Posted: January 4th, 2017

Describe what is meant by the marginal propensity to consume (mpc) and give its formula.

Describe what is meant by the marginal propensity to consume (mpc) and give its formula.     (b)   Assume that GDP rises from $550bn to $650bn.  Assume that this results in the consumption of goods and services rising from $340bn to $400bn.  What is the mpc?     (c)   Assuming that the mpc remains constant, what will the level of consumption be if GDP rises to $700bn?     (d)   If Australian consumption of goods and services is $400bn, investment is $120bn, government expenditure is $150bn, exports of goods and services are $140bn and imports of goods and services are $145bn, what is the level of aggregate expenditure (E)?     (e)   Given your answer to (d), and assuming that GDP is currently $650bn, what will happen to GDP?       Rise / Fall / Stay the same     Question 11:   (a)       Describe the relevant criteria that the Australian Bureau of Statistics use to determine whether a person is ‘unemployed’ and what problems do you see using this measure? (4 marks)     (b)       Why is frictional unemployment inevitable in an economy?  (2 marks)     (c)       Is structural unemployment something macroeconomic policymakers should be concerned about?  How does it differ from cyclical unemployment?  (4 marks)     Question 12:  (10 marks total – 2.5 marks each part)   (a)       Illustrate and explain with diagrams the difference between demand-pull and cost-push inflation;  (2.5 marks for the diagram, and 2.5 marks for the explanation)      (b)        Provide (describe) two (2) causes of each type of inflation           (2.5 marks for 2 demand-pull causes, and 2.5 marks for 2 cost-push causes)   Question 13: (5 marks each)   (a)        Explain the difference between the Keynesian and monetarist views on how an increase in the money supply causes inflation.     (b)        Why is the shape of the aggregate supply curve important to the Keynesian-monetarist controversy?

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