Macro FINAL Ch. 11 practice quiz

If no fiscal policy changes are made, suppose the current aggregate demand curve will increase horizontally by $1,000 billion and cause inflation. If the marginal propensity to consume (MPC) is 0.80, federal policymakers could follow Keynesian economics and restrain inflation by decreasing A. government spending by $200 billion B. taxes by $100 billion C. taxes by $1,000 billion D. government spending by $1,000 billion

a

The spending multiplier is defined as A. 1/(1-marginal propensity to consume) B. 1/(marginal propensity to consume) C. 1/(1-marginal propensity to save) D. 1/(marginal propensity to consume+marginal propensity to save)

a

The sum of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) always equals A. 1 B. 0 C. the interest rate D. the marginal propensity to invest (MPI)

a

Which of the following is not an automatic stabilizer? A. defense spending B. unemployment compensation benefits C. personal income taxes D. welfare payments

a

Which of the following statements is true? A. A reduction in tax rates along the downward-slopping portion of the Gaffer curve would increase tax revenues B. accordion to supply-side fiscal policy, lower tax rates would shift the aggregate demand curve to the right, expanding the economy and creating some inflation. C. The presence of automatic stabilizers trends to destabilize the economy D. To combat inflation, Keynesians recommend lower taxes and greater government spending

a

Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC) is 0.80, and the government increases spending by $500 billion. As a result, aggregate demand will rise by A. zero B. $2,500 billion C. more than $2,500 billion D. less than $2,500 billion

b

Assume the marginal propensity to consume (MPC) is 0.75 and the government increases taxes by $250 billion. The aggregate demand curve will shift to the right A. left by $1,000 billion B. right by $1,000 billion C. left by $750 billion D. right by $750 billion

c

Suppose inflation is a threat because the current aggregate demand curve will increase by $600 billion at any price level. If the marginal propensity to consume (MPC) is 0.75, federal policymakers could follow Keynesian economics and restrain inflation by A. decreasing taxes by $600 billion B. decreasing transfer payments by $200 billion C. increasing taxes by $200 billion D. increasing government spending by $150 billion

c

Contractionary fiscal policy is deliberate government action to influence aggregate demand and the level of real GDP through A. expanding and contracting the money supply B. encouraging business to expand or contract investment C. regulating net exports D. decreasing government spending or increasing taxes

d

If no fiscal policy changes are implemented, suppose the future aggregate demand curve will exceed the current aggregate demand curve by $500 billion at any level of prices. Assuming the marginal propensity to consume (MPC) is 0.80, this increase in aggregate demand could be prevented by A. increasing government spending by $500 billion B. increasing government spending by $140 billion C. decreasing taxes by $40 billion D. increasing taxes by $125 billion

d

If no fiscal policy changes are implemented, suppose the future aggregate demand curve will shift and exceed the current aggregate demand curve by $900 billion at any level of prices. Assuming the marginal propensity to consume (MPC) is 0.90, this increase in aggregate demand could be prevented by A. increasing government spending by $500 billion B. increasing government spending by $140 billion C. decreasing taxes by $40 billion D. increasing taxes by $100 billion

d

If the marginal propensity to consume (MPC) is 0.60, the value of the spending multiplier is A. 0.4 B. 0.6 C. 1.5 D. 2.5

d

Mathematically, the value of the tax multiplier in terms of the marginal propensity to consume (MPC) is given by the formula A. MPC - 1 B. (MPC - 1)/MPC C. 1/MPC D. 1 - [1/(1 - MPC)]

d

Supply-side economics is most closely associated with A. Karl Marx B. John Maynard Keynes C. Milton Friedman D. Ronald Reagan

d

The marginal propensity to save is A. the change in saving induced by a change in consumption B. (change in S) / (change in Y) C. 1 - MPC / MPC D. (change in Y - bY) / (change in Y) E. 1 - MPC

e