Qs. 1:

a. Why do economists include only final goods in measuring GDP for a particular year? Why don’t they include the value of the stocks and bonds bought and sold? Why don’t they include the value of the used furniture bought and sold? [4]

b. What are the four phases of the business cycle? [3]

Qs. 2 Recent figures showed the CPI at 210. , while one year earlier it was 202. 2. [3]

a. What was the rate of inflation over the previous year?
b. At this rate of inflation, approximately how long will it take for the price level to double?

Qs. 3 A hypothetical economy’s consumption schedule is given in the table below. GDP=DI
Use the information to answer the following: [5]

a. If disposable income were $7400, how much would be saved?
b. What is the “break-even” level of disposable income?
c. What is this economy’s marginal propensity to consume?
d. What is the average propensity to consume when disposable income is $7000? When disposable income is $8000?

Qs. 4 :

a. Suppose a $100 increase in desired investment spending ultimately results in a $300 increase in real GDP. What is the size of the multiplier? [1]
b. If the MPS is . 4, what is the multiplier? [1]
c. If the MPC is 75, what is the multiplier? [1]
d. Suppose investment spending initially increases by $50 billion in an economy whose MPC is 2/3. By how much will this ultimately change real GDP? [2]

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