(solution) Question 1 The expenditure multiplier is 1/MPC 1/(1-MPC)

Question 1

1.  

   The expenditure multiplier is

   	1/MPC
   	1/(1-MPC)
   	(1-MPC)/1
   	1/ change MPC

6 points  

Question 2

1.  

   An increase in taxes combined with a decrease in government purchases would

   	increase AD
   	decrease AD
   	leave AD unchanged
   	have an indeterminate effect on AD

6 points  

Question 3

1.  

   The federal government buys $20 million worth of computers from Dell. If the MPC is 0.60, what will be the impact on aggregate demand, other things being equal?

   	Aggregate demand will increase $12 million.
   	Aggregate demand will increase $13.33
   	Aggregate demand will increase $50 million
   	Aggregate demand will increase $20 million

6 points  

Question 4

1.  

   The multiplier effect is based on the fact that -------------- by one person is (are)-------------------------to another

   	income;income
   	expenditures;expenditures
   	expenditures;incomes
   	income;expenditures

6 points  

Question 5

1.  

   Higher budget deficits would tend to

   	raise interest rates
   	reduce investment
   	reduce the growth rate of the capital stock
   	do all of the above

5 points  

Question 6

1.  

   If the marginal propensity to consume is two-thirds, the multiplier is

   	30
   	66
   	1.5
   	3

6 points  

Question 7

1.  

   If the government wanted to move the economy out of a current recession, which of the following might be an appropriate policy action?

   	Decrease taxes
   	Increase government purchases of goods and services
   	increase transfer payments
   	any of the above

6 points  

Question 8

1.  

   AD will shift to the right, other things being equal, when

   	the government budget deficit increases because government purchases rose
   	the government budget deficit increases because taxes fell
   	the government budget deficit increases because transfer payment rose
   	any of the above circumstances exists

6 points  

Question 9

1.  

   If government policy makers were worried about the inflationary potential of the economy, which of the following would be a correct fiscal policy change?

   	increase taxes
   	reduce transfer payments
   	reduce government purchases
   	all of the above

6 points  

Question 10

1.  

   Traditionally, government has used---------------to influence---------------------

   	Taxing and spending; the demand side of the economy
   	Spending; the supply side of the economy
   	Supply management; the demand side of the economy
   	demand management; the supply side of the economy

6 points  

Question 11

1.  

   How does the government finance budget deficits?

   	The Federal Reserve creates new money
   	It issues debt to government aagencies, private institutions, and private investors
   	It is pprimarily financed by foreign investors
   	It does nothing to finance budget deficits

5 points  

Question 12

1.  

   If the economy was in a recessionary gap, in order to return to RGDP _(NR), the government could

   	decrease taxes and increase government purchases
   	increase taxes and increase government purchases
   	decrease taxes and decrease government purchases
   	decrease taxes and increase government purchases

6 points  

Question 13

1.  

   Contractionary Fiscal policy consists of

   	Increased government spending and increased taxes
   	decreased government spending and decreased taxes
   	decreased government spending and increased taxes
   	Increased government spending and decreased taxes

6 points  

Question 14

1.  

   When the crowing-out effect of an increase in government purchases is included in the analysis,

   	AD shifts left
   	AD doesn't change
   	AD shifts right, but by more than the simple multiplier analysis would imply
   	AD shifts right, but by less than the simple multiplier analysis would imply

6 points  

Question 15

1.  

   When taxes are increased, disposable income_________, and hence consumption_________________

   	increases;increases
   	increases;decreases
   	decreases;increases
   	decreases;decreases

6 points  

Question 16

1.  

   According to the crowding-out effect, if the federal, if the federal government borrows to finance deficit spending,

   	the demand for money will decrease, driving interest rates down
   	the demand for money will increase, driving interest rates up
   	the supply of money will increase, driving interest rate up
   	the supply of money will decrease, driving interest rates down

6 points  

            Question 17

1.  

   If the government wanted to offset the effect of a boom in consumer and investor confidence on AD, it might

   	decrease government purchases
   	decrease taxes
   	increase taxes
   	do either (a) or (c)

 

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Sep 13, 2020

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