ECON 1202 Chapter 13 Quiz

If the marginal propensity to consume is 0.9, then the government spending multiplier is:

10

If the marginal propensity to save is 0.1, then the government spending multiplier has a value of

10

At the present moment, which of the following percentages is closest to the actual gross debt to GDP ratio for the U.S.? - 105% - 28% - 50% - 77%

105%

The income expenditure model predicts that if the marginal propensity to consume is 0.75 and the federal government increases spending by $100 billion, real GDP will increase by:

400 billion

Which of the following is likely to occur when the economy goes into a recession? - A general increase in deficit spending - A general increase in the interest rate level - A general reduction in deficit spending - A general decrease in the national debt

A general increase in deficit spending

Which of the following time lags shows the possible weakness of fiscal policy? - Effectiveness lag - Data lag - Legislative lag - Recognition lag

Legislative lag

If we find that our economy is in a recession, which of the following could the Fiscal policy makers do to correct the situation? - Reduce taxes - Decrease the money supply - Increase taxes - Reduce government spending

Reduce taxes

The marginal propensity to consume is typically: - often negative. - equal to one. - between zero and one. - greater than one.

between zero and one

What can the federal government do to finance a deficit? - increase transfer payments - borrow funds - increase purchases of goods and services - cut taxes

borrow funds

For a marginal propensity to consume of 0.9, the multiplier effect of an increase of $100 billion in government purchases of goods and services is larger than the multiplier effect of a tax cut of $100 billion because: - many households fail to file their income tax and claim their refund. - in the first round of spending only $90 billion of the tax cut will be spent and $10 billion will be saved, while the entire $100 billion of government purchases will be spent. - production of the goods and services the government purchases has a bigger impact on real GDP than production of consumer goods. -the government pays a higher price than households for the same goods and services.

in the first round of spending only $90 billion of the tax cut will be spent and $10 billion will be saved, while the entire $100 billion of government purchases will be spent.

The economy is in short-run equilibrium. To move the economy to potential GDP, what should fiscal policy makers do? - Increase tax - Reduce interest rates - Increase deficit spending - Decrease tax

increase tax

A $100 million increase in government spending increases equilibrium GDP by: - $100 million. - zero. - less than $100 million. - more than $100 million.

more than $100 million