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York University
ECON 2400

APEcon 2400 Summer 2012 Solution to Midterm Exam Version BPart I Multiple Choice 1 A Gross InvestmentNew housesEquipment and plant investmentChange in inventories175016603003110 Net investmentGross investmentdepreciation3110950 2160 2 B GGovernment consumptiongovernment investment1560165032103 C YCIGNX Cconsumer nondurablesconsumer durableshouseholds spending on services 2450167029007020 I3110 as shown in 1 G3210 as shown in 2 NXEXIM36004200600 Y702031103210600127404 B The real GDP NOT the nominal GDP measures the total quantities of goods and services produced in the economy of the economy but not the general price level The nominal GDP measures the product of the total quantities and the general price level of goods and services produced in the economy of the economy The GDP deflator measures the general price level of goods and services in the economy5 D When net investment is positive physical capital stock in the next period has to be higher than in the previous period KKnet investment Consumption in National t1ttAccounts includes all the household purchases of final goods and services except the household purchases of new houses which is included under private investment6 A Private savings equals YTC which equals disposable income minus consumption 7 D When public savings is positive ie TG the government is running a budget surplus When public savings is negative the government will still be able to raise enough funds to finance its purchases via issuing government bonds0 will lead to 8 D In the classical model an increase in autonomous consumption C0an increase in consumption spending in equilibrium as CCMPCYT and Y and T 0 in the LR National savings SYCG will therefore are unchanged with the change in C0decrease as C increases As IS in equilibrium investment spending also decreases 9 D In the classical model reduction in taxes T0 will lead to an increase in MPCYT will also increase but disposable income YT by the same amount CC0privateYTC will therefore increase as the only by MPC times the amount of tax cut Spublicincrease in YT is larger than the increase in C STG will decrease as T decreases and G increases10 D Following 9 national savings SYCG will decrease as both C and G increase The S schedule shifts left and I decreases as r increases to the new equilibrium
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