AP Macro MCQ

Assume the marginal propensity to consume is 0.8. How will a decrease in taxes of $100 billion and a decrease in government spending of $100 billion affect aggregate demand?

Aggregate demand will decrease by $100 billion.

Which of the following is an example of an expansionary fiscal policy?

An increase in government expenditures

If there is an inflationary gap, which of the following changes will move the economy back toward full employment?

An increase in taxes

If a nation's government cuts income taxes, how will consumption spending, real output, and unemployment change in the short run?

Consumption spending will increase, real output will increase, and unemployment will decrease.

Which of the following statements best describes the concept of an automatic stabilizer?

It is nondiscretionary fiscal policy that mitigates business cycles by increasing aggregate demand during recessions and decreasing aggregate demand during expansions.

Which of the following is an example of an automatic stabilizer?

Progressive income taxes

Recessions will most likely be less severe if tax revenues and transfer payments automatically change in which of the following ways?

Tax revenues decrease, and transfer payments increase.

The table below shows the level of household savings at various levels of disposable income in a country. Savings: 2,000 Disposable Income: 10,000 Savings: 2,200 Disposable Income: 12,000 Based on the level of savings and disposable income data in the table above, which of the following must be true?

The marginal propensity to consume is 0.9.

The table below shows the level of household savings at various levels of disposable income in a country. Savings: 2,000 Disposable Income: 10,000 Savings: 2,200 Disposable Income: 12,000 Based on the data on savings and disposable income in the table above, what are the income tax multiplier and the spending multiplier?

The tax multiplier is −9−9 and the spending multiplier is 10.