Question 1

If the multiplier is 5 and defense expenditures decrease by $40 million,aggregate demand decreases by a total of:

Accepted Answer

A)  $8 million. 
B)  $20 million. 
C)  $40 million. 
D)  $200 million. 
A)  $8 million. 
B)  $20 million. 
C)  $40 million. 
D)  $200 million.

Question 2

Which of the following will definitely result in fiscal stimulus?

Accepted Answer

A)  Greater government spending and lower taxes 
B)  Greater government spending and higher taxes 
C)  Lower government spending and lower taxes 
D)  Lower government spending and higher taxes 
A)  Greater government spending and lower taxes 
B)  Greater government spending and higher taxes 
C)  Lower government spending and lower taxes 
D)  Lower government spending and higher taxes

Question 3

The following table shows a hypothetical relationship between consumption and income.Answer the indicated question(s)on the basis of this table.
Table 12.1-Income and consumption data  
-Based on Table 12.1,what is the marginal propensity to consume?

Accepted Answer

A)  0.60 
B)  0.75 
C)  0.80 
D)  0.85 
A)  0.60 
B)  0.75 
C)  0.80 
D)  0.85

Question 4

A tax hike causes a decrease in disposable income.

Accepted Answer

A) True 
 B)False

Question 5

In 2012,the output of the U.S.was almost 16 trillion dollars.Discuss how this output was divided among the components of aggregate demand.

Accepted Answer

Over two-thirds of that output consisted

Question 6

In a graph of the aggregate demand curve,an increase in investment by businesses is represented by a:

Accepted Answer

A)  Movement down the curve. 
B)  Movement up the curve. 
C)  Rightward shift of the curve. 
D)  Leftward shift of the curve. 
A)  Movement down the curve. 
B)  Movement up the curve. 
C)  Rightward shift of the curve. 
D)  Leftward shift of the curve.

Question 7

The marginal propensity to consume is:

Accepted Answer

A)  Total consumption in a given period divided by total disposable income. 
B)  The percentage of total disposable income spent on consumption. 
C)  That part of the average consumer dollar that goes to the purchase of final goods. 
D)  The fraction of each additional dollar of disposable income spent on consumption. 
A)  Total consumption in a given period divided by total disposable income. 
B)  The percentage of total disposable income spent on consumption. 
C)  That part of the average consumer dollar that goes to the purchase of final goods. 
D)  The fraction of each additional dollar of disposable income spent on consumption.

Question 8

If consumers save 15 cents out of every dollar received,the:

Accepted Answer

A)  Multiplier is 15. 
B)  MPS is 0.85. 
C)  MPS is 0.15. 
D)  Multiplier is 0.15. 
A)  Multiplier is 15. 
B)  MPS is 0.85. 
C)  MPS is 0.15. 
D)  Multiplier is 0.15.

Question 9

If the current level of spending falls short of full employment,the government can close the GDP gap by:

Accepted Answer

A)  Increasing government spending by an amount less than the GDP gap. 
B)  Increasing government spending by an amount greater than the GDP gap. 
C)  Decreasing government spending by an amount less than the GDP gap. 
D)  Decreasing government spending by an amount greater than the GDP gap. 
A)  Increasing government spending by an amount less than the GDP gap. 
B)  Increasing government spending by an amount greater than the GDP gap. 
C)  Decreasing government spending by an amount less than the GDP gap. 
D)  Decreasing government spending by an amount greater than the GDP gap.

Question 10

Ceteris paribus,if the government transfers income from individuals with a high MPC to those with a low MPC,in the short run,spending and output will:

Accepted Answer

A)  Increase. 
B)  Decrease. 
C)  Stay the same. 
D)  Increase or decrease depending on the level of saving. 
A)  Increase. 
B)  Decrease. 
C)  Stay the same. 
D)  Increase or decrease depending on the level of saving.

Question 11

A tax cut of $8 billion with an MPC of 0.90 will cause a cumulative change in spending equal to:

Accepted Answer

A)  An increase of $720 million. 
B)  An increase of $72 billion. 
C)  An increase of $80 billion. 
D)  A decrease of $720 billion. 
A)  An increase of $720 million. 
B)  An increase of $72 billion. 
C)  An increase of $80 billion. 
D)  A decrease of $720 billion.

Question 12

The marginal propensity to save is:

Accepted Answer

A)  Equal to (1 + MP
C) . 
B)  The fraction of each additional dollar of saving that goes to the stock market. 
C)  The fraction of each additional dollar of disposable income that goes to saving. 
D)  (Total savings)÷ (total disposable income). 
A)  Equal to (1 + MP
C) . 
B)  The fraction of each additional dollar of saving that goes to the stock market. 
C)  The fraction of each additional dollar of disposable income that goes to saving. 
D)  (Total savings)÷ (total disposable income).

Question 13

Which of the following does not meet the economic definition of saving?

Accepted Answer

A)  A graduate assistant spends all of his income on tuition 
B)  A student deposits money in her savings account 
C)  A professor spends less than he makes each month 
D)  The president's secretary puts cash under her mattress 
A)  A graduate assistant spends all of his income on tuition 
B)  A student deposits money in her savings account 
C)  A professor spends less than he makes each month 
D)  The president's secretary puts cash under her mattress

Question 14

The following table shows a hypothetical relationship between consumption and income.Answer the indicated question(s)on the basis of this table.
Table 12.1-Income and consumption data  
-Based on Table 12.1,what is the multiplier?

Accepted Answer

A)  0.75 
B)  0.80 
C)  4 
D)  5 
A)  0.75 
B)  0.80 
C)  4 
D)  5

Question 15

If consumers spend 98 cents out of every extra dollar received,the:

Accepted Answer

A)  MPC is 98. 
B)  MPS is 1.02. 
C)  MPC is 0.98. 
D)  MPC is 0.02 
A)  MPC is 98. 
B)  MPS is 1.02. 
C)  MPC is 0.98. 
D)  MPC is 0.02

Question 16

The total quantity of output demanded at alternative price levels refers to:

Accepted Answer

A)  Macro equilibrium. 
B)  Consumption. 
C)  Market demand. 
D)  Aggregate demanD. 
A)  Macro equilibrium. 
B)  Consumption. 
C)  Market demand. 
D)  Aggregate demanD.

Question 17

The terrorist attacks in September 2001 reduced consumer confidence.Which of the following indicates the resulting change in the U.S.economy?

Accepted Answer

A)  The economy moved up along the aggregate demand curve 
B)  The economy moved down along the aggregate demand curve 
C)  Aggregate demand shifted to the left 
D)  Aggregate demand shifted to the right 
A)  The economy moved up along the aggregate demand curve 
B)  The economy moved down along the aggregate demand curve 
C)  Aggregate demand shifted to the left 
D)  Aggregate demand shifted to the right

Question 18

Which of the following will definitely reduce a budget deficit and provide fiscal restraint?

Accepted Answer

A)  Greater government spending and lower taxes. 
B)  Greater government spending and higher taxes. 
C)  Lower government spending and lower taxes. 
D)  Lower government spending and higher taxes. 
A)  Greater government spending and lower taxes. 
B)  Greater government spending and higher taxes. 
C)  Lower government spending and lower taxes. 
D)  Lower government spending and higher taxes.

Question 19

Figure 12.1:  
-Assuming aggregate demand is represented by AD1,the equilibrium level of income in Figure 12.1 is:

Accepted Answer

A)  $800 billion. 
B)  $5.2 trillion. 
C)  $5.6 trillion. 
D)  $6.0 trillion. 
A)  $800 billion. 
B)  $5.2 trillion. 
C)  $5.6 trillion. 
D)  $6.0 trillion.

Question 20

Figure 12.2:   
-Using Figure 12.2,if Q2 represents full employment,then a shift from AD1 to:

Accepted Answer

A)  AD2 takes the economy past full employment to equilibrium at point Y. 
B)  AD2 closes the GDP gap. 
C)  AD3 results in a full-employment equilibrium at point W. 
D)  AD3 takes the economy past full employment to equilibrium at point Z. 
A)  AD2 takes the economy past full employment to equilibrium at point Y. 
B)  AD2 closes the GDP gap. 
C)  AD3 results in a full-employment equilibrium at point W. 
D)  AD3 takes the economy past full employment to equilibrium at point Z.

If the multiplier is 5 and defense expenditures decrease by $40 million,aggregate demand decreases by a total of:

Which of the following will definitely result in fiscal stimulus?

The following table shows a hypothetical relationship between consumption and income.Answer the indicated question(s)on the basis of this table. Table 12.1-Income and consumption data -Based on Table 12.1,what is the marginal propensity to consume?

A tax hike causes a decrease in disposable income.

In 2012,the output of the U.S.was almost 16 trillion dollars.Discuss how this output was divided among the components of aggregate demand.

In a graph of the aggregate demand curve,an increase in investment by businesses is represented by a:

The marginal propensity to consume is:

If consumers save 15 cents out of every dollar received,the:

If the current level of spending falls short of full employment,the government can close the GDP gap by:

Ceteris paribus,if the government transfers income from individuals with a high MPC to those with a low MPC,in the short run,spending and output will:

A tax cut of $8 billion with an MPC of 0.90 will cause a cumulative change in spending equal to:

The marginal propensity to save is:

Which of the following does not meet the economic definition of saving?

The following table shows a hypothetical relationship between consumption and income.Answer the indicated question(s)on the basis of this table. Table 12.1-Income and consumption data -Based on Table 12.1,what is the multiplier?

If consumers spend 98 cents out of every extra dollar received,the:

The total quantity of output demanded at alternative price levels refers to:

The terrorist attacks in September 2001 reduced consumer confidence.Which of the following indicates the resulting change in the U.S.economy?

Which of the following will definitely reduce a budget deficit and provide fiscal restraint?

Figure 12.1: -Assuming aggregate demand is represented by AD₁,the equilibrium level of income in Figure 12.1 is:

Figure 12.2: -Using Figure 12.2,if Q₂ represents full employment,then a shift from AD₁ to:

The Challenge of Economics

The US Economy

Supply and Demand

Consumer Demand

Supply Decisions

Competition

Monopoly

The Labor Market

Government Intervention

The Business Cycle

Aggregate Supply and Demand

Money and Banks

Monetary Policy

Economic Growth

Theory and Reality

International Trade

Filters

Exam 12: Fiscal Policy

If the multiplier is 5 and defense expenditures decrease by $40 million,aggregate demand decreases by a total of:

Which of the following will definitely result in fiscal stimulus?

The following table shows a hypothetical relationship between consumption and income.Answer the indicated question(s)on the basis of this table. Table 12.1-Income and consumption data -Based on Table 12.1,what is the marginal propensity to consume?

A tax hike causes a decrease in disposable income.

In 2012,the output of the U.S.was almost 16 trillion dollars.Discuss how this output was divided among the components of aggregate demand.

In a graph of the aggregate demand curve,an increase in investment by businesses is represented by a:

The marginal propensity to consume is:

If consumers save 15 cents out of every dollar received,the:

If the current level of spending falls short of full employment,the government can close the GDP gap by:

Ceteris paribus,if the government transfers income from individuals with a high MPC to those with a low MPC,in the short run,spending and output will:

A tax cut of $8 billion with an MPC of 0.90 will cause a cumulative change in spending equal to:

The marginal propensity to save is:

Which of the following does not meet the economic definition of saving?

The following table shows a hypothetical relationship between consumption and income.Answer the indicated question(s)on the basis of this table. Table 12.1-Income and consumption data -Based on Table 12.1,what is the multiplier?

If consumers spend 98 cents out of every extra dollar received,the:

The total quantity of output demanded at alternative price levels refers to:

The terrorist attacks in September 2001 reduced consumer confidence.Which of the following indicates the resulting change in the U.S.economy?

Which of the following will definitely reduce a budget deficit and provide fiscal restraint?

Figure 12.1: -Assuming aggregate demand is represented by AD1,the equilibrium level of income in Figure 12.1 is:

Figure 12.2: -Using Figure 12.2,if Q2 represents full employment,then a shift from AD1 to:

The Challenge of Economics

The US Economy

Supply and Demand

Consumer Demand

Supply Decisions

Competition

Monopoly

The Labor Market

Government Intervention

The Business Cycle

Aggregate Supply and Demand

Money and Banks

Monetary Policy

Economic Growth

Theory and Reality

International Trade

Filters

Figure 12.1: -Assuming aggregate demand is represented by AD₁,the equilibrium level of income in Figure 12.1 is:

Figure 12.2: -Using Figure 12.2,if Q₂ represents full employment,then a shift from AD₁ to: