Econ
The multiplier is
1/MPS
If the nominal interest rate is 18% and the real interest rate is 6% the inflation rate is
12%
If the MPC is .6 then the multiplier will be
2.5
If the inflation rate is 10% and the real interest rate is 12% the nominal interest rate is
22%
If the MPC in an economy is .75 a 1 billion increase in taxes will ultimately reduce consumption by
3 billion
At the $180 billion equilibrium level of income savings is 38 billion in a private closed economy. Planned investment must be:
38 billion
Suppose that the level of GDP increased by 100 billion ina private closed economy where the MPC is .5 aggregate expenditures must have increased by
50 billion
If the MPC in an economy is .9 a 1 billion increase in government spending will ultimately increase consumption by
9 billion
Which of the following is incorrect?
When the price level increases real balances increase businesses and households find themselves wealthier and therefore increase their spending
Which of the following would reduce GDP by the greatest amount
a 20 billion decrease in government spending
The multiplier effect indicates that
a change in spending will change aggregate demand by a larger amount
Taxes represent
a leakage of purchasing power, like government spending
Other things equal appreciation of the dollar
decreases aggregate demand in the US and may increase aggregate supply by reducing the prices of imported resources
An appropriate fiscal policy for severe demand pull inflation is
a tax rate increase
A contractionary US fiscal policy that reduces domestic interest rates is most likely to
depreciate the international value of the dollar and increase US net exports
Which one of the following best describes the net export effect associated with an expansionary US fiscal policy
domestic interest rate rises foreign demand for dollars increases dollar appreciates and net exports decline
In which of the sets of circumstances can we confidently expect inflation
aggregate supply decreases and aggregate demand increases
Which of the following would not shift the aggregate supply curve
an increase in the price level
Assume the current equilibrium level of income is 200 billion as compared to the full employment level of 240 billion. If the MPC is .625 what change in aggregate expenditures is needed to achieve full employment
an increase of 15 billion
An appropriate fiscal policy for a sever recession is
appreciation of the dollar
If the dollar price of foreign currencies falls (dollar appreciates) we would expect
both aggregate demand and aggregate supply to decrease
The multiplier is useful in determining the
change in GDP resulting from a change in spending
The multiplier is defined as
change in gdp/initial change in spending
The APC is calculated as
consumption/income
It is true that
equal increases in government spending and taxes do not change the equilibrium GDP
The multiplier applies to
investment, net exports, and government spending
If the multiplier in an economy is 5 a 20 billion increase in net exports will
increase GDP by 100 billion
If the MPC is .7 and gross investment increases by 3 billion the equilibrium GDP will
increase by 10 billion
If government increases its purchases by 15 billion and MPC is 2/3 then we would expect equilibrium GDP to
increase by 45 billion
In a certain year the aggregate amount demanded at the existing price level consists of 100 billion of consumption 40 billion of investment 10 billion of net exports and 20 billion of government purchases. Full employment GDP is 120 billion. To obtain price level stability under these conditions the government should
increase tax rates and reduce government spending
Suppose the economy is operating at its full employment non inflationary GDP and the MPC is .75. The federal government now finds that it must increase spending on the military goods by 21 billion in response deterioration in the international political situation. To sustain full employment non inflationary GDP government must
increase taxes by 28 billion
A decline in real interest rate will
increase the amount on investment spending
An expansionary US fiscal policy that drives up US interest rates is most likely to
increase the foreign demand for dollars and appreciate the international value of the dollar
The higher domestic interest rate resulting form an expansionary US fiscal policy will tend to
increase us exports
The crowding out effect of expansionary fiscal policy suggests that
increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment
Which of the following actions would be most effective in curbing inflation
incurring a budget surplus and impounding that surplus
A decrease in aggregate demand will cause a greater decline in real output the
less flexible the economy's price level
A rightward shift in the aggregate supply curve is best explained as an increase in
productivity
Suppose the price level in fixed MPC is .8 and the GDP gap is negative 320 billion to achieve full employment output government should
reduce taxes by 80 billion
If the MPS in an economy is .4 government could shift the aggregate demand curve leftward by 50 billion by
reducing government expenditures by 20 billion
A major advantage of the built in or automatic stabalizers is that they
require no legislative action by congress to be made effective
The wealth effect is shown graphically by
shift of the consumption schedule
A specific reduction in government spending will dampen demand pull inflation by a greater amount the
smaller the country's MPS
International flows of financial capital in response to interests rate changes in the united states
strengthen domestic fiscal policy through a supporting net export effect
An upward shift of the saving schedule suggests
that the APC has decreased and the APS has increased at each GDP level
If a 20 billion increase in government expenditures increases equilibrium GDP by 50 billion then
the MPC for this economy is .6
If a 38 billion decrease in lump-sum taxes increases equilibrium GDP by 40 billion then:
the multiplier is 4
