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

Question 1.  (2 marks each)
(a)    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?

(a)    Assuming that the domestic mpc remains constant, what will the level of consumption be if GDP rises to $700bn?

(b)    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)?

(c)    Given your answer to (d), and assuming that GDP is currently $650bn, what will happen to GDP?
      Rise / Fall / Stay the same

Question 2:

(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 3:  
(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 4:


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