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## PART I

1)Suppose that the economy starts at equilibrium and the mpc =0.8.  What would be the effect of a \$300 increase in taxes once all the rounds of the multiplier process are complete?

2)You have bee appointed global manager of a firm that has two plants one in the US and one in Mexico.  You cannot change the size of the plants or the amount of capital equipment.  The wage in Mexico is \$5 & \$20 in the US.  Given the current employment , the marginal product of the last worker in mexico is 100 and the marginal product of the last worker in the US is 500.

Is the firm maximizing output relative to its labor cost?  Show how you know

If it is not what should the firm do?

3)Which of the following will NOT cause a shift of the IS-curve? (A ). a change in transfer payments; (B). a change in taxes; {c). a change in money demand; (D). a change in business and consumer confidence; (E). a change in autonomous savings.

4)Assume exports =300, imports =400, tax revenue =1,100, government purchases =1,400, private domestic saving=900.  Then the level of private domestic investment is .   A. 600; B.700; C. 900; D. 1,100; E. 1300

5)Assume that GDP=4,800, consumption =3,400, private domestic savings =400, government purchases = 1,200 and net exports =-120. Which of the following is true (a) disposable income =3,800; (b) private domestic investments is 320 (c) government purchases will increase (d) investment will increase (e) all of the above

6)Assume you are a manager of a firm that employs 10 workers and pays each \$15/hr. Further assume that the MP of the 10th worker is 5 units of output and that the price of the output is \$4. According to economic theory in the short run what should you do?

7)Assuming the existence of economies of scale, if a firm finds that it can reduce its unit cost by decreasing its scale of production, it means that (a) it has too much production capacity relative to its demand. (b) it should try to produce less. (c} the law of diminishing returns has not take effect. (d) it has too much fixed overhead relative to its variable cost.

8) Dominant price leadership exit when: (a) one firm drives the others out of the market.  (b) the dominant firm decides how much each of its competitors can sell (c} the dominant firm establishes the price at the quantity where its MR=MC, and permits all others to sell all they want to sell at that price. (d) the dominant firm charges the lowest price in the industry.

9) Using the demand & supply analysis to assist you, what are the effects on the exchange rate between the British pound & the Japanese yen from: a decrease in the Japanese interest rate. (a) Yen depreciates and the pound appreciates (b) Yen appreciates, and the pound depreciates (c)Yen depreciates and the pound depreciates (d) Yen appreciates and the pound appreciates.

10) Using the demand & supply analysis to assist you, what are the effects on the exchange rate between the British pound & the Japanese yen from: a decrease in the British goods (a) Yen depreciates and the pound appreciates (b) Yen appreciates, and the pound depreciates (c)Yen depreciates and the pound depreciates (d) Yen appreciates and the pound appreciates.

11) When the slope of the total revenue curve is equal to the slope of the total cost curve (a) monopoly profit is maximized; (b) marginal revenue equals marginal cost (c) the marginal cost curve intersects the total average cost curve (d) the total cost curve is at its minimum (d) both A and B

12) An increase in the marginal propensity to……..will decrease the size of the expenditure multiplier & therefore the IS curve will shift to the ……..and become steeper.  If  people save more and spend less, firms will experience an increase an increase in unintended inventories.  Firms will respond by decreasing production & national income will ………  (A) save, left, decrease  (b) consume, right, increase (c) save, left, increase (d) save, right , decrease

13) Which of the following is false?  (A) Y=C+I+G+NX  (B) YD=Y-TA+TR (C ) BS=TA-TR-G  (D) I-S=(G-TA-TR)+NX  (E) S + TA-TR= I+G+NX

14) When the federal reserve buys bonds from the public in the open market & cash in the hands of the public does not change (a) the required reserve ratio will increase (b) the money supply will decrease (c) the deposits of commercial bank will decline (d) commercial bank reserves will increase

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