Question 1

The nation has its own MPC.When national income increases from $300 billion to $400 billion,national consumption increases from $300 billion to $360 billion.At Y = $400 billion,the MPC is:

Accepted Answer

A)   0.2.
B)   0.5.
C)   0.6.
D)   0.67.
E)   1.33.F) B) and C)
G) A) and E)

Question 2

Assume the economy is in recession and real GDP is below full employment.The marginal propensity to consume (MPC) is 0.75,and the government follows Keynesian economics by using expansionary fiscal policy to increase aggregate demand (total spending) .If an increase of $1,000 billion aggregate demand can restore full employment,the government should:

Accepted Answer

A)   increase spending by $250 billion.
B)   decrease spending by $750 billion.
C)   increase spending by $1,000 billion.
D)   increase spending by $750 billion.E) A) and D)
F) A) and C)

Question 3

Exhibit 15-7 Aggregate demand and supply model
 
-Suppose the economy in Exhibit 15-7 is in equilibrium at point E₁ and the marginal propensity to consumer (MPC) is 0.75.Following Keynesian economics,to lower the price level from 170 to 150,the government should reduce its spending by:

Accepted Answer

A)   $20 billion.
B)   $100 billion.
C)   $133 billion.
D)   $400 billion.E) B) and D)
F) B) and C)

Question 4

If the MPC is 0.80,and if the goal is to increase real GDP by $200 million,then by how much would government spending have to change to generate this increase in real GDP?

Accepted Answer

A)   $240 million.
B)   $200 million.
C)   $180 million.
D)   $40 million.E) B) and C)
F) A) and D)

Question 5

If the marginal propensity to consume (MPC) is 0.75,a $50 decrease in government spending,other things being equal,would cause equilibrium real GDP to:

Accepted Answer

A)   increase by $50.
B)   decrease by $50.
C)   increase by $200.
D)   decrease by $200.E) None of the above
F) B) and C)

Question 6

If the marginal propensity to consume is 0.80,the value of the spending multiplier will be 5.

Accepted Answer

A) True 
 B)False

Question 7

Assume the marginal propensity to consume (MPC) is 0.75 and the government cuts taxes by $250 billion.The aggregate demand curve will shift to the:

Accepted Answer

A)   right by $1,000 billion.
B)   right by $750 billion.
C)   left by $1,000 billion.
D)   left by $750 billion.E) B) and C)
F) None of the above

Question 8

Which of the following would most likely occur if the federal government decreased its spending and reduced the size of the budget deficit during a period of full employment?

Accepted Answer

A)   The rate of inflation would decline.
B)   The rate of inflation would rise.
C)   A recession would develop.
D)   Interest rates would fall.E) None of the above
F) A) and B)

Question 9

In the U.S.economy,the effect on federal tax revenues and spending of a decrease in employment is to:

Accepted Answer

A)   cut tax revenues and raise expenditures.
B)   cut spending and raise tax revenues.
C)   raise both tax revenues and expenditures.
D)   cut both spending and tax revenues.E) B) and C)
F) A) and D)

Question 10

Unemployment compensation payments:

Accepted Answer

A)   rise during a recession and thus reduce the severity of the recession.
B)   rise during a recession and thus increase the severity of the recession.
C)   rise during inflationary episodes and thus reduce the severity of the inflation.
D)   fall during a recession and thus increase the severity of the recession.E) C) and D)
F) A) and B)

Question 11

Supply-side policy suggests that if we ____ taxes of workers,the ____ labor will increase,causing equilibrium wages to ____.

Accepted Answer

A)   raise, supply of, decrease
B)   cut, supply of, increase
C)   raise, demand for, increase
D)   cut, supply of, decreaseE) C) and D)
F) None of the above

Question 12

The school of economic thought which argues that through tax reductions,and deregulation,government creates the proper incentives for the private sector to increase aggregate supply is known as the:

Accepted Answer

A)   rational expectations school.
B)   neo-Keynesian school.
C)   supply-Side school.
D)   new Classical school.
E)   classical school.F) B) and E)
G) C) and E)

Question 13

Supply-side economics is based on the theory that:

Accepted Answer

A)   budget deficits will stimulate demand, output, and employment.
B)   budget deficits will lead to higher interest rates, which will weaken their expansionary impact.
C)   higher tax rates will increase tax revenues.
D)   increases in aggregate supply lower the price level.E) C) and D)
F) All of the above

Question 14

"Last month unemployment fell to 4 percent,its lowest level in years.The economy is growing rapidly,but consumer prices have risen at an annual rate of 10 percent during the last six months." Which of the following policies would be most appropriate under these circumstances?

Accepted Answer

A)   An increase in both government spending and taxes.
B)   An increase in taxes.
C)   A reduction in taxes.
D)   An increase in government spending.E) All of the above
F) A) and B)

Question 15

The greater the marginal propensity to consume (MPC)in the economy,the greater the spending multiplier.

Accepted Answer

A) True 
 B)False

Question 16

Changes in government spending and/or taxes as the result of legislation,is called:

Accepted Answer

A)   open market operations of the Federal Reserve.
B)   discretionary fiscal policy.
C)   balanced budget operations.
D)   discretionary monetary policy.E) B) and C)
F) A) and C)

Question 17

If the MPC = .75,the spending multiplier is:

Accepted Answer

A)   4.
B)   5.
C)   1.33.
D)   1.20.
E)   .25.F) All of the above
G) A) and E)

Question 18

The change in consumption divided by a change in income is defined as:

Accepted Answer

A)   the marginal propensity to consume.
B)   autonomous consumption.
C)   the consumption function.
D)   Keynes' absolute income hypothesis.
E)   transitory consumption.F) All of the above
G) B) and D)

Question 19

Automatic stabilizers stabilize the level of real GDP because:

Accepted Answer

A)   Congress quickly changes spending and tax revenue.
B)   federal expenditures and tax revenues change as the level of real GDP changes.
C)   the spending and tax multiplier are constant.
D)   wages are controlled by the minimum wage law.E) A) and C)
F) A) and D)

Question 20

Which of the following would be an appropriate discretionary fiscal policy to use when the economy is in a recession?

Accepted Answer

A)   Increased government spending.
B)   Higher taxes.
C)   A balanced-budget reduction in both spending and taxes.
D)   An expansion in the money supply.E) C) and D)
F) All of the above

Exam 15: Fiscal Policy

The school of economic thought which argues that through tax reductions,and deregulation,government creates the proper incentives for the private sector to increase aggregate supply is known as the:

Correct Answer
verified

Assume the marginal propensity to consume (MPC) is 0.75 and the government cuts taxes by $250 billion.The aggregate demand curve will shift to the:

Correct Answer
verified

Automatic stabilizers stabilize the level of real GDP because:

Correct Answer
verified

Unemployment compensation payments:

Correct Answer
verified

Which of the following would be an appropriate discretionary fiscal policy to use when the economy is in a recession?

Correct Answer
verified

The nation has its own MPC.When national income increases from $300 billion to $400 billion,national consumption increases from $300 billion to $360 billion.At Y = $400 billion,the MPC is:

Correct Answer
verified

Correct Answer
verified

Supply-side economics is based on the theory that:

Correct Answer
verified

In the U.S.economy,the effect on federal tax revenues and spending of a decrease in employment is to:

Correct Answer
verified

If the MPC = .75,the spending multiplier is:

Correct Answer
verified

Supply-side policy suggests that if we taxes of workers,the labor will increase,causing equilibrium wages to .

Correct Answer
verified

Changes in government spending and/or taxes as the result of legislation,is called:

Correct Answer
verified

Exhibit 15-7 Aggregate demand and supply model -Suppose the economy in Exhibit 15-7 is in equilibrium at point E₁ and the marginal propensity to consumer (MPC) is 0.75.Following Keynesian economics,to lower the price level from 170 to 150,the government should reduce its spending by:

Correct Answer
verified

If the marginal propensity to consume is 0.80,the value of the spending multiplier will be 5.

Correct Answer
verified

"Last month unemployment fell to 4 percent,its lowest level in years.The economy is growing rapidly,but consumer prices have risen at an annual rate of 10 percent during the last six months." Which of the following policies would be most appropriate under these circumstances?

Correct Answer
verified

If the MPC is 0.80,and if the goal is to increase real GDP by $200 million,then by how much would government spending have to change to generate this increase in real GDP?

Correct Answer
verified

The change in consumption divided by a change in income is defined as:

Correct Answer
verified

Which of the following would most likely occur if the federal government decreased its spending and reduced the size of the budget deficit during a period of full employment?

Correct Answer
verified

If the marginal propensity to consume (MPC) is 0.75,a $50 decrease in government spending,other things being equal,would cause equilibrium real GDP to:

Correct Answer
verified

The greater the marginal propensity to consume (MPC)in the economy,the greater the spending multiplier.

Correct Answer
verified

Exam 15: Fiscal Policy

The school of economic thought which argues that through tax reductions,and deregulation,government creates the proper incentives for the private sector to increase aggregate supply is known as the:

Correct AnswerverifiedShow Answer

Assume the marginal propensity to consume (MPC) is 0.75 and the government cuts taxes by $250 billion.The aggregate demand curve will shift to the:

Correct AnswerverifiedShow Answer

Automatic stabilizers stabilize the level of real GDP because:

Correct AnswerverifiedShow Answer

Unemployment compensation payments:

Correct AnswerverifiedShow Answer

Which of the following would be an appropriate discretionary fiscal policy to use when the economy is in a recession?

Correct AnswerverifiedShow Answer

The nation has its own MPC.When national income increases from $300 billion to $400 billion,national consumption increases from $300 billion to $360 billion.At Y = $400 billion,the MPC is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Supply-side economics is based on the theory that:

Correct AnswerverifiedShow Answer

In the U.S.economy,the effect on federal tax revenues and spending of a decrease in employment is to:

Correct AnswerverifiedShow Answer

If the MPC = .75,the spending multiplier is:

Correct AnswerverifiedShow Answer

Supply-side policy suggests that if we ____ taxes of workers,the ____ labor will increase,causing equilibrium wages to ____.

Correct AnswerverifiedShow Answer

Changes in government spending and/or taxes as the result of legislation,is called:

Correct AnswerverifiedShow Answer

Exhibit 15-7 Aggregate demand and supply model -Suppose the economy in Exhibit 15-7 is in equilibrium at point E₁ and the marginal propensity to consumer (MPC) is 0.75.Following Keynesian economics,to lower the price level from 170 to 150,the government should reduce its spending by:

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 0.80,the value of the spending multiplier will be 5.

Correct AnswerverifiedShow Answer

"Last month unemployment fell to 4 percent,its lowest level in years.The economy is growing rapidly,but consumer prices have risen at an annual rate of 10 percent during the last six months." Which of the following policies would be most appropriate under these circumstances?

Correct AnswerverifiedShow Answer

If the MPC is 0.80,and if the goal is to increase real GDP by $200 million,then by how much would government spending have to change to generate this increase in real GDP?

Correct AnswerverifiedShow Answer

The change in consumption divided by a change in income is defined as:

Correct AnswerverifiedShow Answer

Which of the following would most likely occur if the federal government decreased its spending and reduced the size of the budget deficit during a period of full employment?

Correct AnswerverifiedShow Answer

If the marginal propensity to consume (MPC) is 0.75,a $50 decrease in government spending,other things being equal,would cause equilibrium real GDP to:

Correct AnswerverifiedShow Answer

The greater the marginal propensity to consume (MPC)in the economy,the greater the spending multiplier.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Supply-side policy suggests that if we taxes of workers,the labor will increase,causing equilibrium wages to .

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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