This table shows data on aggregate income, consumption, and saving for households in a hypothetical closed, private economy (that is, an economy with no government, no exports, and no imports). Some of the entries in the table have intentionally been left blank. The marginal propensity to consume (MPC) in this scenario is equal to a constant.

Aggregate Income, Consumption, and Saving
(Millions of dollars)

Aggregate Income Consumption Saving
0 150 -
100 210 -110
200 - -70
300 330 -
400 - 10
500 450 50
Based on the data in this table, the marginal propensity to consume (MPC) is:

A. 0.6

B. 0.4

C. 1

D. 1.6

This table shows data on aggregate income, consumption, and saving for households in a hypothetical closed, private economy (that is, an economy with no government, no exports, and no imports). Some of the entries in the table have intentionally been left blank. The marginal propensity to consume (MPC) in this scenario is equal to a constant.

Aggregate Income, Consumption, and Saving
(Millions of dollars)

Aggregate Income Consumption Saving
0 150 -
100 210 -110
200 - -70
300 330 -
400 - 10
500 450 50
Based on the data in this table, when aggregate income is $300 million, saving is:

A. -$30 million

B. $30 million

C. $330 million

D. $0

Smithia is a small island economy that has no taxes, no transfer payments, no government purchases, no exports, and no imports. Smithia's economy is represented by the following equations:

C = 200 + 0.9Y
I = 1,000

where C represents consumption, I represents planned investment, and Y represents aggregate income.

2. Calculate Smithia's unplanned change in inventories when Smithia's real GDP is $5,000.

Hint: If there are unplanned increases in inventories, then make sure the answer is a positive number. If there are unplanned decreases in inventories, then make sure the answer is a negative number.

Please enter a whole number, with no decimal point.

The following questions are based on a graphical presentation of the expenditures approach to equilibrium output.

When firms experience an unplanned increase in their inventories, they respond in the next period by:

A. Increasing output

B. Decreasing output

C. Maintaining their level of output to allow their inventories to keep growing

Throughout the problem set, we assumed that net taxes do not depend on income (that is, net taxes are a lump sum). However, in reality, taxes do vary with income. Suppose Bodinia and Goldland are two economies that are exactly the same in every aspect except for their net taxes.

Bodinia's Net Taxes = $50 million
Goldland's Net Taxes = -300 + .1Y
MPC in Both Economies = 0.9

Hence, we can conclude that Bodinia's government spending multiplier is ____ Goldland's government spending multiplier.

A. Greater than

B. Less than

C. Equal to

The sum of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) equals:

A. zero

B. aggregate consumption plus aggregate savings

C. one

D. aggregate income

According to the concept of permanent income, most of a temporary decrease in income taxes will be

A. spent

B. used by Congress as an excuse to increase spending

C. saved

D. too large
A problem with a federal government budget deficit is

A. government spending is too high.

B. government borrowing to finance the deficit will "crowd out" private investment.

C. it will cause more capital to be produced.

D. it will require the government to raise taxes now.

Which of the following is an example of an automatic stabilizer?

A. Unemployment compensation payments

B. A cut in the capital gains tax

C. Social Security payments to the elderly

D. Defense spending