Exam 15: Fiscal Policy

Assume the economy is in recession and real GDP is below full employment.The marginal propensity to consume (MPC)is 0.75,and the government follows Keynesian economics by using expansionary fiscal policy to increase aggregate demand (total spending).If an increase of $1,000 billion aggregate demand can restore full employment,the government should:

Which of the following would be an appropriate discretionary fiscal policy to use when the economy is in a recession?

Which of the following would most likely occur if the federal government decreased its spending and reduced the size of the budget deficit during a period of full employment?

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

The change in consumption divided by a change in income is defined as:

Assume the marginal propensity to consume (MPC)is 0.75 and the government cuts taxes by $250 billion.The aggregate demand curve will shift to the:

Unemployment compensation payments:

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:

If the MPC = .75,the spending multiplier is:

If the marginal propensity to consume is 0.80,the value of the spending multiplier will be 5.

If the marginal propensity to consume (MPC)is 0.75,a $50 decrease in government spending,other things being equal,would cause equilibrium real GDP to:

"Last month unemployment fell to 4 percent,its lowest level in years.The economy is growing rapidly,but consumer prices have risen at an annual rate of 10 percent during the last six months." Which of the following policies would be most appropriate under these circumstances?

Exhibit 15-7 Aggregate demand and supply model -Suppose the economy in Exhibit 15-7 is in equilibrium at point E₁ and the marginal propensity to consumer (MPC)is 0.75.Following Keynesian economics,to lower the price level from 170 to 150,the government should reduce its spending by:

The school of economic thought which argues that through tax reductions,and deregulation,government creates the proper incentives for the private sector to increase aggregate supply is known as the:

If the MPC is 0.80,and if the goal is to increase real GDP by $200 million,then by how much would government spending have to change to generate this increase in real GDP?

Supply-side policy suggests that if we ____ taxes of workers,the ____ labor will increase,causing equilibrium wages to ____.

In the U.S.economy,the effect on federal tax revenues and spending of a decrease in employment is to:

The greater the marginal propensity to consume (MPC)in the economy,the greater the spending multiplier.

Supply-side economics is based on the theory that:

Automatic stabilizers stabilize the level of real GDP because: