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ECC1100 - Principles of macroeconomics - S1 2025

ECC1100 - Principles of macroeconomics - S1 2025

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An increase in real interest rate

increases saving and increases consumption.

❌

decreases saving and increases consumption.

❌

increases saving and decreases consumption.

✅

decreases saving and decreases consumption.

❌

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Consumption increases when income increases.

The consumption function is downward sloping.

❌

and saving decrease as income increases.

❌

so the marginal propensity to consume is negative.

❌

This is shown as a movement along the consumption function.

✅

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If households are confident about the state of the economy:

precautionary savings will increase and consumption will go down.

❌

precautionary savings will decrease and consumption will go up.

✅

precautionary savings will decrease and consumption will go down.

❌

precautionary savings will increase and consumption will go up.

❌

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Which of the following are the impediment to consumption smoothing?

Households want to save.

❌

Income changes over life cycle.

✅✨

Behavioural constraints means consumers do not always make rational consumption decisions.

✅✨

Credit constraints makes it hard to borrow.

✅✨

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Suppose falling interest rates in Australia discourage saving. What effect does this have on the consumption function in Australia?

Figure C

Figure B

Figure A

Figure D

Why does an anticipated change in income lead to no change in consumption for a consumption smoother?

The consumer is completely aware of anticipated changes in future income.

✅✨

There are high tax rates on anticipated changes in future income.

❌

The consumer is not aware of anticipated changes in future income.

❌

The consumer cannot change the consumption.

❌

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The marginal propensity to consume:

is same for every household.

is constant.

is between 0 and 1.

cannot be 1.

If Marios is a consumption smoother and has just won a prize of $12,000, we can expect Marios to exhibit:

a large change in consumption.

❌

no change in MPC

❌

a small change in consumption.

✅

zero change in saving

❌

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Very briefly explain the ways that you have used AI in the production of this assessment.

A. Which AI tools you have used in this test?

B. How you have used the AI tools?

Suggested format:

used

[insert AI system(s)
and
link]
to [specific use of
generative artificial intelligence]

[number
of iterations/drafts]
. The tool was used to provide [describe
content used in task]

. The output from this tool was modified

[explain use].

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Alicia is currently studying full-time but keeping an eye on the job market for positions to take up when she graduates. If she finds something suitable, she will start right away, otherwise she will actively job search once she graduates. Philip lost his job in a construction company in Jan 2025 and has been looking for another since then.

In the above

example, explain what is the effect on participation rate and unemployment rate

and the equilibrium unemployment rate (natural rate of unemployment).

The government

decides to spend $100million on infrastructure projects to create more jobs.

Would this help reduce unemployment in the above example? Why/why not?

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