Macrop chpt. 10,13

The greater the MPC, the greater the multiplier. True or False

True

The most important determinant of consumer spending is

the level of income.

Tessa's break-even income is $10,000, and her MPC is 0.75. If her actual disposable income is $16,000, her level of

$14,500

If disposable income is $900 billion when the average propensity to consume is 0.6, it can be concluded that saving is

$360 Billion

Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by

$6 billion

The economy is in a recession. The government enacts a policy to increase spending by $6 billion. The MPS is 0.25. 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?

$8 billion

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $120 billion in the second round, the MPC in the economy is

0.6

If the inflation rate is 2 percent and the real interest rate is 10 percent, the nominal interest rate is

12%

The group of three economists who provide fiscal policy recommendations to the president is the

Council of Economic Advisors

The operational lag of fiscal policy refers to the time that elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening.

False

If the MPC is 0.8 and investment increases by $4 billion, the equilibrium GDP will

Increase by $20 billion.

Which of the following best describes the idea of a political business cycle?

Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.

Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward

an excess of government expenditures over tax receipts.

If the MPC is 0.9 and investment increases by $5 billion, the equilibrium GDP will.

increase by $50 billion.

Discretionary fiscal policy refers to

intentional changes in taxes and government expenditures made by Congress to stabilize the economy

Contractionary fiscal policy is so named because it

is aimed at reducing aggregate demand and thus achieving price stability.

Expansionary fiscal policy is so named because it

is designed to expand real GDP

One can determine the amount of any level of total income that is consumed by

multiplying total income by the MPC

Which of the following serves as an automatic stabilizer in the economy? Multiple Choiceinterest rates exchange rates the inflation rate the progressive income tax

progressive income tax

If people expected that a fiscal policy in the form of a tax cut was temporary, then this policy's effect on the economy would tend to be

weaker