econ

Assume that Mike's consumption increases from $38,000 to $39,700 when his income increases from $39,000 to $41,000. Based on this information, what is his MPS?

0.15

If Kelly's income increases from $40,000 to $42,000 and her savings increases from $1,000 to $1,300 what is her MPS?

0.15

If Lois' income increases from $65,000 to $70,000 and her spending increases from $55,000 to $58,000, what is her MPC?

0.60

If Kathleen's spending increased by $8,200 when her income increased by $12,000, what is her MPC?

0.68

If Steve's income increases from $60,000 to $66,000 and his consumption increases from $56,000 to $61,000, what is his MPC?

0.83

If Joan's income increases from $51,000 to $59,000 and her savings increased from $4,000 to $5,000, what is her MPC?

0.875

According to the Crowding Out theory, if the government engages in expansionary fiscal policy, which of the following will take place?

The Crowding Out theory is a critique of expansionary fiscal policy indicating that the effect will be limited because the increase in government spending and/or decrease in taxes will lead to an increase in the deficit which increases the demand for loanable funds when the government borrows more money, which leads to higher interest rates causing consumers to reduce purchases decreasing aggregate demand.(an increase in the deficit, an increase in demand for loanable funds, an increase in interest rates and a decrease in AD)

Crowding Out is a

The Crowding Out theory suggest that expansionary fiscal policy will not work well since lower taxes and/or higher government spending lead to a larger deficit and higher interest rates; since this is essentially a criticism of fiscal policy we can assume this is a classical argument.(classical argument that indicates that expansionary fiscal policy will not work well)

The expenditure multiplier indicates that

The concept of an expenditure multiplier indicates that expansionary fiscal policy will create significant additional "rounds" of spending creating a substantial impact on the economy. Since this argument suggests that countercyclical fiscal policy is powerful and will work well, we can conclude that this is a Keynesian argument.(government spending will have a very large impact on the economy; therefore this is a Keynesian argument.)

If unemployment is the most significant concern in the economy, which of the following fiscal policy actions would be appropriate? increase taxes decrease taxes increase government spending decrease government spending both B and C above both A and D above

Unemployment indicates that an economy is moving too slowly. As a result, the government should attempt to speed up the economy by taking action that would cause consumers to spend more. This would include reducing taxes and increasing spending, both of which would leave many consumers with more money to spend.

If inflation is the most significant concern in the economy, which of the following fiscal policy actions would be appropriate? increase taxes decrease taxes increase government spending decrease government spending both A and D above both B and C above

both A and D above

Based on the graph below, what would be the appropriate fiscal policy action?

decrease taxes, The graph indicates an economy moving too slowly - it is not at the full employment level of output - so we want to leave consumers with more income to spend in order to speed up the growth of the economy

If the economy is growing too slowly, which of the following would be appropriate fiscal policy actions?

if the economy is moving too slowly, the government can leave consumers with more money to spend by decreasing taxes.

If the average person has an MPC of 0.94, what would the expenditure multiplier equal?

16.7

If the average person has an MPS of 0.05, what is the expenditure multiplier?

20

If the average U.S. consumer would increase consumption from $50,000 to $58,000 when his/her income increased from $55,000 to $65,000 what would the expenditure multiplier equal?

5.0

If the average U.S. consumer spends an additional 98 cents out of each additional dollar that he/she earns, what would the expenditure multiplier be?

50.0

If the average person has an MPC of 0.875, what would the expenditure multiplier be?

8.0

Fiscal policy involves changes in taxation and government spending which are controlled by the Federal Reserve System.

False, Fiscal policy does involve changes in taxation and government spending. However, budgetary items such as taxation and government spending are controlled by Congress with the approval of the President. In contrast, the Fed does not control fiscal policy; it controls monetary policy

Which of the following are examples of fiscal policy tools? 1 changes in taxation 2 changes in government spending 3 changes in interest rates

Fiscal policy tools include changes in taxation and changes in government spending. Changes in interest rates (as well as changes in reserve requirements and open market operations) are examples of monetary policy tools.

If U.S. consumers have an MPS of 0.10, what would the expenditure multiplier equal?

In this case, we first use the formula MPC + MPS = 1 to determine the MPC of 0.90. Next, use the multiplier formula 1/(1-MPC) = 1/(1-0.90) to compute the expenditure multiplier.

Restrictive or contractionary fiscal policy is most likely to cause which of the following?

Restrictive fiscal policy implies an increase in taxes and/or a decrease in government spending which move the AD curve to the left creating an equilibrium lower and farther to the left on the AS/AD graph. The higher taxes and/or decreased government spending decrease the deficit.

Based on the graph below, what would be the appropriate fiscal policy action?

The graph indicates an economy moving too fast - it is beyond the full employment level of output - so we want to leave consumers with less income to spend in order to reduce spending and slow down the economy.

Based on the graph below, what would be the appropriate fiscal policy action at point X?

The graph indicates an economy moving too slowly - growth in output is declining - so we want to leave consumers with more income to spend in order to speed up the growth of the economy.

The time needed for policy makers to change existing economic policies is known as

This is the time needed for policy makers to make changes through our system of government assuming they have already realized that there is a problem to address.(administrative lag)

The time needed for policy makers to realize that there is a problem in the economy is known as

This is the time needed for policy makers to realize or recognize that the economy is beginning to move too slowly or too fast.(recognition lag)

Expansionary fiscal policy is most likely to cause which of the following?

increase output, increase price levels, and increase the deficit