Exam 11: Fiscal Policy

Following Keynesian economics, and assuming a marginal propensity to consume (MPC)of 0.75, an increase in federal government spending of $100 billion at below full employment would be expected to shift the aggregate demand curve by $300 billion to the right.

If your income increases from $30,000 to $35,000 and your consumption increases from $11,000 to $12,000, your marginal propensity to consume (MPC)is:

The marginal propensity to save is

The result of the balanced budget multiplier is that aggregate demand changes by the amount of the change in:

Supply-side economic policies are designed to shift the aggregate supply curve to the left, whereas Keynesian economic policies focus on shifting the aggregate demand curve to the right during recessions and to the left during economic expansions.

Exhibit 11-3 Aggregate demand and supply model Suppose the economy in Exhibit 11-3 is in equilibrium at point E₁ and the marginal propensity to consume (MPC)is 0.80. Following Keynesian economics, to restore full employment, the government should increase its spending by:

If the marginal propensity to consume (MPC)is 0.75, and if policy makers wish to increase real GDP by $300 million, then by how much would they have to change taxes?

Supply-side economic policies are designed to shift the aggregate supply curve to the right, whereas Keynesian economic policies focus on shifting the aggregate demand curve to the right during recessions and to the left during an economic expansion.

If an economy were experiencing a high rate of unemployment as the result of insufficient aggregate demand, a Keynesian economist would favor:

The nation has its own MPC. When national income increases from $300 billion to $400 billion, national consumption increases from $300 billion to $360 billion. At Y = $400 billion, the MPC is:

The tax multiplier is equal to the spending multiplier.

Changes in government spending and\or taxes as the result of legislation is called:

If no fiscal policy changes are implemented to fight inflation, suppose the aggregate demand curve will exceed the current aggregate demand curve by $900 billion at any level of prices. Assuming the marginal propensity to consume is 0.90, this increase in aggregate demand could be prevented by:

Income tax collections:

If the marginal propensity to consume (MPC)is 0.90, the value of the spending multiplier is 90.

The ratio of the change in GDP to an initial change in aggregate spending is the:

The government is pursuing an expansionary policy if it:

As the marginal propensity to consume (MPC)increases, the spending multiplier:

When the MPC gets smaller, the spending multiplier:

The marginal propensity to save plus the marginal propensity to consume always equals 1.