Circular flow of income model

Reference no: EM1314428

1. In a simple model with no government or foreign sector, the amount of involuntary inventory accumulation at equilibrium is

a. Dependent upon the amount of consumption
b. Equal to output minus consumption
c. Zero
d. Always positive
e. Usually negative

2. If there is no government or foreign sector and planned investment equals planned saving, then

a. Actual output is equal to planned spending on consumption and investment
b. Consumption plus investment equals income
c. The quantity of output produced is equal to aggregate demand
d. There are no unplanned inventory changes

3. All the work has to be shown. In a model with no government or foreign sector, if autonomous consumption is Co = 80, investment is Io = 70, and the marginal propensity to save is s = 0.25, equilibrium income is

a. 150
b. 200
c. 225
d. 600
e. 750

4. All the work has to be shown. In a simple model with no government or foreign sector, a decline in investment of $10 billion will lead to a $50 billion decline in the equilibrium level of income if

a. The mps is 0.2
b. The mpc is 0.5
c. The ratio of total consumption to total income is 0.8
d. Changes in consumption divided by changes in income equal 0.2
e. Changes in saving divided by changes in income equal 0.8

5. All the work has to be shown. If total autonomous spending is Ao = 800, the marginal propensity to save is mps = 0.2, and the marginal tax rate is t = 0.25, what is the level of equilibrium income?

a. 800
b. 1000
c. 2000
d. 3200
e. 4000

Reference no: EM1314428

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