Question 1

If the MPC is 0.75, the tax multiplier is

Accepted Answer

A)   -2.5.
B)   -3.
C)   -4.
D)   -5.

Question 2

In which case will the government collect more tax revenue?

Accepted Answer

A)   40% tax rate and $40,000 average income
B)   90% tax rate and $10,000 average income
C)   20% tax rate and $90,000 average income
D)   4% tax rate and $80,000 average income

Question 3

If the government spending multiplier is 10, then the tax multiplier

Accepted Answer

A)   is -4.
B)   is -5.
C)   is -9.
D)   cannot be determined because the MPS is not given.

Question 4

If output is less than planned aggregate expenditure, there will be

Accepted Answer

A)   an unplanned increase in inventories.
B)   an unplanned decrease in inventories.
C)   no change in inventories.
D)   a planned increase in inventories.

Question 5

Personal income tax rates being tied to the overall price level leads to fiscal drag.

Accepted Answer

A) True 
 B)False

Question 6

Refer to the information provided in Table 9.7 below to answer the questions that follow.
Table 9.7
All Numbers are in $ Million 
-Refer to Table 9.7. The equilibrium level of aggregate income is $________ million.

Accepted Answer

A)   1,200
B)   1,300
C)   1,400
D)   1,500

Question 7

Government spending increases by $80 billion and the equilibrium level of output increases by $320 billion. The government spending multiplier

Accepted Answer

A)   is 4.
B)   is 5.
C)   is 6.
D)   cannot be determined from this information, because the MPC is not given.

Question 8

For the economy to be in equilibrium,

Accepted Answer

A)   government purchases must equal tax revenue and saving must equal investment.
B)   government purchases must equal the sum of tax revenue, saving and investment.
C)   government purchases plus investment must equal saving plus tax revenue.
D)   investment plus tax revenue must equal government purchases plus saving.

Question 9

For the economy to be in equilibrium, the following condition must be satisfied: G + I = S + T.

Accepted Answer

A) True 
 B)False

Question 10

If the MPS is 0.4, the government spending multiplier is

Accepted Answer

A)   0.6.
B)   2.5.
C)   4.
D)   5.

Question 11

If the tax multiplier is -15 and taxes are increased by $150 billion, output

Accepted Answer

A)   falls by $2,250 billion.
B)   falls by $10 billion.
C)   increases by $10 billion.
D)   increases by $2,250 billion.

Question 12

You are hired by the Council of Economic Advisors (CEA)  as an economic consultant. The Chairperson of the CEA tells you that she believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. She wants to know what policy to pursue to increase aggregate output by $500 billion. The best estimate she has for the MPC is 0.5. Which of the following policies should you recommend?

Accepted Answer

A)   increase government purchases by $200 billion
B)   increase government purchases by $250 billion
C)   cut taxes by $200 billion
D)   cut taxes by $200 billion and to increase government purchases by $200 billion

Question 13

If the MPS is 0.4, the tax multiplier is

Accepted Answer

A)   -2.5.
B)   -2.33.
C)   -1.67.
D)   -1.5.

Question 14

Assuming there is no foreign trade in the economy, the economy is in equilibrium when

Accepted Answer

A)   S + T = C + I.
B)   I + G = S + T.
C)   IT = S + G.
D)   G + T = S + I.

Question 15

The total amount owed by the federal government to the public is the

Accepted Answer

A)   federal budget deficit.
B)   federal debt.
C)   net tax revenue.
D)   fiscal drag.

Question 16

Refer to the information provided in Figure 9.5 below to answer the questions that follow.  Figure 9.5
-Refer to Figure 9.5. If the economy is in equilibrium and the government increases taxes by $100 billion, equilibrium aggregate output ________ to $________ billion.

Accepted Answer

A)   increases; 1,700
B)   decreases; 1,500
C)   decreases; 1,300
D)   decreases; 1,000

Question 17

The economy is in equilibrium when [I + G = S + T], assuming there is

Accepted Answer

A)   no government or taxes.
B)   no foreign trade.
C)   positive net exports.
D)   negative net exports.

Question 18

Refer to the information provided in Figure 9.4 below to answer the questions that follow. 2 and government spending increases by $100 billion, equilibrium aggregate output increases by $________ billion. A)  100 B)  300 C)  500 D)  800" class="answers-bank-image d-inline" rel="preload" > Figure 9.4
-Refer to Figure 9.4. If aggregate expenditures are represented by AE2 and government spending increases by $100 billion, equilibrium aggregate output increases by $________ billion.

Accepted Answer

A)   100
B)   300
C)   500
D)   800

Question 19

The Italian economy can be characterized by Equation 9.1.
EQUATION 9.1:
C = 300 + 0.8Yd
G = 400
T = 200
I = 200
-Refer to Equation 9.1. At the equilibrium level of output in Italy, saving equals

Accepted Answer

A)   $400.
B)   $450.
C)   $500.
D)   $550.

Question 20

The aggregate consumption function is C = 100 + 0.5Yd. If income is $2,000 and net taxes are $400, consumption equals

Accepted Answer

A)   900.
B)   1,300.
C)   3,300.
D)   4,900.

Exam 9: The Government and Fiscal Policy

Refer to the information provided in Figure 9.4 below to answer the questions that follow. Figure 9.4 -Refer to Figure 9.4. If aggregate expenditures are represented by AE₂ and government spending increases by $100 billion, equilibrium aggregate output increases by $________ billion.

Correct Answer
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If the tax multiplier is -15 and taxes are increased by $150 billion, output

Correct Answer
verified

Refer to the information provided in Figure 9.5 below to answer the questions that follow. Figure 9.5 -Refer to Figure 9.5. If the economy is in equilibrium and the government increases taxes by $100 billion, equilibrium aggregate output to $ billion.

Correct Answer
verified

If the MPS is 0.4, the tax multiplier is

Correct Answer
verified

In which case will the government collect more tax revenue?

Correct Answer
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If the government spending multiplier is 10, then the tax multiplier

Correct Answer
verified

If the MPC is 0.75, the tax multiplier is

Correct Answer
verified

If the MPS is 0.4, the government spending multiplier is

Correct Answer
verified

Assuming there is no foreign trade in the economy, the economy is in equilibrium when

Correct Answer
verified

For the economy to be in equilibrium,

Correct Answer
verified

Government spending increases by $80 billion and the equilibrium level of output increases by $320 billion. The government spending multiplier

Correct Answer
verified

Refer to the information provided in Table 9.7 below to answer the questions that follow. Table 9.7 All Numbers are in $ Million -Refer to Table 9.7. The equilibrium level of aggregate income is $________ million.

Correct Answer
verified

Correct Answer
verified

For the economy to be in equilibrium, the following condition must be satisfied: G + I = S + T.

Correct Answer
verified

The total amount owed by the federal government to the public is the

Correct Answer
verified

Personal income tax rates being tied to the overall price level leads to fiscal drag.

Correct Answer
verified

The aggregate consumption function is C = 100 + 0.5Yd. If income is $2,000 and net taxes are $400, consumption equals

Correct Answer
verified

If output is less than planned aggregate expenditure, there will be

Correct Answer
verified

The Italian economy can be characterized by Equation 9.1. EQUATION 9.1: C = 300 + 0.8Yd G = 400 T = 200 I = 200 -Refer to Equation 9.1. At the equilibrium level of output in Italy, saving equals

Correct Answer
verified

The economy is in equilibrium when [I + G = S + T], assuming there is

Correct Answer
verified

Exam 9: The Government and Fiscal Policy

Refer to the information provided in Figure 9.4 below to answer the questions that follow. Figure 9.4 -Refer to Figure 9.4. If aggregate expenditures are represented by AE2 and government spending increases by $100 billion, equilibrium aggregate output increases by $________ billion.

Correct AnswerverifiedShow Answer

If the tax multiplier is -15 and taxes are increased by $150 billion, output

Correct AnswerverifiedShow Answer

Refer to the information provided in Figure 9.5 below to answer the questions that follow. Figure 9.5 -Refer to Figure 9.5. If the economy is in equilibrium and the government increases taxes by $100 billion, equilibrium aggregate output ________ to $________ billion.

Correct AnswerverifiedShow Answer

If the MPS is 0.4, the tax multiplier is

Correct AnswerverifiedShow Answer

In which case will the government collect more tax revenue?

Correct AnswerverifiedShow Answer

If the government spending multiplier is 10, then the tax multiplier

Correct AnswerverifiedShow Answer

If the MPC is 0.75, the tax multiplier is

Correct AnswerverifiedShow Answer

If the MPS is 0.4, the government spending multiplier is

Correct AnswerverifiedShow Answer

Assuming there is no foreign trade in the economy, the economy is in equilibrium when

Correct AnswerverifiedShow Answer

For the economy to be in equilibrium,

Correct AnswerverifiedShow Answer

Government spending increases by $80 billion and the equilibrium level of output increases by $320 billion. The government spending multiplier

Correct AnswerverifiedShow Answer

Refer to the information provided in Table 9.7 below to answer the questions that follow. Table 9.7 All Numbers are in $ Million -Refer to Table 9.7. The equilibrium level of aggregate income is $________ million.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For the economy to be in equilibrium, the following condition must be satisfied: G + I = S + T.

Correct AnswerverifiedShow Answer

The total amount owed by the federal government to the public is the

Correct AnswerverifiedShow Answer

Personal income tax rates being tied to the overall price level leads to fiscal drag.

Correct AnswerverifiedShow Answer

The aggregate consumption function is C = 100 + 0.5Yd. If income is $2,000 and net taxes are $400, consumption equals

Correct AnswerverifiedShow Answer

If output is less than planned aggregate expenditure, there will be

Correct AnswerverifiedShow Answer

The Italian economy can be characterized by Equation 9.1. EQUATION 9.1: C = 300 + 0.8Yd G = 400 T = 200 I = 200 -Refer to Equation 9.1. At the equilibrium level of output in Italy, saving equals

Correct AnswerverifiedShow Answer

The economy is in equilibrium when [I + G = S + T], assuming there is

Correct AnswerverifiedShow Answer

Refer to the information provided in Figure 9.4 below to answer the questions that follow. Figure 9.4 -Refer to Figure 9.4. If aggregate expenditures are represented by AE₂ and government spending increases by $100 billion, equilibrium aggregate output increases by $________ billion.

Correct Answer
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Correct Answer
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Refer to the information provided in Figure 9.5 below to answer the questions that follow. Figure 9.5 -Refer to Figure 9.5. If the economy is in equilibrium and the government increases taxes by $100 billion, equilibrium aggregate output to $ billion.

Correct Answer
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