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# \$1.00FOR ECON2010 ONLY

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# 1

Suppose that an initial \$20 billion increase in investment spending expands GDP by \$20 billion in the first round of the multiplier process. If GDP and consumption both rise by \$12 billion in the second round of the process, what is the MPC in this economy?

Instructions: Round your answer to one decimal place

MPC = \$

What is the size of the multiplier?

Instructions: Round your answer to one decimal place

The multiplier = \$

If, instead, GDP and consumption both rose by \$16 billion in the second round, what would have been the size of the multiplier?

Instructions: Round your answer to one decimal place

The multiplier = \$

# 2

Answer the following questions on the basis of the three sets of data for the country of North Vaudeville:

 (A) (B) (C) PriceLevel RealGDP PriceLevel RealGDP PriceLevel RealGDP 110 275 100 200 110 225 100 250 100 225 100 225 95 225 100 250 95 225 90 200 100 275 90 225

a. Which set of data illustrates aggregate supply in the immediate short-run in North Vaudeville? (Click to select)The data in AThe data in CThe data in B

Which set of data illustrates aggregate supply in the short-run in North Vaudeville? (Click to select)The data in AThe data in CThe data in B

Which set of data illustrates aggregate supply in the long-run in North Vaudeville? (Click to select)The data in AThe data in CThe data in B

b. Assuming no change in hours of work, if real output per hour of work increases by 10 percent, what will be the new levels of real GDP in the right column of A?

Instructions: Round your answer to one decimal place.

Price level 110: New output =

Instructions: Enter a whole number for your answer.

Price level 100: New output =

Instructions: Round your answer to one decimal place.

Price level 95: New output =

Instructions: Enter a whole number for your answer.

Price level 90: New output =

Does the new data reflect an increase in aggregate supply or does it indicate a decrease in aggregate supply? (Click to select)IncreaseDecrease

#3

Suppose a handbill publisher can buy a new duplicating machine for \$500 and the duplicator has a 1-year life. The machine is expected to contribute \$550 to the year’s net revenue.

What is the expected rate of return? %

If the real interest rate at which funds can be borrowed to purchase the machine is 8 percent, will the publisher choose to invest in the machine? (Click to select)YesNo

Will the publisher invest in the machine if the real interest rate is 9 percent? (Click to select)NoYes

If it is 11 percent? (Click to select)NoYes

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