Question Details
(solution) Question 1 The expenditure multiplier is 1/MPC 1/(1-MPC)
Question 1
-
The expenditure multiplier is
1/MPC
1/(1-MPC)
(1-MPC)/1
1/ change MPC
6 points
Question 2-
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
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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
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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
-
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
-
If the marginal propensity to consume is two-thirds, the multiplier is
30
66
1.5
3
6 points
-
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
-
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
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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
-
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
-
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
-
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
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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
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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
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When taxes are increased, disposable income_________, and hence consumption_________________
increases;increases
increases;decreases
decreases;increases
decreases;decreases
6 points
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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
-
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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