Economics Chapter 13 & 15 Quiz

Assume the marginal propensity to consume is 0.8 and potential output is $800 billion. If actual real GDP is $700 billion, which of the following policies would bring the economy to potential output?

Decrease taxes by $25 billion.

Monetary policy refers to

changes in the money supply to achieve particular economic goals.

If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should _____ government purchases of goods and services by _____

decrease; $40 billion

Consumer spending will likely rise if:

government transfers rise.

If interest rates rise, there will be a(n):

increase in aggregate demand.

An expansionary fiscal policy either _____ government spending or _____ taxes.

increases; decreases

To try to eliminate a recessionary gap the Fed typically__________ the money supply, and to try to eliminate an inflationary gap the Fed typically __________ the money supply.

increases; decreases

The multiplier effect of changes in government transfers is:

less than the multiplier effect of a change in government spending.

The government budget balance equals taxes _____ purchases _____ transfers.

minus; minus

The multiplier effect of changes in government purchases of goods and services is equal to:

1 / (1 - MPC).