Instructions: All questions are compulsory.

Materials:

Dictionaries are not permitted.

TASK: L130 Macroeconomics Assignment

Question 1

Which of the following describes the difference between the fiscal deficit and the national debt?

a)The national debt is owed to foreigners while the fiscal deficit is owed to domestic residents.

b)The national debt is a stock concept while the fiscal deficit is a flow concept.

c)The national debt is smaller than the fiscal deficit.

d)The national debt is financed by Treasury bill sales while the fiscal deficit is financed by Treasury bond sales.

Question 2

If the level of real Gross Domestic Product (GDP) in an economy is less than the level of its planned real aggregate expenditure then real GDP:

a)and planned aggregate expenditure will rise

b)will rise and planned aggregate expenditure will fall

c)will fall and planned aggregate expenditure will rise

d)and planned aggregate expenditure will fall

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Question 3

The marginal propensity to consume is 0.4, the rate of income tax is 25 per cent of all income, and the marginal propensity to import is 0.3. Which one of the following statements is TRUE ?

a)The simple closed economy multiplier, ignoring taxes, is 1.1

b)The simple closed economy multiplier, including taxes, is 1.43

c)The open economy multiplier, ignoring taxes, is 1.67

d)The open economy multiplier, including taxes is greater than 1.43

Question 4: L130 Macroeconomics Assignment-City, University of London

Calculate the amount of investment in the following three sector economy:

Savings =100, Total taxes = 250, Net exports (i.e. X-M) = 75, Government expenditure = 125

a)50

b)150

c)300

d)400

Question 5

If the money supply increases due to an expansionary open market operation by the central bank then the price of treasury bills will:

a)rise as the short term interest rate rises.

b)rise as the short term interest rate falls.

c)fall as the short term interest rate rises.

d)fall as the short term interest rate falls.

Question 6

In a simple closed economy with no government sector the consumption function relating consumption (C) to income (Y) is given by the expression:

C = £40 million + 0.7 Y

Planned investment is constant at £50 million.

Which ONE of the following is TRUE ?

a)The multiplier has a value of 1.5.

b)At the equilibrium level of income consumption will be less than 200 million.

c)The economy is equilibrium if output is £300 million.

d)None of the above.

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