ECON 226 - Chapter 3

Government spending, including transfers was equal to 18.1% of GDP in 2014

False, government spending without transfer was 18.1%

The propensity to consume has to be positive, but otherwise it can take on any positive value

False, it cannot be more than 1

The equilibrium condition for the goods market states that consumption equals output

False, it states that all production is demanded

An increase in the propensity to consume leads to decrease in the output

False, it would lead to an increase in output

The largest component of GDP is consumption

True, in 2014 it represented about 2/3 of the GDP in the United States

One factor in the 2009 recession was a drop in the parameter C0.

True, people became worried this was the second coming of the great depression and did not want to spend unneeded money

Fiscal policy describes the choice of government spending and taxes as is treated as exogenous in our goods market model

True, the policy T-G is not determined by the model

An increase of one unit in government spending leads to an increase of one unit in equilibrium output

False, this does not take into account the multiplier