Determining the Marginal Propensity to Consume
Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages Description/Paper Instructions
Determining the Marginal Propensity to Consume
Question 1 The average household income in the US is $60,000. The marginal propensity to consume =..
Question 1
The average household
income in the US is $60,000. The marginal propensity to consume = MPC = .90. If
household income increases by 10% to $66,000 then the increase in consumer spending
= C, per household will be:
- $5,400.
- $5,940
- $6,000
- $600
Question 2
The economy’s Investment
Function, I(i), indicates that when the expected real rate of interest increases
agents in the economy respond by:
- undertaking new and
additional investment projects- cancelling or
postponing investment projects- maintaining
investment at the previous paceQuestion 3
The price of a PC tablet
made in Europe is 500 Euros. Let the exchange rate rise from $1.30/Euro to
$1.40 /Euro. This increase in the exchange rate represents a depreciation in
its value since more US dollars are needed to purchase each Euro. What happens to
the import price of this tablet and the number of tablets imported into the US?
- The US price rises
from $650 to $700 and imports into the US increase- The US price
declines from $700 to $650 and imports into the US increase- The US price rises
from $650 to $700 and imports into the US decline- The price remains
at $650 and imports remain constantQuestion 4
The effective real
exchange rate between the US dollar and foreign currencies increases in level
and depreciates in value. What impact will that have on spending patterns by
consuming households in the US and abroad?
- Expenditure
Switching from foreign to US products in the US (less US imports) and from
foreign to US made goods abroad (more US exports)- Expenditure
Switching from US to foreign made products in the US (more US imports) and
from US to foreign made goods abroad (less US exports)Question 5
If a basket of goods
costs PUS = $100 in the United States and PMex
= 400 pesos in Mexico, and if the exchange rate is $1 = 5 pesos: E$/peso
= $.20, then what is the real exchange rate and how do the prices for Mexican
goods compare to those for US goods?
.
- The Real Exchange
Rate is 1.25 and US goods are less expensive than Mexican goods- The Real Exchange
Rate is 0.80 and US goods are less expensive than Mexican goods- The Real Exchange
Rate is 1.25 and Mexican goods are less expensive than US goods- The Real Exchange
Rate is 0.80 and Mexican goods are less expensive than US goodsQuestion 6
Which of the following
would lead to an appreciation in the real exchange rate for the US
dollar = qUS ? This means that the level q is lower so
that foreign-made products are morecostly compared to US made products.
- an increase in E –
the nominal exchange rate- an increase in
P(For) – the level of foreign prices- an increase in
P(US) – the US price levelQuestion 7
Operating through the
Real Exchange Rate, qUS, what will be the likely impact on
the US trade balance, TB = X – M, from the following developments:
(1) an increase in the
dollar price of the Euro
(2) a reduction in the
US price level
.
- exports will increase;
imports will decline and the trade balance will improve- exports will
decline; imports will increase and the trade balance will worsen- both exports and
imports will increase and the trade balance will remain the sameQuestion 8
If domestic prices in
the US = PUS, and foreign prices among the trading partners
of the US, PFor, rise by the same relative amount of 10%,
what will happen to the trade balance, TB = X-M? View these effects as
operating through the real exchange rate, qUS.
- It will rise.
- it should remain
constant- It will fall.
Question 9
Consider the impact on
the trade balance, TB = Exports – Imports, from changes
in national income in
the US, YUS, and the foreign countries that are its main
trading partners, YEURfor example. If national income in the
US rose strongly while national income levels in Japan, China, and Europe
stagnated or declined, what would happen to the components of US trade and the
net balance?
.
- Exports would rise
; Imports would fall ; Trade Balance would improve- Exports would rise
; Imports would fall ; Trade Balance would worsen- Exports would fall
; Imports would rise ; Trade Balance would improve- Exports would fall
; Imports would rise ; Trade Balance would worsenQuestion 10
Globalization including
cost efficient global supply chains along with the advent of China and it
membership into the World Trade Organization (WTO) in 2001 greatly increased
the marginal propensity for foreign imports (MPCF) for the
US. What has this meant for the US trade balance, TB = X – M ?
.
- It has worsened –
become more negative- It has improved –
become less negative- It has neither
improved nor worsenedQuestion 11
Let the overall marginal
propensity to consume among US households be: MPC = 90% = .90. Let the marginal
propensity to consume US made domestic goods be MPCUS = 70% =
.70. If disposable personal income for all US households stands at exactly
$10.0 trillion, then what is the value of imported foreign goods? (Hint: derive
first the marginal propensity to import foreign goods.)
.
- $1 trillion
- $2 trillion
- $7 trillion
- $9 trillion
Question 12
Consider the US trade
balance from 1976 to 2012 and then separate this into two intervals: 1976 to
2002 and 2002 to 2012. The advent of trade with China and tremendous increases
in the price of imported oil have defined this last decade. What has been true
about the relationship between the US trade balance and the real
effective(multi-lateral)US exchange rate?
- a consistently
strong correlation between the two has persisted- the correlation was
much weaker in the earlier period but has strengthened in the past decade- the strong
correlation from the earlier interval has led to a much weakened relationship
in the past decadeQuestion 13
Suppose that the United
States does 1/2 (50%)of its trade with Canada, 1/4 (25%) with the United
Kingdom, and 1/4 (25%) with Mexico. If the dollar real exchange rate rises by
10% with Canada, rises by 20% for the United Kingdom, and falls by 10% for
Mexico, what is the percentage change in the real effective exchange rate?
.
- 11.5%
- 10%
- 7.5%
- –2.5%
Question 14
Consider a depreciation
in the real effective exchange rate for the US. Under the so-called “J
Curve” effect what often happens to the US trade balance when a real
depreciation does take place?
.
- the trade balance
actually worsens first and then improves later on- the trade balance
actually improves initially and then worsens later on- the trade balance
won’t change at all in any time intervalQuestion 15
Because of the fiscal
cliff crises in Washington, D.C., government spending = G is clearly being
reduced while taxes = T are clearly rising. What impact will this have on the
aggregate demand, AD, in the US economy and the equilibrium level of national
production and national income= YUS?
.
- aggregate demand,
AD, will increase and equilibrium production, Y, will increase- aggregate demand,
AD, will increase and equilibrium production, Y, will decrease- aggregate demand,
AD, will decrease and equilibrium production, Y, will increase- aggregate demand,
AD, will decrease and equilibrium production, Y, will decreaseQuestion 16
Utilizing the IS-LM-FX
model framework, let us analyze the implications of current US economic
policies. The federal government and state governments are reducing spending
(G) and raising taxes(T) – this is contractionary fiscal policy. At the same
time, the FED has renewed its pledge to further expand the supply of money(M)
to sustain economic growth(Y). Starting with the IS function only, what will
happen to interest rates from this fiscal contraction alone?
.
- interest rates rise
- interest rates
decline- interest rates do
not changeQuestion 17
Utilizing the IS-LM-FX
model framework, let us analyze the implications of current US economic
policies. The federal government and state governments are reducing spending
(G) and raising taxes(T) – this is contractionary fiscal policy. At the same
time, the FED has renewed its pledge to further expand the supply of money(M)
to sustain economic growth(Y). Starting with the IS function only, and given
the response on interest rates to the previous question, what will happen to
the exchange rate and the trade balance from this fiscal contraction alone? (
“currency” = US dollar exchange rate)
(Remember that a rise in
the nominal exchange rate is a depreciation and a fall in the level of the
nominal exchange rate is an appreciation in its value.)
.
- the exchange
rate/currency depreciates and the trade balance worsens- the exchange
rate/currency appreciates and the trade balance worsens- the exchange
rate/currency depreciates and the trade balance improves- the exchange
rate/currency appreciates and the trade balance improvesQuestion 18
Utilizing the IS-LM-FX
model framework, let us analyze the implications of current US economic
policies. The federal government and state governments are reducing spending
(G) and raising taxes(T) – this is contractionary fiscal policy. At the same
time, the FED has renewed its pledge to further expand the supply of money(M)
to sustain economic growth(Y). Now focus on the LM function only. What impact
will the Fed’s actions have on interest rates?
.
- interest rates will
increase due to the Fed’s actions- interest rates will
decrease due to the Fed’s actions- the Fed’s actions
will not change interest ratesQuestion 19
Utilizing the IS-LM-FX
model framework, let us analyze the implications of current US economic
policies. The federal government and state governments are reducing spending
(G) and raising taxes(T) – this is contractionary fiscal policy. At the same
time, the FED has renewed its pledge to further expand the supply of money(M)
to sustain economic growth(Y). Focusing on the LM function only, and given the
response on interest rates to the previous question, what will happen to the
exchange rate and the trade balance from this monetary expansion alone? (
“currency” = US dollar exchange rate)
(Remember that a rise in
the nominal exchange rate is a depreciation and a fall in the level of the
nominal exchange rate is an appreciation in its value.)
.
- the
currency/exchange rate will depreciate and the trade balance will improve- the
currency/exchange rate will depreciate and the trade balance will worsen- the
currency/exchange rate will appreciate and the trade balance will improve- the
currency/exchange rate will appreciate and the trade balance will worsenQuestion 20
Utilizing the IS-LM-FX
model framework, let us analyze the implications of current US economic
policies. The federal government and state governments are reducing spending
(G) and raising taxes(T) – this is contractionary fiscal policy. At the same
time, the FED has renewed its pledge to further expand the supply of money(M)
to sustain economic growth(Y). Now combine the effects of the two policy
actions. Do they reinforce each other or do they counter-act one another as far
as interest rates and the trade balance are concerned?
.
- reinforce each
other- they counter-act
one anotherQuestion 21
Utilizing the IS-LM-FX
model framework, let us analyze the implications of current US economic
policies. The federal government and state governments are reducing spending
(G) and raising taxes(T) – this is contractionary fiscal policy. At the same
time, the FED has renewed its pledge to further expand the supply of money(M)
to sustain economic growth(Y). Now combine the effects of the two policy
actions. What if the Fed’s actions can only exactly counter-balance the fiscal
conduct of the President/Congress. What happens to the equilibrium level of
national production/income, Y?
.
- it will rise to a
higher level- it will decline to
a lower level- it will remain
fairly constantQuestion 22
Continue to assume that
the contractionary effects of recent US fiscal policy, with G and T reducing
aggregate demand in the US economy, are exactly counter-balanced by the
expansionary effects of the Fed’s monetary policies for M. Given the predicted
impacts on interest rates and the exchange rate and the predicted impact on
national production, Y, from the previous question, what will likely happen to
investment and exports?
- investment
decreases ; exports decrease- investment
decreases ; exports increase- investment
increases ; exports decrease- investment
increases ; exports increaseQuestion 23
Consider the following
“shocks” to aggregate demand, AD, in the US:
(1) continued increase
in stock prices in the stock market that greatly increase household wealth and
the confidence of company owners and managers.
(2) major changes in
lending confidence with a renewed willingness of banks to extend credit for
real estate purchases and business loansFocusing on the IS curve
within the IS-LM-FX model, what will happen to investment(I), interest rates(i)
and national production(Y) as a result of these wealth and confidence effects?
- interest rates will
decrease while investment and national production increase- investment,
interest rates and national production all decrease- investment,
interest rates and national production all increaseQuestion 24
Continue from the
previous question. Highly beneficial wealth and investor confidence
developments have shifted the entire consumption and investment functions, C(Y)
and I(i). This can be modeled as a shift of the IS curve. Given the predicted impact on interest rates
in the US economy what will likely happen to the exchange rate and the trade
balance, TB = EX – IM?
(Remember that a rise in
the nominal exchange rate is a depreciation and a fall in the level of the
nominal exchange rate is an appreciation in its value.)
.
- the
currency/exchange rate will depreciate and the trade balance will worsen- the currency/exchange
rate will appreciate and the trade balance will worsen- the
currency/exchange rate will appreciate and the trade balance will improve- the
currency/exchange rate will depreciate and the trade balance will improveQuestion 25
National governments in
both Europe and Asia are considering policies that would reduce interest rates
inside their economies. This would represent a reduction in the foreign
interest rate, ifor, for the US economy. Consider an analysis
of this within the IS-LM-FX framework. First, what will happen to theforeign
return, FR, in the FX setting and the US dollar exchange rate?(Remember that a
rise in the US dollar exchange rate is a deprecia-tion in its value and a fall
in the nominal exchange rate is an appreciation in its value.)
- the foreign return
will decline and the US dollar will appreciate in value- the foreign return
will decline and the US dollar will depreciate in value- the foreign return
will increase and the US dollar will appreciate in value- the foreign return
will increase and the US dollar will depreciate in valueQuestion 26
Continue from the
previous question. The foreign interest rate has declined
and there has been some
movement in the exchange rate. Given this movement in the exchange rate, what
will happen to US exports and imports and the trade balance. Remember that a
depreciation will improve the trade balance and an appreciation will worsen the
trade balance. Then what will happen to aggregate demand, AD, in the US economy
and thus the IS curve?
.
- the trade balance
will worsen, increasing aggregate demand and shift the IS curve to the right- the trade balance
will improve, reducing aggregate demand and shift the IS curve to the left- the trade balance
will improve, increasing aggregate demand and shift the IS curve to the right- the trade balance
will worsen, reducing aggregate demand and shift the IS curve to the leftQuestion 27
Preceding from the
previous questions, with a reduction in the foreign interest rate their will be
a change in the trade balance and a shift in the IS curve. What does this
analysis imply for the equilibrium level of national production, Y?
.
- National Production
will increase- National Production
will remain constant- National Production
will declineQuestion 28
The habit formation of
consumers and the supply contract lock-in effects for companies can reduce
expenditure switching in response to movements in exchange rates. What effect
does this generally have on the effectiveness of fiscal and monetary policies
of national governments?
.
- it enhances the
effectiveness of these policies- it diminishes the
effectiveness of these policies- it matters little
for policy effectivenessQuestion 29
Consider the following
values for the US economy:
C = Consumer Spending =
$8,850 billion
G = Government Spending
= $3,250 billion
I = Investment Spending
= $2,150 billion
X = Exports = $1,600
billion
M = Imports = $2,350
billion
EXFS =
Exports of Factor Services = $750 billion
IMFS =
Imports of Factor Services = $500 billion
UTIN =
Transfer Payments Incoming = $50 billion
UTOUT
= Transfer Payments Outgoing = $200 billion
What is the Current
Account Balance = CA?
- -$650 billion
- -$700 billion
- -$800 billion
- -$850 billlion
Question 30
Consider the following
values for the US economy:
C = Consumer Spending =
$8,850 billion
G = Government Spending
= $3,250 billion
I = Investment Spending
= $2,150 billion
X = Exports = $1,600
billion
M = Imports = $2,350
billion
EXFS =
Exports of Factor Services = $750 billion
IMFS =
Imports of Factor Services = $500 billion
UTIN =
Transfer Payments Incoming = $50 billion
UTOUT
= Transfer Payments Outgoing = $200 billion
What is the value for
Gross Domestic Production = GDP ?
- $12,500 billion
- $13,000 billion
- $13,500 billion
- $14,000 billion
Question 31
Consider the following
values for the US economy:
C = Consumer Spending =
$8,850 billion
G = Government Spending
= $3,250 billion
I = Investment Spending
= $2,150 billion
X = Exports = $1,600
billion
M = Imports = $2,350
billion
EXFS =
Exports of Factor Services = $750 billion
IMFS =
Imports of Factor Services = $500 billion
UTIN =
Transfer Payments Incoming = $50 billion
UTOUT
= Transfer Payments Outgoing = $200 billion
What is the value for
Gross National Income = GNI ?
- $13,500 billion
- $13,750 billion
- $14,000 billion
- $14,250 billion
Question 32
Consider the following
values for the US economy:
C = Consumer Spending =
$8,850 billion
G = Government Spending
= $3,250 billion
I = Investment Spending
= $2,150 billion
X = Exports = $1,600
billion
M = Imports = $2,350
billion
EXFS =
Exports of Factor Services = $750 billion
IMFS =
Imports of Factor Services = $500 billion
UTIN =
Transfer Payments Incoming = $50 billion
UTOUT
= Transfer Payments Outgoing = $200 billion
What is the value for
Gross National Disposable Income = GNDI ?
- $12,600 billion
- $13,000 billion
- $13,300 billion
- $13,600 billion
Question 33
Consider the following
values for the US economy:
G = Government spending
= $3,250 billion
T = Taxes = $2,750
billlion
I = Investment Spending
= $2,150 billion
S = Savings = $1,820
billion
If the National Income
Identity holds for the economy what is the implied value for the Current Account
= CA ?
- -$500 billion
- -$720 billion
- -$830 billion
- -$880 billion
Question 34
(EXA)H
= Export of US Assets = $810 billion
(IMA)H
= Import of US Assets = $70 billion
(EXA)F
= Export of Foreign Assets = $100 billion
(IMA)F
= Import of Foreign Assets = $290 billion
Calculate the Balance
for the Financial Account = FA.
- $550 billion
- $590 billion
- $630 billion
- $680 billlion
Question 35
If the US has a
Financial Account surplus or favorable balance of FA = +$700 billion, then what
must be true for the Current Account Balance, CA, if the Balance of Payments
Identity (BOP) holds and the Capital Account, KA = 0?
- the Current Account
must also have a positive balance of $700 billion- the Current Account
balance can be any value unrelated to the Financial Account, FA- the Current Account
balance must counter-balance the FA at CA = -$700 billionQuestion 36
Identify the following financial
transaction for the Financial Account, FA:US bond fund investors purchase $100
billion of the government bonds that Japan seeks to sell.
- Export of US Assets
Abroad- Export of Foreign
Assets Abroad- Import of US Assets
from Abroad- Import of Foreign
Assets from AbroadQuestion 37
Identify the following
financial transaction for the Financial Account, FA:
Wealthy investors from
China purchase $20 billion worth of apartment buildings and houses in major US
cities.
- Export of US Assets
to Abroad- Export of Foreign
Assets to Abroad- Import of US Assets
from Abroad- Import of Foreign
Assets from AbroadQuestion 38
Identify the impact of
this financial transaction on the Financial Account, FA:
US companies sell $40
billion worth of common stock shares to investors in Asia from their initial
public offerings (IPO’s).
- Export of Home
Assets to Abroad- Export of Foreign
Assets to Abroad- Import of US Assets
from Abroad- Import of Foreign
Assets from AbroadDetermining the Marginal Propensity to Consume
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