensity to consume
equals 1.
A.
B.
C.
1 & 2 only
1 & 3 only
2 & 3 only
D.
1, 2 & 3
37. 96(3)
Which of the following statements are true?
(1) If the income is larger than Yl, the supply of output exceeds the
demand and the planned saving exceeds the planned investment.
(2) If the income is smaller than Yl, the demand for output exceeds
the supply and the realised investment equals the realised saving.
(3) At Yl, the planned investment equals the planned saving and
income exceeds consumption.
A.
B.
C.
1 & 2 only
1 & 3 only
2 & 3 only
D.
1, 2 & 3
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38. 96(7)
Given C = 20 + 0.75Y, where C is consumption and Y is income, which
of the following statements are correct?
(1) Marginal propensity to consume is smaller than average
propensity to consume.
(2) Marginal propensity to consume is constant.
(3) Average propensity to save is less than 0.25.
A.
B.
C.
1 & 2 only
1 & 3 only
2 & 3 only
D.
1, 2 & 3
39. 97(3)
Money income
( $million)
Monthly consumption
expenditure ($million)
40
45
50
55
40
43
46
49
When the monthly income increases from $40 million to $55 million,
(1) the average propensity to consume decreases.
(2) the marginal propensity to save is constant
(3) the marginal propensity to consume is smaller than the marginal
propensity save.
A.
B.
1 & 2 only
1 & 3 only
C.
D.
2 & 3 only
1, 2 & 3
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40. 97(4)
Suppose a government reduces its expenditure on goods and services
and at the same time increases its transfer payments to the public by the
same amount, then
A.
B.
C.
the government expenditure multiplier would become smaller.
aggregate expenditure would remain unchanged.
national income would decrease.
D.
national income would increase with a government expenditure
multiplier of 1.
41. 97(5)
In the above diagram, the marginal propensity to save is equal to
A.
B.
C.
D.
BD / GH
DE/ GH
BD /OH
BE/ OH
42. 97(10)
Which of the following is a fiscal policy that reduces unemployment?
A.
B.
C.
D.
a direct control on the rise in the wages of worker.
a decrease in the required reserve ratio of banks.
an increase in the spending on tertiary education.
an increase in the tax rate.
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43. 97(19)
Study the following information of an economy :
C = 200 + 0.6Yd
I = 75 + 0.15Yd
T = 100
G = 100
where
C = consumption expenditure,
Yd = disposable income
I = investment expenditure
T = tax
G = government expenditure
The income of the economy will increase by 100 if the government
expenditure increases by
A.
B.
C.
25.
40.
60.
D.
100.
44. 97(24)
In an economy with taxes, C = $20 + 0.9Yd, where C is consumption
and Yd is disposable income. The consumption function predicts that
the consumption expenditure is
A.
$180 when the national income is $200.
B.
C.
D.
$110 when the national income is $100.
$90 when the national income is $100.
$20 when the disposable income is $0.
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45. 98(1)
Consider the following model :
C = 10 + 0.6 Y
I=a
C = consumption
I = investment
Y=4L
Y = national income
L = labour employment
Suppose there are 50 units of labour. At full employment, a equals to
A.
B.
70
100
C.
D.
120
150
46. 98(2)
Suppose the marginal propensity to consume is 0.75. Under a lump
sum tax system, how much tax decrease would have the same effect on
the equilibrium income as a $45 million increase in government
spending?
A.
B.
$25 million
$60 million
C.
D.
$120 million
$180 million
47. 98(3)
A deflationary gap exists if _______ at the full employment level.
(1) income is greater than expenditure
(2) realized investment is smaller than planned investment
(3) planned saving is greater than planned investment
A.
B.
C.
(1) and (2) only
(1) and (3) only
(2) and (3) only
D.
(1), (2) and (3)
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48. 98(4)
Refer to the following diagram of an open economy without the
government sector.
Which of the following statements about the economy are true?
(1) The equilibrium income is OA.
(2) The equilibrium income is OB.
(3) The economy has a trade surplus.
(4) The economy has a trade deficit.
A.
(1) and (3) only
B.
C.
D.
(1) and (4) only
(2) and (3) only
(2) and (4) only
49. 98(25)
If the government adopts a proportional income tax, the aggregate
expenditure curve will become _______ and the investment multiplier
will become _______.
A.
B.
C.
D.
flatter ........ smaller
steeper ........ smaller
flatter ........ larger
steeper ........ larger
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50. 99(1)
The diagram below shows the aggregate expenditure in a closed
economy without taxes. At the equilibrium income level, the average
propensity to save is given by the ratio
A.
PQ / OR.
B.
C.
D.
QR / OU.
ST / OU.
SU / OU.
51. 99(4)
The existence of an inflationary gap indicates that
A.
there is a gap between the actual inflation rate and the expected
B.
inflation rate.
there is a gap between real income and nominal income, and the
C.
gap is caused by inflation.
there is excess demand for aggregate output at the full
D.
employment level of income, which therefore falls short of the
equilibrium level of income.
All of the above.
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52. 99(5)
In the elementary Keynesian model, fluctuations in investment will
induce _______ fluctuations in income under the proportional tax
system _______ under the lump sum tax system.
A.
B.
C.
more ... than
less ... than
the same amount of ... as
D.
no ... or
53. 99(9)
In an elementary closed economy Keynesian model without a
government, investment is fixed at some level. Suppose the equilibrium
level of income increases as a result of an increase in the marginal
propensity to consume, then the equilibrium level of saving will
A.
B.
C.
increase.
decrease.
remain constant.
D.
be indeterminate.
54. 99(22)
In an economy, suppose the government budget is in balance while the
trade account is in deficit. We can conclude that
A.
B.
the sum of government spending and exports is greater than the
sum of taxation and imports.
the sum of investment spending and exports is greater than the
sum of savings and imports.
C.
the sum of government spending and investment spending is
greater than the sum of taxation and savings.
D.
None of the above.
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55. 00(1)
Consumption
C2
C1
Disposable Income
0
Suppose the consumption curve shifts from C1 to C2. We can conclude
that
A.
the equilibrium national income will increase.
B.
C.
D.
the marginal propensity to save has decreased.
the average propensity to save has increased.
the average propensity to consume has increased.
56. 00(3)
The following table shows how the consumption expenditure is related
to the income of a closed economy without a government.
Consumption expenditure
60
160
240
300
340
360
Income
0
100
200
300
400
500
Suppose the planned investment is 60 and the planned consumption is
always realized. Which of the following statements is correct?
A.
B.
C.
D.
The average propensity to consume increases as the income
increases.
The equilibrium income is 300.
The amount of unrealized investment is 40 when the income is
200.
The amount of unplanned investment is 80 when the income is
500.
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57. 00(4)
Which of the following would offset the effect of an increase in the
marginal propensity to consume on the value of the government
expenditure multiplier?
(1) an increase in the marginal propensity to import
(2) an increase in the marginal propensity to invest
(3) an increase in the proportional income tax rate
A.
B.
C.
(1) and (2) only
(1) and (3) only
(2) and (3) only
D.
(1), (2) and (3)
58. 00(6)
Consider the following model :
C = 250 + 0.7Yd
I = 200
G = 500
T = 100 + 0.2Y
where
C = consumption expenditure
Y = national income
Yd = disposable income
I = investment expenditure
G = government expenditure
T = tax
At equilibrium, the government budget surplus is _______ and the
government expenditure multiplier is _______.
A.
B.
negative ... 3.33
negative ... 2.27
C.
D.
zero ... 2.27
positive ... 3.33
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59. 00(20)
Which of the following can raise the employment level of an economy?
(1) export promotion
(2) increase in foreign investment in the economy
(3) reduction in the income tax rate
A.
(1) and (2) only
B.
C.
D.
(1) and (3) only
(2) and (3) only
(1), (2) and (3)
60. 01(1)
Consider the following diagram of a closed economy:
E
E=Y
E=C+I+G
T-G
0
Y
E = expenditure
Y = income
C = consumption
I = investment
G = government expenditure
Which of the following is true at the equilibrium income level?
A.
B.
C.
Investment is greater than saving.
Investment is equal to saving.
Investment is smaller than saving.
D.
The answer is indeterminate.
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61. 01(2)
Which of the following will reduce the size of the government
expenditure multiplier?
(1) an increase in the proportional tax rate
(2) a decrease in the marginal propensity to invest
(3) a decrease in the marginal propensity to save
A.
B.
C.
D.
(1) and (2) only
(1) and (3) only
(2) and (3) only
(1), (2) and (3)
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Answer questions 01(4) and 01(5) with reference to the diagram below.
62. 01(4)
At the equilibrium income level, the average propensity to consume is
and the marginal propensity to consume is
and
.
A.
B.
C.
0.4 …… 0.6
0.6 …… 0.6
0.6 …… 0.8
D.
0.8 …… 0.6
63. 01(5)
What will be the new equilibrium income if investment increases by
100?
A.
B.
C.
1100
1250
1500
D.
2000
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64. 01(10)
Consider the following diagram:
S, I
S
S = saving
I = investment
Y = income
I
0
Y1
Y
Which of the following are true at Y1?
(1) unplanned investment is greater than zero.
(2) realized saving is larger than realized investment.
(3) inventory increases.
A.
1 and 2 only
B.
C.
D.
1 and 3 only.
2 and 3 only
1 , 2 and 3.
65. 01(14)
Suppose country A and country B trade with each other and the imports
of each country are a function of its own national income. If there is an
increase in investment expenditure in country A, then
A.
B.
the national income of both country A and country B will increase.
The national income of country A increases but the national
income of country B remains unchanged.
C.
The national income of country A increases but the national
income of country B may either increase or decrease.
The national income of each country may either increase or
decrease.
D.
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66. 02(4)
Consider the following model
C = 150 + 0.8Yd
I = 70 + 0.15Y
G = 50
T = 30
Yf = 5080
In order to attain the level of full employment national income, what is
the required change in the lump-sum tax?
A.
B.
C.
-8
-10
8
D.
10
67. 02(8)
The table below shows the consumption function of an economy.
Disposable income ($)
Consumption expenditure ($M)
0
100
100
200
300
400
180
250
300
340
500
370
Which of the following statement is correct?
A.
B.
C.
D.
The level of saving decreases as disposable income increases
The marginal propensity to save increases as disposable income
increases
The average propensity to save decreases as disposable income
increases
The marginal propensity to consume is greater than the average
propensity to consume when disposable income is below $300
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68. 03(2)
Refer to the following closed economy:
C = 200 + 0.8Yd
I = 100
G = 400
T = 0.4Y
The expenditure multiplier is
A.
B.
1.67
1.92
C.
D.
2.08
5
69. 03(3)
Refer to the following diagram. Assume there is no government or
foreign trade.
$
Consumption expenditure
Investment expenditure
100
45°
0
200
300
National income
We can conclude from the above diagram that
A.
the average propensity to consume is greater than the marginal
propensity to consume
B.
C.
D.
saving is zero if national income is equal to 100
the equilibrium income is 200
there is an unintended increase in inventories when national
income is 300
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70. 03(4)
Which of the following cases will exert an expansionary effect on the
economy when there is an equal increase in government expenditure
and tax?
(1) There is proportional tax and no marginal propensity to invest
(2) There is a proportional tax and positive marginal propensity to
invest
(3) There is no proportional tax but positive marginal propensity to
invest
(4) Three is no proportional tax and no marginal propensity to invest
A.
B.
C.
(1) and (2) only
(1) and (4) only
(2) and (3) only
D.
(1), (2), (3) and (4)
71. 03(5)
Refer to the following data of a closed economy without the
government sector
Investment
expenditure
Consumption
expenditure
National income
150
150
150
100
175
250
100
200
300
150
150
325
400
400
500
An increase in investment expenditure of 50 will raise both equilibrium
income and consumption expenditure by
and
respectively.
A.
B.
C.
100 … 50
150 … 100
200 … 150
D.
200 … 200
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72. 03(10)
Define private saving as SP=Y-T-C, public saving as SG=T-G and
national saving as the sum of private and public savings. Y, T, C and G
are national income, tax, consumption expenditure, and government
expenditure, respectively. It follows that, in an open economy,
A.
B.
private saving is equal to domestic investment.
national saving is equal to domestic investment.
C.
private saving is equal to the sum of domestic investment and net
exports.
national saving is equal to the sum of domestic investment and net
exports.
D.
73. 03(26)
Which of the following can explain the co-existence of unemployment,
budget deficit and trade deficit?
A.
B.
a fall in consumption expenditure
a fall in investment expenditure
C.
D.
a fall in exports
a fall in government expenditure
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74. 04(3)
Refer to the following diagram of the consumption function in an
economy.
Which of the following statements about the consumption function is
correct?
A.
B.
C.
D.
When disposable income is below Y1, marginal propensity to
consume is smaller then average propensity to consume.
When disposable income is above Y1, marginal propensity to
consume is equal to average propensity to consume.
The average propensity to save is always equal to the marginal
propensity to save.
The marginal propensity to save increases as disposable income
rises from a level below Y1 to a level above Y1.
75. 04(5)
In a closed economy, the balanced budget multiplier is smaller than one
when
A.
B.
There is no induced consumption in the economy.
The marginal propensity to invest is greater than zero.
C.
D.
Marginal propensity to consume falls by 10%.
None of the above.
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76. 04(6)
Refer to the following diagram of a closed economy.
Which of the following statements about the economy is correct?
A.
At Y1, the level of foreign exchange reserves must remain
constant.
B.
C.
At Y1, the budget surplus is zero.
At Y1, the value of injection (I+G) is equal to the value of
withdrawal (S+T).
At Y1, there will be an increase in inventory.
D.
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77. 04(8)
Refer to the following diagram of a closed economy.
Full employment and budget balance can be attained simultaneously
when
A.
there is an increase in autonomous investment.
B.
C.
there is an increase in autonomous government expenditure.
there is a reduction in both lump sum tax and government
expenditure by the same amount.
there is a reduction in lump sum tax.
D.
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78. 04(10)
Refer to the following diagram of an economy.
Yf is the initial equilibrium income in the economy.
Which of the following changes could generate unemployment, trade
deficits, and fiscal deficits simultaneously?
A.
B.
a fall in private consumption
a fall in export
C.
D.
a rise in private investment
a rise in taxes
79. 05(1)
In an open economy, national saving need not equal real investment.
When national saving exceeds real investment, it means that
A.
there are net export to the rest of the world.
B.
there is foreign investment in the form of real investment in the
rest of the world.
there is foreign investment in the form of financial investment in
the rest of the world.
All of the above.
C.
D.
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80. 05(4)
In a closed economy with the government sector, consumption rise by
$60 when disposable income rises by $100. Which of the following
about the economy must be true?
(1) The marginal propensity to save is 0.4.
(2) The average propensity to consume is 0.6.
(3) When investment increases by $20, the maximum possible
increase in national income is $50.
A.
B.
(1) only
(1) and (2) only
C.
D.
(1) and (3) only
(2) and (3) only
81. 05(5)
Which of the following will reduce the expansionary effect of an
increase in government expenditure in the elementary Keynesian model?
A.
B.
C.
an increase in lump sum tax
a decrease in the marginal propensity to save
a decrease in the marginal propensity to import
D.
All of the above
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Use the following information about an economy to answer Questions
05(6) to 05(8).
C = 200 + 0.8Yd
I = 110
G = 200
T = τY
NX = 50 – 0.1Yd
Yd = Y – T
where
C = consumption expenditure
Yd = disposable income
I = investment expenditure
G = government expenditure
T = taxes
τ = proportional income tax rate
Y = national income
NX = net export
82. 05(6)
Suppose the government’s objective is to balance its budget, the
equilibrium level of income will be
A.
B.
C.
1266.7
1400.0
1866.7
D.
2550.0
83. 05(7)
With the same government objective, the equilibrium tax rate is
A.
B.
C.
D.
0.08
0.11
0.14
0.16
84. 05(8)
With the same government objective, the equilibrium trade balance is a
_________ of __________.
A.
B.
C.
deficit . . . 70
deficit . . . 90
surplus . . . 70
D.
surplus . . . 90
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85. 06(1)
Refer to the following diagram of an open economy with no
government sector
At the equilibrium income level, planned saving is
planned investment and the economy has a trade
A.
B.
C.
D.
.
greater than … deficit
smaller than …. deficit
equal to … surplus
greater than … surplus
86. 06(2)
Unintended inventory investment
A.
is not included in gross domestic product (GDP)
B.
C.
D.
is gross investment minus capital consumption allowances
can be either positive or negative
is zero when actual aggregate expenditure equals total output
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87. 06(3)
The above diagram shows an elementary Keynesian model for a closed
economy. In this economy, all taxes are in lump sum fashion and
investment is autonomous. The aggregate expenditure function shits
upward from E1 to E2 as a result of a change in lump sum tax. The
change in lump sum tax is
.
A.
50
B.
C.
D.
62.5
-50
-62.5
88. 06(4) In a closed economy, national saving is $1 000 and private saving
is $750. This means that the government has a
and the
equilibrium level of investment is
.
A.
budget deficit of $250 … $250
B.
C.
D.
budget deficit of $100 … $1000
budget surplus of $250 …. $1000
budget surplus of $200 … $250
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89. 06(6)
In a closed economy where investment is autonomous, the marginal
propensity to consume is 0.8 and the proportional income tax rate is
10%. The national income will increase by $50 billion if
A.
B.
there is an equal increase in government expenditure and lump
sum tax by $50 billion
lump sum tax is reduced by $12.5 billion
C.
D.
autonomous saving is reduced by $14 billion
there is an increase in investment expenditure of $20 billion
90. 07(1)
The above diagram shows a closed-economy elementary Keynesian
model in which there is no government sector and investment is
autonomous. Suppose the aggregate expenditure function changes from
E1 to E2 due to a change in the marginal propensity to consume. Which
of the following is FALSE?
A.
B.
C.
The equilibrium level of income doubles.
The marginal propensity to consume doubles.
The equilibrium level of saving decreases.
D.
The amount of autonomous saving remains unchanged.
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91. 07(2)
The following diagram shows an open-economy elementary Keynesian
model.
If the trade balance of the economy is zero at the equilibrium level of
national income, then the government has a fiscal
equilibrium level of private saving is
A.
deficit … higher than
B.
C.
D.
deficit … lower than
surplus … equal to
surplus … higher than
and the
that of investment.
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Study the following information about a closed economy and answer
07(3) and 07(4)
C = 0.8Yd
I = 200
where
G= G
T = 0.5Y
Yf = 1200
C = consumption expenditure
Yd = disposable income
I = investment expenditure
G = government expenditure
T = taxes
Y = national income
Yf = full employment income
92. 07(3)
If the government’s objective is to achieve full employment by
choosing its expenditure, the government will have a fiscal
of
when it achieves the objective.
A.
surplus … 80
B.
C.
D.
deficit … 80
surplus … 100
deficit … 100
93. 07(4)
If the government’s objective is to achieve fiscal balance by choosing
its expenditure, the equilibrium income level will be
when it achieves the objective.
A.
1000
B.
C.
D.
1200
1600
2000
94. 07(6)
Which of the following can offset the effect of an increase in income
tax rate on the expenditure multiplier?
A.
B.
C.
D.
a reduction in lump sum tax
an increase in autonomous investment
a reduction in the marginal propensity to import.
An increase in the marginal propensity to save
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95. 08(4)
Which of the following are examples of an expansionary policy?
(1) reduction of corporate profits tax
(2) exemption of general rates
(3) provision of interest-free loans to small enterprises
A.
(1) and (2) only
B.
C.
D.
(1) and (3) only
(2) and (3) only
(1), (2) and (3)
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Refer to the following diagram of a closed economy with no
government and answer questions 08(5) and 08(6).
E
E=Y
E
Y = national income
E = aggregate expenditure
I = investment expenditure
M
K
J
0
L
N
Y1
Y2
I
Y
96. 08(5)
The marginal propensity to consume is measured by __________.
A.
B.
C.
D.
KL/JL
KY1/0Y1
MY2/0Y2
MN/Y1Y2
97. 08(6)
The equilibrium level of saving is measured by ___________.
A.
B.
C.
KL
LY1
MN
D.
MY2
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98. 08(7)
In a closed economy where investment is autonomous, all taxes are in a
lump sum fashion, the marginal propensity to consume is 0.8, national
saving is 2 000 and private saving is 1 200.
If autonomous investment increases by 200, the government will have a
__________ and the aggregate private consumption will __________.
A.
B.
C.
D.
budget surplus of 800…increase by 800
budget surplus of 1 000…increase by 1 000
budget deficit of 800 …increase by 160
budget deficit of 1 000…increase by 600
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99. 08(8)
The following diagram shows an open economy.
E
45° line
E
Y = national income
E = aggregate expenditure
T = taxes
G = government expenditure
X = exports
M = imports
T–G
0
Y
Y1
X–M
Which of the following statements about the economy in the above
diagram is FALSE?
A.
B.
C.
D.
At equilibrium income Y1, the economy’s national saving equals
private saving.
At equilibrium income Y1, the economy’s private saving equals
private investment.
The economy will suffer twin deficits (trade deficit and budget
deficit) when there is a fall in exports.
The economy will suffer twin deficits (trade deficit and budget
deficit) when there is a fall in autonomous investment.
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