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Level N Economics HW
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1415 – Economics Term 1 Week 5 Week 5 (Sept. 28 – Oct. 02) Homework : NNH14
Sample Questions Exam
1. Investment has a major effect on ________________ and ______________ in the short-run. Fill in the gaps.
Reference:
Economics Level N Chapter 6 Introduction, Page 82
Solution:
Investment has a major effect on employment and output in the short run
2. What are the determinants of investment?
Reference:
Economics Level N Unit 6.1, Page 82
Solution:
Rate of interest, revenues, corporation tax, government incentives, changes in technology and business expectations.
3. What is the effect of investment, in the long run and short run?
Reference:
Economics Level N Chapter 6 Introduction, Page 82
Solution:
Investment has a major effect on employment and output in the short run and on potential output and economic growth in the long run.
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4. What is the cost of borrowing?
Reference:
Economics Level N Unit 6.2, Page 83
Solution:
Interest rates
5. ____________ involves the demand for, and expenditure on, capital goods capable of producing other goods and
services in the future (Increase in productive capacity) and, therefore, generating more income and wealth in the future. Fill in the gap
The Essay on Micro Economics Short Run Versus Long Run
This paper will discuss the short run competitive equilibrium versus the long run competitive equilibrium and the differences between the short run and long run shut down decision of a firm. 2. Short run versus long run competitive equilibrium in an economy with production Theory Market equilibrium exists when the total amount the firms wish to supply is equal to the total amount the consumers ...
Reference:
Economics Level N, Section 6.1, Page 82
Solution:
Investment
6. Give an example of an economic investment.
Reference:
Economics Level N Unit 6.1, Page 82
Solution:
purchasing capital goods in any form which will help in the production of more capital or consumer goods in the future. Investment in human capital in the form of education and training will also increase productive capacity.
7. What factors are not considered as investment in economics?
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Economics Level N Unit 6.1, Page 82
Solution:
Buying existing property, a piece of land, bonds, shares or any other financial asset are not considered investment.
8. What type of relationship is there between investment and interest rate?
Reference:
Economics Level N Unit 6.2, Page 83
Solution:
Inverse or indirect relationship.
9. The more elastic the investment demand, the __________ the impact on investment of a given change in interest
rate. Fill in the gap.
Reference:
Economics Level N Unit 6.3, Page 83
Solution:
Greater
10. What is the effect of an increase in tax allowances on investment?
Reference:
Economics Level N Unit 6.4, Page 84
Solution:
Higher levels of investment as less tax is being paid
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11. What role does optimism and pessimism play in deciding whether to invest or not?
Reference: Economics Level N Unit 6.4, Page 84
Solution:
The more optimistic an investor is, the more they will invest and vice versa.
12. What is an example of “investment” as the term is used by economists?
Reference:
Economics Level N Unit 6.1, Page 82
Solution:
Purchase of any capital good used in the production of other goods and services. E.g., tractor.
13. What are the major factors an investor has to consider before taking the decision to invest?
The Essay on Chinas Economics
For various reasons, China has always been an important country in the world. With its increasing large population, it was determined by other countries that is has a lot of economic potentials. In just one decade and a half, China has transformed itself from a giant that use to live in poverty into a wealthy powerhouse to the world economy. With one-fifth of the world??s population, China is now ...
Reference:
Economics Level N Unit 6.4, Page 84
Solution:
Rate of interest, revenues, corporation taxes, government incentives, changes in technology and future expectations.
14. An investor would invest in an economy with_______ interest rates and ________ corporation tax.
Reference: Economics Level N Unit 6.4, Page 84
Solution:
Low, low
15. Why does the investment curve slope downwards?
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Reference:
Economics Level N Unit 6.6, Page 85
Solution:
Because if interest rates go down the cost of investment is lower and therefore investment opportunities become more attractive.
16. For a project to be profitable, the ___________ should exceed the cost of investment.
Reference:
Economics Level N Unit 6.2, Page 83
Solution:
The return on investment.
17. What factor will cause a movement along the investment curve?
Reference:
Economics Level N Unit 6.7, Page 86
Solution:
Changes in interest rates
18. Why does the investment curve slope downwards?
Reference: Economics Level N Unit 6.6, Page 85
Solution:
Because interest rates and quantity of investment are inversely proportional
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1415-NNH14 -V1 19. What is the cost of investment?
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Reference:
Economics Level N Unit 6.4, Page 84
Solution:
Interest rates
20. What are the factors that shift the investment curve?
Reference:
Economics Level N Unit 6.4 and 6.7, Page 84 and 86
Solution:
Changes in government incentives, Expectations, Revenues, Changes in technology
21. Mark has an income of $100. His boss is very impressed with his work and gives him a bonus of $50. Mark goes out
to celebrate and ends up paying $40 for food at a restaurant. On his way back home, he deposits the remaining money at his bank. What are Mark’s MPC and MPS respectively?
The Term Paper on Economics Case Guide
Ch.1 Limits, Alternatives, Choices: Opportunity costs: to obtain more of one thing, society forgoes the opportunity of getting the next best thing. That sacrifice is the opportunity cost of the choice. Microeconomics: the part of economics concerned with decision making by individual customers, workers, households, and business firms. Macroeconomics: examines either the economy as a whole or its ...
Reference:
Economics Level N Unit 5.4, Page 75-76
Solution:
Out of the extra 50$ he received, he spent 40$ which means his MPC is 40/50 = 0.8 and MPS = 0.2.
22. Ali wants to buy a new guitar so he saves $65 a week from his extra income. Knowing that his MPC is 0.6, what is his
MPS and what is his extra income?
Reference:
Economics Level N Unit 5.6, Page77
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Solution:
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MPS = 0.4 and $162.5 is his extra income
23. Income
0 10
Consumption 15 –15 20 –10 25 –5 30 0 35 5 40 10
Saving
20 30 40 50
Calculate MPC. Reference: Economics Level N, Section 5.6, Page 77
Solution:
MPC is 0.5.
24. Mark is very successful shoemaker. Over the years, his income has increased steadily. As a result what has
happened to his MPC and MPS?
Reference:
Economics Level N Unit 5.7, Page 78
Solution:
MPC would decrease as his MPS will increase
25. What are the factors that affect saving and consumption in the economy?
Reference:
Economics Level N Unit 5.10, page 80
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Permanent income Expectations about personal needs Interest rate and credit availability Wealth Distribution of income
26. What is the meaning of induced consumption?
Reference:
Economics Level N Unit 5.4, Page 75
Solution:
consumption that relies directly on the level of income.
27. Break-even occurs when saving is?
Reference:
Economics Level N Unit 5.4, Page 75
Solution:
Savings is zero
28. According to Keynesians what is the most important determinant of saving and consumption?
Reference:
Economics Level N Unit 5.2, Page 73
Solution:
level of income
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29. Which of the following represents an MPC = 1 consumption function?
The Essay on Economics and National Income
Consumption (Cd) (? n) |40 |70 |100 |130 |160 |190 |220 | |Injections (J) (? bn) |20 |20 | 20 | 20 | 20 | 20 | 20 | |Withdrawals (W) (? bn) | 0 |10 | 20 | 30 | 40 | 50 | 60 | |Aggregate expenditure (E) (? bn) |60 |90 |120 |150 |180 |210 |240 | b)Calculate the marginal propensity to consume domestically produced goods (mpcd). (Cd / (Y = ? 30bn / ? 40bn = ? or 0. 75 (c)On the diagram below, label ...
a
b
c
d
e
1. 2. 3. 4.
a b c d
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5. e
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Reference:
Economics Level N Unit 5.4, Page 75
Solution:
D
30. Which of the following represents an MPS = 0 savings function?
a
b
c
d
e
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1. 2. 3. 4. 5. a b c d e
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Reference:
Economics Level N Unit 5.4, Page 75
Solution:
E
31. If s = –10,000 + 0.3 Y, what is the consumption function?
Reference:
Economics Level N, Section 5.8, Page 79
Solution:
c = 10,000 + 0.7 Y
32. How do we calculate the breakeven level of income?
Reference:
Economics Level N Unit 5.4, Page 75
Solution:
break-even occurs when Y=C, which means you are consuming everything you earn or S=0, which means you are not saving anything.
33. Sarah is a high income lawyer in a big firm and Jane is her low income secretary. Who do you think saves more and
spends more as proportion of their income, Sarah or Jane?
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Reference:
Economics Level N Unit 5.7, Page 78
Solution:
Sarah probably saves more than Jane in absolute terms Jane probably consumes less than Sarah in absolute terms Jane consumes a larger proportion of her income than Sarah Sarah saves a larger proportion of her income than Jane
34. Any point below zero on the SS curve represents what?
Reference:
Economics Level N Unit 5.5, Page 76
Solution:
Dis-saving
35. Disposable income = X + Y, what does X and Y stand for?
Reference:
Economics Level N Unit 5.2, Page 73
Solution:
consumption and saving
36. Jack has an income of $50. His boss is very impressed with his work and gives him a bonus of $25. Jack goes out to
celebrate and ends up paying $15 for food at a restaurant. On his way back home, he deposits the remaining money at his bank. Before the bonus, Jack used to spend $45 a week and save $5. What are his APC and APS after the bonus?
The Dissertation on Development Ideas in Economics
It is also defined as the gradual advancement or growth through a series of progressive changes. Development is a process, not a level. It is a path to achieve certain goals. Development is a normative concept referring to a multidimensional process. Some people argue that development must be relative to time, place, and circumstance, and dismiss any universal formula. In modern development ...
Reference:
Economics Level N Unit 5.4, Page 75
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Solution: 0.8 is APC and 0.2 is APS
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37. Income
0 20 40 60 80 100
Consumption 20 30 40 50 60 70
Saving –20 –10 0 10 20 30
What is the Savings function?
Reference:
Economics Level N, Unit 5.8, Page 79
Solution:
S = -20 + 0.5 Y
38. What is a possible benefit of decreasing a nation’s APC?
Solution: This means less spending which means more saving. This will lead to more loanable funds available for banks to lend out to firms for investment. More investment means greater economic growth which means a higher level of GDP in the future.
Ref: Economics Level N Unit 5.6, page 78 top of the page.
39. What is the relation between income and MPC? SABIS® Proprietary
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Reference:
Economics Level N Unit 5.7, Page 78
Solution:
As income increases, MPC decreases
40. Refer to the diagram below.
How would the equilibrium levels of income and consumption change as a result of an increase in mpc?
Reference:
Economics Level N Unit 5.4, Page 75-76
Solution:
This would result in the CC function shifting upwards, which means both income and and consumption would increase.
41. What is meant by autonomous consumption?
Reference:
Economics Level N Unit 5.4, Page 75
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Consumption that is independent of level of income, which means even when income is zero, some spending will exist.
42. What is meant by breakeven?
Reference:
Economics Level N Unit 5.4, Page 75
Solution:
Consumption is equal to disposable income, i.e. a person is spending everything they earn with zero savings.
43. If s = –10,000 + 0.2 Y, what is the break-even level of income?
Reference:
Economics Level N Unit 5.8, Page 79
The Business plan on Scope of Managerial Economics
... the country • Investment climate • Trends in output • Trends in price – level (state of inflation) • Consumption level and its pattern ... economic system. • General trends in production, employment, income, prices, saving and investment. • Volume, composition and direction of foreign ... business problems. In other words, managerial economics is applied economics The areas of business issues to ...
Solution:
0= – 10,000 + 0.2 Y, Y= 10, 000/0.2= 50,000$
44. Income
0 10 20 30 40 50
Consumption 15 20 25 30 35 40
Saving –15 –10 –5 0 5 10
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What is the consumption function?
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Reference:
Economics Level N, Section 5.6, Page 77
Solution:
c = 15 + 0.5Y
45. Income
0 20 40 60 80 100
Consumption 20 30 40 50 60 70
Saving –20 –10 0 10 20 30
What is the consumption function? What is the value of Y?
Reference:
Economics Level N Unit 5.8, Page 79
Solution:
C= 20 + 0.5 Y therefore Y = 2C – 40
46. What is the definition of Consumption?
Reference:
Economics Level N Unit 5.2, Page 73
Solution:
expenditure by households on final durable, nondurable goods and services, such as housing, motor vehicles, food, and medical care.
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47. What is the other name for depreciation?
Reference:
Economics Level N Unit 4.5, Page 62
Solution:
capital consumption
48. What are the four Keynesian assumptions?
Reference:
Economics Level N Unit 5.1, Page 73
Solution: No government intervention Economy is closed No undistributed profits No depreciation
49. A shoe factory purchases 20 state-of-the art shoe manufacturing machines. 5 of the older machines start
malfunctioning and have to be sold. What is the value for net investment, gross investment and depreciation respectively?
Reference:
Economics Level N Unit 4.6, Page 61
Solution:
15, 20, 5
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50. A limousine service buys a very expensive Hummer in 1995. Five years later, they try to sell it, but can only earn half
of what they paid for it. Why is this?
Reference:
Economics Level N Unit 4.5, Page 62, step 5
Solution:
due to depreciation
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No 1 2 3 4 5 6 7 8 9 10
Grid
Question Description Investment has a major effect on ________ and _________ in the short-run. What are the determinants of investment? What are the features of investment in economies? What is the cost of borrowing?
Book / Chapter / Section NN.06.001 Definition of Investment NN.06.001 Definition of Investment NN.06.001 Definition of Investment NN.06.003 Interest Elastics and Inelastic Investement Demand NN.06.001 Definition of Investment NN.06.001 Definition of Investment NN.06.001 Definition of Investment NN.06.002 Investment Considerations NN.06.003 Interest Elastics and Inelastic Investement Demand NN.06.004 Factors Affecting Decisions relating to the Extent of Investment Projects NN.06.004 Factors Affecting Decisions relating to the Extent of Investment Projects NN.06.001 Definition of Investment NN.06.004 Factors Affecting Decisions relating to the Extent of Investment Projects NN.06.004 Factors Affecting Decisions relating to the Extent of Investment Projects NN.06.008 Investment Demand Curve is Downward-Sloping NN.06.006 The Investement Demand Function (II) NN.06.007 Shifts and Movement along the Investment Demand Curve NN.06.006 The Investement Demand Function (II) NN.06.006 The Investement Demand Function (II) NN.06.006 The Investement Demand Function (II) NN.05.004 The Consumption Function and its Slope NN.05.006 MPC and MPS
G
What is investment in economics? Givean example of economic investments. What is not considered as investment in economics? What type of relationship is there between investment and interest rate? Elasticity of investment What is the effect of an increase in tax allowances on investment? Investment level and expectations. Example of investment by economists. What are the major factors an investor has to consider before taking the decision? Investment levels and interest rates. Why does the investment curve slope downwards? Profitability of investment projects and interest rates. What factor will cause a movement along the investment curve? Why the investment curve is sloping downward? What is the cost of investment? What are the factors that shift the investment curve? Calculate MPC and MPS Calculating MPS and income
11 12 13
14 15 16 17 18 19 20 21 22
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23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47
G
Calculate MPC. Effect of increase on MPC. Identify the factors that affect saving and consumption in the economy. What is the meaning of induced consumption? Break-even occurs when saving is ________________. According to Keynesians what is the most important determinant of saving and consumption? Draw a graph that represents an MPC=1 consumption function. Draw the graph that represents an MPS = 0 savings function.
NN.05.006 MPC and MPS NN.05.006 MPC and MPS NN.05.010 Other Factors Affecting Consumption and Saving NN.05.003 Income, the determinant of saving and consumption NN.05.003 Income, the determinant of saving and consumption NN.05.002 Consumption, Saving the Disposable Income NN.05.004 The Consumption Function and its Slope NN.05.005 The Saving Function and its Slope NN.05.008 Linear consumption and saving functions NN.05.003 Income, the determinant of saving and consumption NN.05.006 MPC and MPS NN.05.005 The Saving Function and its Slope NN.05.002 Consumption, Saving the Disposable Income NN.05.004 The Consumption Function and its Slope NN.05.008 Linear consumption and saving functions NN.05.006 MPC and MPS NN.05.006 MPC and MPS NN.05.004 The Consumption Function and its Slope NN.05.003 Income, the determinant of saving and consumption NN.05.003 Income, the determinant of saving and consumption NN.05.003 Income, the determinant of saving and consumption NN.05.006 MPC and MPS NN.05.008 Linear consumption and saving functions NN.05.002 Consumption, Saving the Disposable Income NN.05.001 Keynesian Economics and Income
G
What is the consumption function. How do we calculate the break even level of income? Comparing APC & APS between two different levels of income. Any point below Zero on SS curve represents————–. Disposable income = X + consumption, what does X represent? Calculating APC and APS What is the saving function? What is a possible benefit of decreasing a nation’s APC? Relation between income and MPC. How equilibrium levels of income and consumption change as a result of an increase in mpc? What is meant by autonomous consumption? Calculation of break-even. What is the break-even level of income?
G
Calculate MPS. What is the consumption function? Define Consumption What is the other name for depreciation?
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NN.05.001 Keynesian Economics and Income NN.04.006 Net versus Gross Investment NN.04.005 The Expenditure Approach :An Example
48 49 50
What are the four Keynesian assumptions? Identify the net investment, gross investment and depreciation. Identifying depreciation
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