macro chap 9

If the marginal propensity to consume (MPC) is 0.9, by how much will $100 of government spending (G) increase aggregate output (Y)?

$1000

How much will $400 in new government spending (G) change equilibrium aggregate output (Y) if the marginal propensity to save (MPS) is 0.2?

$2000

If the marginal propensity to consume (MPC) is 0.9, by how much will $100 of tax cut increase equilibrium aggregate output ?

$900

If Sandra has an income of $40,000 and disposable income of $30,000, how much does she pay in taxes?

10000

According to the Saving/Investment approach to equilibrium, if government spending (G) is $4 trillion, business investment (I) is $3 trillion, and taxes (T) are $3 trillion, how much is savings (S) in a closed economy?

4 trillion

According to the Saving/Investment approach to equilibrium, if government spending (G) is $5 trillion, business investment (I) is $4.8 trillion, and taxes (T) are $3.8 trillion, how much is savings (S) in a closed economy?

6 trillion

__________ government spending, _____ transfer payments, and ____ taxes are all examples of expansionary fiscal policy.

Increasing; increasing; lowering

According to the full aggregate expenditures model, which will have the greater stimulus effect on the economy: an increase in government spending or a decrease in taxes?

The increase in government spending will have the greater stimulus effect on the economy.

Which of these is a description of an automatic stabilizer of the economy?

When the economy declines, tax receipts decrease.

Fiscal policy refers to the idea that total economic output and unemployment can be affected by changes:

in government spending and taxes.

Assume that the MPS is 0.25. Full employment is considered to be at aggregate output level of $800 billion. Currently, the aggregate output is $700 billion. What should the government do to achieve full employment, while also maintaining the federal budget balanced (not increasing the deficit)?

increase government spending and taxes by $100 billion.

As a government analyst you are asked to evaluate two fiscal policies and estimate which of them would more favorably impact aggregate output (Y). In the first case the government spending (G) will increase by $100. In the second case the taxes (T) will decline by $100. MPC is 0.75. Which policy would you choose and why?

increase in government spending; yields higher aggregate output by $100

Assume that the MPC is 0.75. Full employment is considered to be at the aggregate output level of $200 billion. Currently, the aggregate output is $320 billion. Which fiscal policy the government should choose to achieve full employment?

increase taxes by 40 billion

Automatic stabilizers include all of the following EXCEPT:

increased research and development

Under a cyclically balanced budget, a government should _____ when the economy is growing and _____ when GDP is declining.

raise taxes; raise spending

Assume that the MPS is 0.25. Full employment is considered to be at aggregate output level of $700 billion. Currently, the aggregate output is $800 billion. What should the government do to achieve full employment?

reduce government spending by $25 billion