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Econ 2123 Problem Set 2
Instructor: Wenwen Zhang
TA: Mike Cheng
Lecture: L5, L6
Due date & Homework Submission Location: Before 10/14 Tue 5:30p.m. Dropbox on the LSK 6th floor (Outside Econ Department)
Name: _________________________________
Student ID: _____________________________
Lecture: ________________________________
Multiple Choices

1. Which of the following would NOT be considered part of fixed investment spending (I)?
A) Toyota buys a new robot for its automobile assembly line.
B) Apple computer builds a new factory.
C) Exxon increases its inventories of unsold gasoline.
D) An accountant buys a newly built home for herself and her family.
E) all of the above

2. Suppose the consumption equation is represented by the following: C = 250 +
.75YD. Given this information, the marginal propensity to save is
A) .25.
B) .7.
C) 1.
D) 4.
E) none of the above

3. Which of the following events will cause a reduction in equilibrium output?
A) an increase in the marginal propensity to save
B) an increase in taxes
C) a reduction in the marginal propensity to consume
D) all of the above
E) none of the above

4. If C = 2000 + .9YD, what increase in government spending must occur for equilibrium output to increase by 1000?
A) 100
B) 200
C) 250
D) 500
E) 1000

1

5. Based on our understanding of the model presented in Chapter 3, we know that an increase in c1 (where C = c0 + c1YD) will cause
A) the ZZ line to become steeper and a given change in autonomous consumption (c0) to have a smaller effect on output.
B) the ZZ line to become steeper and a given change in autonomous consumption (c0) to have a larger effect on output.
C) the ZZ line to become flatter and a given change in autonomous consumption (c0) to have a smaller effect on output.
D) the ZZ line to become flatter and a given change in autonomous consumption (c0) to have a larger effect on output.

6. Which of the