econ 208 exam || QUESTIONS WITH COMPLETE SOLUTIONS!!
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Course
Econ 208
Institution
Econ 208
When a person gets an increase in current income, what is likely to happen to consumption and saving? correct answers Consumption increases and saving increases
Last year, Linus earned a salary of 25,000 and he spent 24,000 thus saving 1000. AT the end of the year, he received a bonus of 1000 an...
econ 208 exam || QUESTIONS WITH COMPLETE
SOLUTIONS!!
When a person gets an increase in current income, what is likely to happen to consumption
and saving? correct answers Consumption increases and saving increases
Last year, Linus earned a salary of 25,000 and he spent 24,000 thus saving 1000. AT the end
of the year, he received a bonus of 1000 and he spent 500 of it, saving the other 500. What
was his marginal propensity to consume? correct answers .50
An increase in expected future output while holding today's output constant would correct
answers increase today's desired consumption and decrease desired national saving
When a person receives an increase in wealth, what is likely to happen to consumption and
saving? correct answers Consumption increases and saving decreases
An increase in the personal tax rate on interest income will correct answers decrease desired
saving because the expected real after-tax interest rate falls
With a nominal interest rate of 4%, an expected inflation rate of 1% and interest income
taxed at a rate of 25%, what is the expected real after-tax rate? correct answers 2%
The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut
correct answers doesn't affect consumption
Which of the factors listed below might cause the Ricardian equivalence proposition to be
violated? correct answers Consumers may not understand that an increase in government
borrowing today is likely to lead to higher future taxes.
The user cost of capital is given by the following formula, where pK is the real price of
capital goods, d is the depreciation rate, and r is the expected real interest rate. correct
answers uc=(r+d)pK
Which of the following machines has the lowest user cost? Machine A costs 15,000 and
depreciates at a 25% rate, machine B costs 10,000 and depreciates at a rate of 20%, machine
C costs 20,000 and depreciates at a rate of 10% and machine D costs $17,000 and depreciates
at a rate of 11%. The expected real interest rate is 5% correct answers Machine B
Calculate the user cost of capital of a machine that costs $5,000 and depreciates at a rate of
25%, when the nominal interest rate is 10% and the expected inflation rate is 5% correct
answers $1500
The desired level of the capital stock will increase if the correct answers expected future
marginal product of capital increases
An increase in the expected real interest rate will correct answers decrease the desired capital
stock
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