#.1 Suppose the nominal wages of workers in an economy increase by 7 percent whi

Question

#.1 Suppose the nominal wages of workers in an economy increase by 7 percent while the price level rises by 5 percent. The real wages

A. Increase by 5%

B. Increase by 10%

C. Increase by 50%

D. Increase by 2%

#2. The marginal propensity to consume

A. is the proportion of disposable income that is consumed

B. minus the marginal propensity to save must equal

C. is the change in consumption relative to a change in disposable income

D. is the ratio of disposable income to consumption

#3. will shift the consumption function upward?

A. An increase in the interest rate

B. A decrease in disposable income

C. An increase in net wealth

D. An increase in disposable income

#4. Assume an economy is in equilibrium at a real GDP of $5 trillion. If aggregate expenditure (AE) increases by $1 trillion, the economy's equilibrium real GDP is likely to

(increase/decrease) by (more than $1 trillion/less than $1 trillion/ X )

Explanation / Answer

ans 1

D. Increase by 2%

real increase= increase in nominal wages- inflation = 7-5 =2%

ans 2

A. is the proportion of disposable income that is consumed

ans 3

C. An increase in net wealth

ans 4

Assume an economy is in equilibrium at a real GDP of $5 trillion. If aggregate expenditure (AE) increases by $1 trillion, the economy's equilibrium real GDP is likely to

(increase) by (more than $1 trillion)

because income changes to multiplier times in response to change in expenditure

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