The gradual exhaustion of natural resources

A reduction in labor-force participation rates

In a closed economy with no government, the marginal propensity to consume is 0.9 and the average propensity to consume is 0.8. The increase in investment spending by $25 will increase output by:

(A) $25 (B) $100 (C) $125 (D) $200 (E) $250

The diagram shows the production possibilities of an economy that has a rate of capital consumption of

OW.

What will be the effect on current and future living standards of a movement from X to Y on the curve?

Current living standardsFuture living standards

(A) Decrease Decrease

(B) Decrease Increase

(C) Increase Decrease

(D) Increase Increase

(E) Decrease Don’t change

In a Keynesian model, why would a $100 million increase in government expenditure on goods and services have a greater impact on aggregate monetary demand than a $100 million reduction in tax revenue?

(A) Consumers spend only part of any extra disposable income.

(B) Government expenditure does not create wealth.

(C) The marginal tax rate affects the value of the multiplier.

(D) The multiplier does not apply to consumer expenditure.

(E) All of the above

What characteristic of money is essential, if it is to be used as a medium of exchange?

(A) It must be durable

(B) It must be legal tender

(C) It must be limited in supply

(D) It must have intrinsic value

(E) It must be government money

In the diagram Y_E indicates the equilibrium level of income corresponding to different levels of investment.

What does the slope of the line Y_E measure?

(A) the investment multiplier

(B) the marginal propensity to save

(C) the rate of growth of investment

(D) the rate of growth of national income

(E) all of the above

Which of the following occurs as investment becomes more responsive to changes in the interest rate?

Monetary policy becomes more effective at changing real gross domestic product.

Fiscal policy becomes more effective at changing real gross domestic product.

Monetary policy becomes more effective at changing interest rates.

Fiscal policy becomes more effective at changing interest rates.

There is no change in the effectiveness of either monetary or fiscal policy.

The growth of capital relative to the labor force will

have no effect on wage rates

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