ECON 161 | CH 13

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by: A. $10 billion B. $20 billion C. $31.25 billion D. $40.50 billion

B. $20 billion

Which of the following fiscal policy changes would be the most contractionary? A. A $40 billion increase in taxes B. A $10 billion increase in taxes and a $30 billion cut in government spending C. A $20 billion increase in taxes and a $20 billion cut in government spending D. A $30 billion increase in taxes and a $10 billion cut in government spending

B. A $10 billion increase in taxes and a $30 billion cut in government spending

The set of fiscal policies that would be most contractionary would be a(n): A. Increase in government spending and taxes B. Decrease in government spending and taxes C. Increase in government spending and a decrease in taxes D. Decrease in government spending and an increase in taxes

D. Decrease in government spending and an increase in taxes

Fiscal policy is enacted through changes in: A. Interest rates and the price level B. The supply of money and foreign exchange C. Unemployment and inflation D. Taxation and government spending

D. Taxation and government spending

The group that often initiates changes in fiscal policy is the: A. Congressional Budget Office B. Council of Economic Advisors C. Joint Economic Committee D. Federal Reserve Board

B. Council of Economic Advisors

If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n): A. Supply-side fiscal policy B. Expansionary fiscal policy C. Contractionary fiscal policy D. Nondiscretionary fiscal policy

B. Expansionary fiscal policy

The economy is in a recession. The government enacts a policy to increase spending by $2 billion. The MPS is 0.2. What would be the full increase in real GDP from the change in government spending assuming that the aggregate supply curve is horizontal across the range of GDP being considered? A. $6 billion B. $8 billion C. $10 billion D. $16 billion

C. $10 billion

An economy is experiencing a high rate of inflation. The government wants to reduce consumption by $36 billion to reduce inflationary pressure. The MPC is 0.75. By how much should the government raise taxes to achieve its objective? A. $6 billion B. $9 billion C. $12 billion D. $16 billion

C. $12 billion

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n): A. Supply-side fiscal policy B. Expansionary fiscal policy C. Contractionary fiscal policy D. Nondiscretionary fiscal policy

C. Contractionary fiscal policy

In an economy, the government wants to increase aggregate demand by $60 billion at each price level to increase real GDP and reduce unemployment. If the MPC is 0.9, then it could: A. Decrease taxes by $6 billion B. Decrease taxes by $12 billion C. Increase government spending by $6 billion D. Increase government spending by $12 billion

C. Increase government spending by $6 billion