ECO 2004 University of Cape Town Consumption Function Business Question

User Generated

rnanmbqb

Business Finance

ECO 2004

University of Cape Town

ECO

Description

Unformatted Attachment Preview

ECO2004S TUTORIAL 2 Tutorial 2 Hand in date Instructions Total marks : Unit 14 : Monday 16 August 2021 : Answer all questions in Sections A and B. : 50 marks SECTION A MULTIPLE CHOICE QUESTIONS (20 marks) [4 mark for each correct answer, -0.5 for each incorrect answer, 0 marks for no answer] 1. A consumption function of C = 500 + c1 Y. In this function the term c1 (the coefficient on Y) shows________? A. B. C. D. The consumption that will occur when income is zero. The increase in consumption per unit increase in income. The value of the marginal propensity to consume will always be greater than 1. The vertical intercept of the consumption function. 2. Which of the following is most correct in relation of precautionary saving __________? A. B. C. D. Increase in the general price level in the economy over time. An increase in saving to restore wealth to its target level. The money that is left after all the consumption in the economy is done. The level of wealth that a household aims to hold, based on its economic goals (or preferences) and expectations. 3. Increase in the investment expectation will result to________? A. B. C. D. Movement along the investment line and the increase interest rate will increase. There will be a shift in the investment line left. Movement along the investment line and the increase interest rate will fall. There will be a shift in the investment line right. 4. Crowding out occurs when: A. An increase in national defence spending is accommodated by expansionary monetary policy. B. Expansionary monetary policy fails to stimulate economic growth. C. Expansionary fiscal policy causes interest rates to rise, thereby reducing private investment spending. D. Tax increases result in a drop in consumption. 5. The expansionary fiscal policy is highly effect in increase output if_____________? A. B. C. D. In the classical case. If the economy is close to full employment. If the economy is in recession. None of the above. SECTION B WRITTEN QUESTIONS (30 marks) 2.1. The Covid-19 has come as the shock in most economies and most economic activities have slow down. If South Africa saving function is defined by: 𝑆 = −700 + (0.35)𝑌 and autonomous investment is 𝐼 = 300 and autonomous government expenditure 𝐺 = 500, while autonomous export is X=450, tax rate is 18% and marginal propensity to import is 0.09. What is the equilibrium level of income, consumption, savings, and the multiplier? (10 marks) 2.2. If government make a 500 government expenditure in the effort to stimulate the economy and reduce tat to 5%. What is the equilibrium level of income, consumption and savings? (10 marks) 2.1. Give a well label graph, give explanation of the transition of fiscal policy used in question 2.2? (10 marks)
Purchase answer to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Explanation & Answer

View attached exp...


Anonymous
I was having a hard time with this subject, and this was a great help.

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Similar Content

Related Tags