Question 1

An increase in government spending shifts aggregate demand

Accepted Answer

A) to the right.The larger the multiplier is,the farther it shifts. 
B) to the right.The larger the multiplier is,the less it shifts. 
C) to the left.The larger the multiplier is,the farther it shifts. 
D) to the left.The larger the multiplier is,the less it shifts. 
A) to the right.The larger the multiplier is,the farther it shifts. 
B) to the right.The larger the multiplier is,the less it shifts. 
C) to the left.The larger the multiplier is,the farther it shifts. 
D) to the left.The larger the multiplier is,the less it shifts.

Question 2

Scenario 34-1.Take the following information as given for a small,imaginary economy:
• When income is $10,000,consumption spending is $6,500.
• When income is $11,000,consumption spending is $7,250.
-Refer to Scenario 34-1.For this economy,an initial increase of $200 in net exports translates into a(n)

Accepted Answer

A) $570 increase in aggregate demand when the crowding-out effect is taken into account. 
B) $800 increase in aggregate demand when the crowding-out effect is taken into account. 
C) $1,400 increase in aggregate demand in the absence of the crowding-out effect. 
D) $800 increase in aggregate demand in the absence of the crowding-out effect. 
A) $570 increase in aggregate demand when the crowding-out effect is taken into account. 
B) $800 increase in aggregate demand when the crowding-out effect is taken into account. 
C) $1,400 increase in aggregate demand in the absence of the crowding-out effect. 
D) $800 increase in aggregate demand in the absence of the crowding-out effect.

Question 3

Initially,the economy is in long-run equilibrium.Aggregate demand then shifts leftward by $50 billion.The government wants to increase its spending in order to avoid a recession.If the crowding-out effect is always one-third as strong as the multiplier effect,and if the MPC equals 0.6,then by how much do government purchases have to increase in order to offset the $50 billion leftward shift?

Accepted Answer

A) by $90 billion 
B) by $60 billion 
C) by $20 billion 
D) by $30 billion 
A) by $90 billion 
B) by $60 billion 
C) by $20 billion 
D) by $30 billion

Question 4

When the government reduces taxes,which of the following decreases?

Accepted Answer

A) consumption 
B) take-home pay 
C) household saving 
D) None of the above is correct. 
A) consumption 
B) take-home pay 
C) household saving 
D) None of the above is correct.

Question 5

Supply-side economists believe that a reduction in the tax rate

Accepted Answer

A) always decrease government tax revenue. 
B) shifts the aggregate supply curve to the right. 
C) provides no incentive for people to work more. 
D) would decrease consumption. 
A) always decrease government tax revenue. 
B) shifts the aggregate supply curve to the right. 
C) provides no incentive for people to work more. 
D) would decrease consumption.

Question 6

In a certain economy,when income is $400,consumer spending is $325.The value of the multiplier for this economy is 3.33.It follows that,when income is $450,consumer spending is

Accepted Answer

A) $360.For this economy,an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand. 
B) $360.For this economy,an initial increase of $50 in consumer spending translates into a $166.50 increase in aggregate demand. 
C) $341.67.For this economy,an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand. 
D) $341.67.For this economy,an initial increase of $50 in consumer spending translates into a $166.25 increase in aggregate demand. 
A) $360.For this economy,an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand. 
B) $360.For this economy,an initial increase of $50 in consumer spending translates into a $166.50 increase in aggregate demand. 
C) $341.67.For this economy,an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand. 
D) $341.67.For this economy,an initial increase of $50 in consumer spending translates into a $166.25 increase in aggregate demand.

Question 7

The multiplier effect

Accepted Answer

A) and the crowding-out effect both amplify the effects of an increase in government expenditures. 
B) and the crowding-out effect both diminish the effects of an increase in government expenditures. 
C) diminishes the effects of an increase in government expenditures,while the crowding-out effect amplifies the effects. 
D) amplifies the effects of an increase in government expenditures,while the crowding-out effect diminishes the effects. 
A) and the crowding-out effect both amplify the effects of an increase in government expenditures. 
B) and the crowding-out effect both diminish the effects of an increase in government expenditures. 
C) diminishes the effects of an increase in government expenditures,while the crowding-out effect amplifies the effects. 
D) amplifies the effects of an increase in government expenditures,while the crowding-out effect diminishes the effects.

Question 8

When government expenditures 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 9

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.The marginal propensity to consume for this economy is

Accepted Answer

A) 0.64. 
B) 0.83. 
C) 0.56. 
D) 0.840. 
A) 0.64. 
B) 0.83. 
C) 0.56. 
D) 0.840.

Question 10

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.In response to which of the following events could aggregate demand increase by $1,500?

Accepted Answer

A) A stock-market boom increases households' wealth by $500,and there is an operative crowding-out effect. 
B) A stock-market boom increases households' wealth by $575,and there is an operative crowding-out effect. 
C) An economic boom overseas increases the demand for U.S.net exports by $600,and there is no crowding-out effect. 
D) Aggregate demand could increase by $1,500 in response to any of these events. 
A) A stock-market boom increases households' wealth by $500,and there is an operative crowding-out effect. 
B) A stock-market boom increases households' wealth by $575,and there is an operative crowding-out effect. 
C) An economic boom overseas increases the demand for U.S.net exports by $600,and there is no crowding-out effect. 
D) Aggregate demand could increase by $1,500 in response to any of these events.

Question 11

To reduce the effects of crowding out caused by an increase in government expenditures,the Federal Reserve could

Accepted Answer

A) increase the money supply by buying bonds. 
B) increase the money supply by selling bonds. 
C) decrease the money supply by buying bonds. 
D) increase the money supply by selling bonds 
A) increase the money supply by buying bonds. 
B) increase the money supply by selling bonds. 
C) decrease the money supply by buying bonds. 
D) increase the money supply by selling bonds

Question 12

Assume the MPC is 0.72.The multiplier is

Accepted Answer

A) 4.53. 
B) 1.39. 
C) 2.57. 
D) 3.57. 
A) 4.53. 
B) 1.39. 
C) 2.57. 
D) 3.57.

Question 13

If households view a tax cut as temporary,then the tax cut

Accepted Answer

A) has no effect on aggregate demand. 
B) has more of an effect on aggregate demand than if households view it as permanent. 
C) has the same effect as when households view the cut as permanent. 
D) has less of an effect on aggregate demand than if households view it as permanent. 
A) has no effect on aggregate demand. 
B) has more of an effect on aggregate demand than if households view it as permanent. 
C) has the same effect as when households view the cut as permanent. 
D) has less of an effect on aggregate demand than if households view it as permanent.

Question 14

Permanent tax cuts shift the AD curve

Accepted Answer

A) farther to the right than do temporary tax cuts. 
B) not as far to the right as do temporary tax cuts. 
C) farther to the left than do temporary tax cuts. 
D) not as far to the left as do temporary tax cuts. 
A) farther to the right than do temporary tax cuts. 
B) not as far to the right as do temporary tax cuts. 
C) farther to the left than do temporary tax cuts. 
D) not as far to the left as do temporary tax cuts.

Question 15

Figure 34-6.On the left-hand graph,MS represents the supply of money and MD represents the demand for money;on the right-hand graph,AD represents aggregate demand.The usual quantities are measured along the axes of both graphs.  
-Refer to Figure 34-6.Suppose the multiplier is 3 and the government increases its purchases by $25 billion.Also,suppose the AD curve would shift from AD1 to AD2 if there were no crowding out;the AD curve actually shifts from AD1 to AD3 with crowding out.Finally,assume the horizontal distance between the curves AD1 and AD3 is $40 billion.The extent of crowding out,for any particular level of the price level,is

Accepted Answer

A) $15 billion. 
B) $40 billion. 
C) $35 billion. 
D) $95 billion. 
A) $15 billion. 
B) $40 billion. 
C) $35 billion. 
D) $95 billion.

Question 16

A reduction in personal income taxes increases Aggregate Demand through

Accepted Answer

A) an increase in investment spending. 
B) an increase in national savings. 
C) an increase in private savings. 
D) an increase in personal consumption. 
A) an increase in investment spending. 
B) an increase in national savings. 
C) an increase in private savings. 
D) an increase in personal consumption.

Question 17

The government buys new weapons systems.The manufacturers of weapons pay their employees.The employees spend this money on goods and services.The firms from which the employees buy the goods and services pay their employees.This sequence of events illustrates

Accepted Answer

A) the accelerator effect. 
B) the multiplier effect. 
C) the chain effect. 
D) the bandwagon effect. 
A) the accelerator effect. 
B) the multiplier effect. 
C) the chain effect. 
D) the bandwagon effect.

Question 18

If the multiplier is 6,then the MPC is

Accepted Answer

A) 0.16. 
B) 0.83. 
C) 0.71. 
D) 0.86. 
A) 0.16. 
B) 0.83. 
C) 0.71. 
D) 0.86.

Question 19

In 2009 President Obama and Congress increased government spending.Some economists thought this increase would have little effect on output.Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Accepted Answer

A) the MPC is small and changes in the interest rate have a small effect on investment 
B) the MPC is small and changes in the interest rate have a large effect on investment 
C) the MPC is large and changes in the interest rate have a small effect on investment 
D) the MPC is large and changes in the interest rate have a large effect on investment 
A) the MPC is small and changes in the interest rate have a small effect on investment 
B) the MPC is small and changes in the interest rate have a large effect on investment 
C) the MPC is large and changes in the interest rate have a small effect on investment 
D) the MPC is large and changes in the interest rate have a large effect on investment

Question 20

Assume the MPC is 0.65.Assuming only the multiplier effect matters,a decrease in government purchases of $20 billion will shift the aggregate demand curve to the

Accepted Answer

A) left by about $30.77 billion. 
B) left by about $57.1 billion. 
C) right by about $57.1 billion. 
D) right by about $30.77 billion. 
A) left by about $30.77 billion. 
B) left by about $57.1 billion. 
C) right by about $57.1 billion. 
D) right by about $30.77 billion.

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

An increase in government spending shifts aggregate demand

When the government reduces taxes,which of the following decreases?

Supply-side economists believe that a reduction in the tax rate

In a certain economy,when income is $400,consumer spending is $325.The value of the multiplier for this economy is 3.33.It follows that,when income is $450,consumer spending is

The multiplier effect

When government expenditures increase,the interest rate

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.The marginal propensity to consume for this economy is

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.In response to which of the following events could aggregate demand increase by $1,500?

To reduce the effects of crowding out caused by an increase in government expenditures,the Federal Reserve could

Assume the MPC is 0.72.The multiplier is

If households view a tax cut as temporary,then the tax cut

Permanent tax cuts shift the AD curve

A reduction in personal income taxes increases Aggregate Demand through

The government buys new weapons systems.The manufacturers of weapons pay their employees.The employees spend this money on goods and services.The firms from which the employees buy the goods and services pay their employees.This sequence of events illustrates

If the multiplier is 6,then the MPC is

In 2009 President Obama and Congress increased government spending.Some economists thought this increase would have little effect on output.Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Assume the MPC is 0.65.Assuming only the multiplier effect matters,a decrease in government purchases of $20 billion will shift the aggregate demand curve to the

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

Application International Trade: Part B

Measuring a Nations Income