4. The gradual exhaustion of natural resources

5. A reduction in labor-force participation rates

39. In a closed economy with no government, the marginal propensity to consume is 0.9 and the average propensity to consume is 0.8. The increase in investment spending by $25 will increase output by:

(A) $25 (B) $100 (C) $125 (D) $200 (E) $250

40. The diagram shows the production possibilities of an economy that has a rate of capital consumption of

OW.

What will be the effect on current and future living standards of a movement from X to Y on the curve?

Current living standards Future living standards

(A) Decrease Decrease

(B) Decrease Increase

(C) Increase Decrease

(D) Increase Increase

(E) Decrease Don’t change

41. In a Keynesian model, why would a $100 million increase in government expenditure on goods and services have a greater impact on aggregate monetary demand than a $100 million reduction in tax revenue?

(A) Consumers spend only part of any extra disposable income.

(B) Government expenditure does not create wealth.

(C) The marginal tax rate affects the value of the multiplier.

(D) The multiplier does not apply to consumer expenditure.

(E) All of the above

42. What characteristic of money is essential, if it is to be used as a medium of exchange?

(A) It must be durable

(B) It must be legal tender

(C) It must be limited in supply

(D) It must have intrinsic value

(E) It must be government money

43. I n the diagram Y_E indicates the equilibrium level of income corresponding to different levels of investment.

What does the slope of the line Y_E measure?

(A) the investment multiplier

(B) the marginal propensity to save

(C) the rate of growth of investment

(D) the rate of growth of national income

(E) all of the above

44. Which of the following occurs as investment becomes more responsive to changes in the interest rate?

1. Monetary policy becomes more effective at changing real gross domestic product.

2. Fiscal policy becomes more effective at changing real gross domestic product.

3. Monetary policy becomes more effective at changing interest rates.

4. Fiscal policy becomes more effective at changing interest rates.

5. There is no change in the effectiveness of either monetary or fiscal policy.

45. The growth of capital relative to the labor force will

1. have no effect on wage rates

2. Increase wage rates because labor becomes more productive

3. increase the rate of return on capital because capital becomes more productive

4. increase the marginal product of capital

5. reduce the capital-output ratio

46. A central bank purchases $1 million of govern­ment securities in a given week. If other things remain the same, total bank reserves will not increase if which of the following increases by $1 million?

(A) Gold in the hands of the central bank

(B) Borrowing by private banks

(C) Central-bank float

(D) Excess reserves

(E) Currency in the hands of the nonbank public

47. Assume the simple three-equation macroeconomic model given by

C_t = a₀ + a₁ Y_t-1

I_t = b₁(Y_t - Y_t-1)

Y_t = C_t + I_t + G_t

where C_t is current consumption

I_t is current investment

G_t is current government spending

And Y_t is current income

The best measure of the short-run effect on Y_t of a change ΔG is

(A) (B) (C) (D) (E)

48. Which of the following is not an automatic fiscal stabiliser?

(A) Corporation taxes

(B) Value added tax

(C) State retirement pension

(D) Unemployment benefit

(E) Food stamps

49. (повтор c 46) Other things being equal, what will cause a reduction in the stock of money?

(A) A balance of payments surplus

(B) An increase in the public’s demand for bank advances

(C) An increase in the public’s desired ratio of cash to bank deposits

(D) An increase in the public sector borrowing requirement

(E) All of the above

50. In the diagram, AD₁ and AS₁ are an economy’s initial aggregate demand and supply curves.

What will cause the aggregate demand curve to shift to AD₂?

(A) An appreciation of the national currency

(B) A decrease in taxes

(C) A decrease in interest rates

(D) A decrease in the price level

(E) None of the above

51. Which of the following best explains the classical economists’ conclusion that sustained involuntary unemployment in an economy cannot persist?