Econ 203 Test 2- Ole Miss
McGinness with correct
questions and answers
usr
[COMPANY NAME] [Company address]
, 1. What are the characteristics of the consumption function?
Answer: AE=C+I C=Consumption
I=Investments
C= a+by
A=spending independent of income
B=mpc
y=C+S
2. What is the autonomous level of spending? Answer: necessary
consumption
3. What is the Marginal Propensity to Consume Answer: The change in
consumption per dollar change in income.
4. If Aggregate Output increases by 100, how much does
consumption in- crease? Answer: 100 times 1/mpc
5. What is the Total Income Equation? Answer: y=c+s
6. How do you find household saving? Answer: S=y-c
7. What is the Marginal Propensity to Save and how do you find it?
Answer: 1/1-mpc
8. What is planned investment and what does in not include? Answer:
investment that was planned for the year, does not include anything unplanned originally
9. What is the 45 degree line? Answer: Line where y=AE
10. If AE>Y, what is the unplanned change in inventories and
how do firms respond? Answer: Total spending is more than production
Unplanned decrease in inventory so firms increase production
11. If AE<Y, what is the unplanned change in inventories and
how do firms respond? Answer: Total spending is less than production
Unplanned increase in inventory so firms decrease production
12. What is the equilibrium level of output? Answer: Where y=AE
13. What is a leakage and an injection to the spending stream?
What is true at the equilibrium level of output? Answer:
Leakage=injections
2/
7
McGinness with correct
questions and answers
usr
[COMPANY NAME] [Company address]
, 1. What are the characteristics of the consumption function?
Answer: AE=C+I C=Consumption
I=Investments
C= a+by
A=spending independent of income
B=mpc
y=C+S
2. What is the autonomous level of spending? Answer: necessary
consumption
3. What is the Marginal Propensity to Consume Answer: The change in
consumption per dollar change in income.
4. If Aggregate Output increases by 100, how much does
consumption in- crease? Answer: 100 times 1/mpc
5. What is the Total Income Equation? Answer: y=c+s
6. How do you find household saving? Answer: S=y-c
7. What is the Marginal Propensity to Save and how do you find it?
Answer: 1/1-mpc
8. What is planned investment and what does in not include? Answer:
investment that was planned for the year, does not include anything unplanned originally
9. What is the 45 degree line? Answer: Line where y=AE
10. If AE>Y, what is the unplanned change in inventories and
how do firms respond? Answer: Total spending is more than production
Unplanned decrease in inventory so firms increase production
11. If AE<Y, what is the unplanned change in inventories and
how do firms respond? Answer: Total spending is less than production
Unplanned increase in inventory so firms decrease production
12. What is the equilibrium level of output? Answer: Where y=AE
13. What is a leakage and an injection to the spending stream?
What is true at the equilibrium level of output? Answer:
Leakage=injections
2/
7
