Question 1

Suppose an economy's marginal propensity to consume (MPC)is 0.6.Then

Accepted Answer

A) 1 + MPC + MPC 2 + MPC 3 = 1.844 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 1.96. 
B) 1 + MPC + MPC 2 + MPC 3 = 1.844 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 3. 
C) 1 + MPC + MPC 2 + MPC 3 = 2.176 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 3. 
D) 1 + MPC + MPC 2 + MPC 3 = 2.176 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 2.5. 
A) 1 + MPC + MPC 2 + MPC 3 = 1.844 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 1.96. 
B) 1 + MPC + MPC 2 + MPC 3 = 1.844 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 3. 
C) 1 + MPC + MPC 2 + MPC 3 = 2.176 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 3. 
D) 1 + MPC + MPC 2 + MPC 3 = 2.176 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 2.5.

Question 2

Assume there is a multiplier effect,some crowding out,and no accelerator effect.An increase in government expenditures changes aggregate demand more,

Accepted Answer

A) the smaller the MPC and the stronger the influence of income on money demand. 
B) the smaller the MPC and the weaker the influence of income on money demand. 
C) the larger the MPC and the stronger the influence of income on money demand. 
D) the larger the MPC and the weaker the influence of income on money demand. 
A) the smaller the MPC and the stronger the influence of income on money demand. 
B) the smaller the MPC and the weaker the influence of income on money demand. 
C) the larger the MPC and the stronger the influence of income on money demand. 
D) the larger the MPC and the weaker the influence of income on money demand.

Question 3

When there is an increase in government expenditures,which of the following raises investment spending?

Accepted Answer

A) the investment accelerator and crowding out 
B) the investment accelerator but not crowding out 
C) crowding out but not the investment accelerator 
D) neither the investment accelerator or crowding out 
A) the investment accelerator and crowding out 
B) the investment accelerator but not crowding out 
C) crowding out but not the investment accelerator 
D) neither the investment accelerator or crowding out

Question 4

If the government cuts the tax rate,workers get to keep

Accepted Answer

A) less of each additional dollar they earn,so work effort increases,and aggregate supply shifts right. 
B) less of each additional dollar they earn,so work effort decreases,and aggregate supply shifts left. 
C) more of each additional dollar they earn,so work effort increases,and aggregate supply shifts right. 
D) more of each additional dollar they earn,so work effort decreases,and aggregate supply shifts left. 
A) less of each additional dollar they earn,so work effort increases,and aggregate supply shifts right. 
B) less of each additional dollar they earn,so work effort decreases,and aggregate supply shifts left. 
C) more of each additional dollar they earn,so work effort increases,and aggregate supply shifts right. 
D) more of each additional dollar they earn,so work effort decreases,and aggregate supply shifts left.

Question 5

An increase in government spending on goods to build or repair infrastructure

Accepted Answer

A) shifts the aggregate demand curve to the right. 
B) has a multiplier effect. 
C) shifts the aggregate supply curve to the right,but this effect is likely more important in the long run. 
D) All of the above are correct. 
A) shifts the aggregate demand curve to the right. 
B) has a multiplier effect. 
C) shifts the aggregate supply curve to the right,but this effect is likely more important in the long run. 
D) All of the above are correct.

Question 6

Most economists believe that fiscal policy

Accepted Answer

A) only affects aggregate demand and not aggregate supply. 
B) primarily affects aggregate demand. 
C) primarily effects aggregate supply. 
D) only affects aggregate supply and not aggregate demand. 
A) only affects aggregate demand and not aggregate supply. 
B) primarily affects aggregate demand. 
C) primarily effects aggregate supply. 
D) only affects aggregate supply and not aggregate demand.

Question 7

Scenario 34-2.The following facts apply to a small,imaginary economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2.For this economy,an initial increase of $500 in government purchases translates into a

Accepted Answer

A) $1,388.89 increase in aggregate demand in the absence of the crowding-out effect. 
B) $3,125.00 increase in aggregate demand in the absence of the crowding-out effect. 
C) $1,135 increase in aggregate demand when the crowding-out effect is taken into account. 
D) $3,125.00 increase in aggregate demand when the crowding-out effect is taken into account. 
A) $1,388.89 increase in aggregate demand in the absence of the crowding-out effect. 
B) $3,125.00 increase in aggregate demand in the absence of the crowding-out effect. 
C) $1,135 increase in aggregate demand when the crowding-out effect is taken into account. 
D) $3,125.00 increase in aggregate demand when the crowding-out effect is taken into account.

Question 8

Initially,the economy is in long-run equilibrium.The aggregate demand curve then shifts $80 billion to the left.The government wants to change spending to offset this decrease in demand.The MPC is 0.75.Suppose the effect on aggregate demand of a tax change is 3/4 as strong as the effect of a change in government expenditure.There is no crowding out and no accelerator effect.What should the government do if it wants to offset the decrease in real GDP?

Accepted Answer

A) Raise both taxes and expenditures by $80 billion dollars. 
B) Raise both taxes and expenditures by $10 billion dollars. 
C) Reduce both taxes and expenditures by $80 billion dollars. 
D) Reduce both taxes and expenditures by $10 billion dollars. 
A) Raise both taxes and expenditures by $80 billion dollars. 
B) Raise both taxes and expenditures by $10 billion dollars. 
C) Reduce both taxes and expenditures by $80 billion dollars. 
D) Reduce both taxes and expenditures by $10 billion dollars.

Question 9

When taxes increase,the interest rate

Accepted Answer

A) increases,making the change in aggregate demand larger. 
B) increases,making the change in aggregate demand smaller 
C) decreases,making the change in aggregate demand larger. 
D) decreases,making the change in aggregate demand smaller. 
A) increases,making the change in aggregate demand larger. 
B) increases,making the change in aggregate demand smaller 
C) decreases,making the change in aggregate demand larger. 
D) decreases,making the change in aggregate demand smaller.

Question 10

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Accepted Answer

A) the investment accelerator and crowding out 
B) the investment accelerator but not crowding out 
C) crowding out but not the investment accelerator 
D) neither crowding out nor the investment accelerator 
A) the investment accelerator and crowding out 
B) the investment accelerator but not crowding out 
C) crowding out but not the investment accelerator 
D) neither crowding out nor the investment accelerator

Question 11

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending.Which of the following is correct?

Accepted Answer

A) By themselves,both the change in output and the change in the interest rate increase desired investment. 
B) By themselves,both the change in output and the change in the interest rate decrease desired investment. 
C) By itself,the change in output increases desired investment spending and by itself the change in the interest rate decreases desired investment spending. 
D) By itself,the change in output decreases desired investment spending and by itself the change in the interest rate increases desired investment spending. 
A) By themselves,both the change in output and the change in the interest rate increase desired investment. 
B) By themselves,both the change in output and the change in the interest rate decrease desired investment. 
C) By itself,the change in output increases desired investment spending and by itself the change in the interest rate decreases desired investment spending. 
D) By itself,the change in output decreases desired investment spending and by itself the change in the interest rate increases desired investment spending.

Question 12

In a certain economy,when income is $100,consumer spending is $60.The value of the multiplier for this economy is 4.It follows that,when income is $101,consumer spending is

Accepted Answer

A) $60.25. 
B) $60.75. 
C) $61.33. 
D) $64.00. 
A) $60.25. 
B) $60.75. 
C) $61.33. 
D) $64.00.

Question 13

An increase in the MPC

Accepted Answer

A) increases the multiplier,so that changes in government expenditures have a larger effect on aggregate demand. 
B) increases the multiplier,so that changes in government expenditures have a smaller effect on aggregate demand. 
C) decreases the multiplier,so that changes in government expenditures have a larger effect on aggregate demand. 
D) decreases the multiplier,so that changes in government expenditures have a smaller effect on aggregate demand. 
A) increases the multiplier,so that changes in government expenditures have a larger effect on aggregate demand. 
B) increases the multiplier,so that changes in government expenditures have a smaller effect on aggregate demand. 
C) decreases the multiplier,so that changes in government expenditures have a larger effect on aggregate demand. 
D) decreases the multiplier,so that changes in government expenditures have a smaller effect on aggregate demand.

Question 14

If the MPC is 5/6 then the multiplier is

Accepted Answer

A) 6/5,so a $200 increase in government spending increases aggregate demand by $240. 
B) 5,so a $200 increase in government spending increases aggregate supply by $1000. 
C) 6,so a $200 increase in government spending increases aggregate demand by $1200. 
D) 6/5,so a $200 increase in government spending increases aggregate supply by $1200. 
A) 6/5,so a $200 increase in government spending increases aggregate demand by $240. 
B) 5,so a $200 increase in government spending increases aggregate supply by $1000. 
C) 6,so a $200 increase in government spending increases aggregate demand by $1200. 
D) 6/5,so a $200 increase in government spending increases aggregate supply by $1200.

Question 15

Supply-side economists believe that changes in government purchases affect

Accepted Answer

A) only aggregate demand. 
B) only aggregate supply. 
C) both aggregate demand and aggregate supply. 
D) neither aggregate demand nor aggregate supply. 
A) only aggregate demand. 
B) only aggregate supply. 
C) both aggregate demand and aggregate supply. 
D) neither aggregate demand nor aggregate supply.

Question 16

The government increases both its expenditures and taxes by $400 billion.There is no crowding out and no accelerator effect.Aggregate demand shifts by $400 billion.Which of the following is consistent with how far aggregate demand shifts?

Accepted Answer

A) MPC = 1/2,and the effects of the increase in taxes is 1/2 as strong as the change in government expenditures. 
B) MPC = 2/3,and the effects of the increase in taxes is 2/3 as strong as the change in government expenditures 
C) MPC = 3/4,and the effects of the increase in taxes is 3/4 as strong as the change in government expenditures 
D) All of the above are correct. 
A) MPC = 1/2,and the effects of the increase in taxes is 1/2 as strong as the change in government expenditures. 
B) MPC = 2/3,and the effects of the increase in taxes is 2/3 as strong as the change in government expenditures 
C) MPC = 3/4,and the effects of the increase in taxes is 3/4 as strong as the change in government expenditures 
D) All of the above are correct.

Question 17

If a $1,000 increase in income leads to an $800 increase in consumption expenditures,then the marginal propensity to consume is

Accepted Answer

A) 0.2 and the multiplier is 1.25. 
B) 0.8 and the multiplier is 5. 
C) 0.2 and the multiplier is 1.25 
D) 0.8 and the multiplier is 8. 
A) 0.2 and the multiplier is 1.25. 
B) 0.8 and the multiplier is 5. 
C) 0.2 and the multiplier is 1.25 
D) 0.8 and the multiplier is 8.

Question 18

Imagine that the government increases its spending by $75 billion.Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Accepted Answer

A) both the multiplier effect and the crowding-out effect 
B) the multiplier effect,but not the crowding-out effect 
C) the crowding-out effect,but not the multiplier effect 
D) neither the crowding out effect nor the multiplier effect 
A) both the multiplier effect and the crowding-out effect 
B) the multiplier effect,but not the crowding-out effect 
C) the crowding-out effect,but not the multiplier effect 
D) neither the crowding out effect nor the multiplier effect

Question 19

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A) An increase in government expenditures increases aggregate spending so that SnoozeBargain Co.decides to modernize its motels. 
B) An increase in government expenditures increases the interest rate so that SnoozeBargain Co.decides to modernize its motels. 
C) An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by SnoozeBargain Co.rises. 
D) An increase in government expenditures decreases the interest rate so that SnoozeBargain Co.decides to modernize its motels. 
A) An increase in government expenditures increases aggregate spending so that SnoozeBargain Co.decides to modernize its motels. 
B) An increase in government expenditures increases the interest rate so that SnoozeBargain Co.decides to modernize its motels. 
C) An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by SnoozeBargain Co.rises. 
D) An increase in government expenditures decreases the interest rate so that SnoozeBargain Co.decides to modernize its motels.

Question 20

Assuming a multiplier effect,but no crowding-out or investment-accelerator effects,a $100 billion increase in government expenditures shifts aggregate

Accepted Answer

A) demand rightward by more than $100 billion. 
B) demand rightward by less than $100 billion. 
C) supply leftward by more than $100 billion. 
D) supply leftward by less than $100 billion. 
A) demand rightward by more than $100 billion. 
B) demand rightward by less than $100 billion. 
C) supply leftward by more than $100 billion. 
D) supply leftward by less than $100 billion.

Exam 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand: How Fiscal Policy Influences Aggregate Demand

Suppose an economy's marginal propensity to consume (MPC)is 0.6.Then

Assume there is a multiplier effect,some crowding out,and no accelerator effect.An increase in government expenditures changes aggregate demand more,

When there is an increase in government expenditures,which of the following raises investment spending?

If the government cuts the tax rate,workers get to keep

An increase in government spending on goods to build or repair infrastructure

Most economists believe that fiscal policy

Scenario 34-2.The following facts apply to a small,imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. -Refer to Scenario 34-2.For this economy,an initial increase of $500 in government purchases translates into a

When taxes increase,the interest rate

Which of the following effects results from the change in the interest rate created by an increase in government spending?

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending.Which of the following is correct?

In a certain economy,when income is $100,consumer spending is $60.The value of the multiplier for this economy is 4.It follows that,when income is $101,consumer spending is

An increase in the MPC

If the MPC is 5/6 then the multiplier is

Supply-side economists believe that changes in government purchases affect

The government increases both its expenditures and taxes by $400 billion.There is no crowding out and no accelerator effect.Aggregate demand shifts by $400 billion.Which of the following is consistent with how far aggregate demand shifts?

If a $1,000 increase in income leads to an $800 increase in consumption expenditures,then the marginal propensity to consume is

Imagine that the government increases its spending by $75 billion.Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Which of the following illustrates how the investment accelerator works?

Assuming a multiplier effect,but no crowding-out or investment-accelerator effects,a $100 billion increase in government expenditures shifts aggregate

Ten Principles of Economics

Ten Principles of Economics: How People Make Decisions

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Demand

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion

Application International Trade: Part A