Question

Firms decide how much to invest by comparing the rate of return on their projects with:

Question 1 options:

	a) the before-tax rate of return.
	b) their total profit.
	c) the productivity of the workers assigned to the projects.
	d) the interest rate.

Question 2 (1 point)

If income is $5,000 per month and consumption spending is $4,500 per month, what is the average propensity to consume?

Question 2 options:

	a) 0.9
	b) –500
	c) 500
	d) 1.11

Question 3 (1 point)

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase?

Question 3 options:

	a) $900
	b) $100
	c) $11,000
	d) $1,000

Question 4 (1 point)

The recessionary gap is the increase in aggregate spending needed to bring a depressed economy back to full employment.

Question 4 options:

	a) True
	b) False

Question 5 (1 point)

Suppose the government is mandated by law to have a balanced budget. The marginal propensity to consume is 0.9. The government raises both taxes and spending by $10 billion. According to the notion of the balanced budget multiplier:

Question 5 options:

	a) there is no effect on the economy, because the tax and spending increases cancel each other out.
	b) income rises by $10 billion, because taxes reduce spending by $90 billion and government spending raises total spending by $100 billion.
	c) the final effect cannot be determined using the simple Keynesian framework because the impact on prices is not known.
	d) income falls by $10 billion, because taxes reduce spending by $100 billion and government spending raises total spending by $90 billion.

Answer 1

Invest if the rate of return > interest rate APC = consp = 4500_0.9 ③ A MPC=0.9 DI=1000 consumption increases by 900 sc = mpcoy 20-9 1000)=900 (AL-900 & ♡ Terre B MPC=0.9 Balanced Budget Multiplici = 1 nome de increases iniame by $10 bellici