# Suppose the marginal propensity to consume is 0.8. How much would equilibrium

Question 1Suppose the marginal propensity to consume is 0.8. How much would equilibrium output go up if the government increased spending by \$500 million (assuming all other factors are held constant)?\$400 million\$625 million\$900 million\$2,500 million\$4,000 millionFlag this QuestionQuestion 2What is the equation for the tax multiplier for a lump sum tax?mult / mpcmult / (1 – mpc)- mult × mpc- mpc / mult- mpc / (1 – mult)Flag this QuestionQuestion 3Suppose that the marginal propensity to consume is 0.9. What is the tax multiplier for a lump sum tax in this case?- 0.1- 9- 10- 90- 100Flag this QuestionQuestion 4Suppose the government increases taxes by a lump sum of \$500 million. If the marginal propensity to consume is 0.8, how much would the equilibrium level of output decrease?\$200 million\$800 million\$2,000 million\$2,500 million\$4,000 millionFlag this QuestionQuestion 5Suppose the government increases spending by \$200 million but at the same time increases taxes by \$200 million. How much would equilibrium output change?Output would increase by \$400 million.Output would increase by \$200 million.Output would decrease by \$200 million.Output would decrease by \$400 million.We don’t have enough information to predict the change in output.Flag this QuestionQuestion 6Which one of the following impacts is least likely to occur as a result of expansionary fiscal policy?An increase in unemploymentAn increase in inflationAn increase in the government debtAn increase in aggregate demandAn increase in equilibrium outputFlag this QuestionQuestion 7The most likely economic situation in which a government would implement contractionary fiscal policy is…government budget surpluses.government budget deficits.high unemployment.low unemployment.high inflation.Flag this QuestionQuestion 8Which one of the following could cause the shift shown in the above Keynesian cross diagram?An increase in government spendingA increase in (lump-sum) taxesAn increase in government transfer paymentsAn increase in autonomous consumptionNone of the aboveFlag this QuestionQuestion 9 What are the two main sources of inflows of funds to the federal government in the United States?Government borrowing and social security taxesSocial security taxes and estate taxesPersonal income taxes and corporate taxesPersonal income taxes and social security taxesGovernment borrowing and personal income taxesFlag this QuestionQuestion 10Which one of the following statements is true about the federal government surplus or deficit, expressed as a percentage of GDP, in the United States over the last few decades?Except for a few years around 2000, the government has run a budget deficit.Over the last few decades, there have been steadily growing deficits.The deficit reached its highest levels during the George W. Bush administration.The federal government has normally run a budget surplus, except for several recent years under the George W. Bush administration.The federal government has normally run a budget deficit, except for several recent years under the George W. Bush administrationFlag this QuestionQuestion 11In 2006, about how large was the federal debt in the United States as a percentage of GDP?1%15%40%80%130%Flag this QuestionQuestion 12Which one of the following statements is false about the U.S. federal debt?Interest payments must be made on debt held by foreigners.The debt creates an obligation on future taxpayers.Someday, the debt will have to all be paid off.The U.S. makes payment on its debt using its own currency.Interest payments on government borrowing tend to go to the wealthy.Flag this QuestionQuestion 13Which one of the following statements is true?Economists agree that the federal government should always try to balance its budget.Economists agree that the federal government should always try to maintain a budget surplus.Economists agree that the federal government should always try to maintain a budget deficit.A growing percentage of the U.S. federal government debt is owed to foreign bond holders.A growing government debt would be expected to decrease economic inequality.Flag this QuestionQuestion 14Which one of the following statements is false?Government revenues are likely to increase during a period of economic expansion.Total federal government outlays in the United States have generally declined as a percentage of GDP in recent decades.Government spending tends to be more stable than business investment spending.During the economic expansion of the 1990s government outlays declined as a percentage of GDP.The automatic stabilizer effect implies that without active policies government budgets can be used to moderate recessions.Flag this QuestionQuestion 15The automatic stabilization effect of fiscal policy refers to the fact that…taxes tend to become more progressive during economic expansions.taxes tend to become more regressive during economic expansions.inflation tends to go up during economic expansions.government spending tends to go down during economic expansions.government spending tends to go up during economic expansions.Flag this QuestionQuestion 16The time it takes Congress to debate and agree upon a tax policy change is referred to as…a data lag.an outside lag.a transmission lag.a legislative lag.a recognition lag.Flag this QuestionQuestion 17What is the primary belief behind supply-side economics?A decrease in the interest rate will encourage more entrepreneurial activity in an economy.An increase in government spending will boost economic production.A decrease in social support services will force more people to find employment.Tax cuts will encourage more work and investment, leading to higher output and tax revenues.An increase in the money supply will boost the economy.Flag this QuestionQuestion 18Which one of the following statements is true?“Automatic stabilizers” are generally sufficient to prevent recession and inflation.The use of fiscal policy for “fine-tuning” the economy was discredited in the 1970s due to problems with inflation and time-lags.In general, tax cuts have led to higher government revenuesThe United States federal government has not used active fiscal policies over the last several decades.The budget deficit measures the stock of outstanding government debt.Flag this QuestionQuestion 19Suppose an economy experiences a lump-sum increase in exports of \$20 million. If the multiplier is 4.0, what will be the change in the equilibrium level of output?Output will increase by \$80 million.Output will increase by \$5 million.Output will decrease by \$80 million.Output will decrease by \$5 million.Output will remain unchanged.Flag this QuestionQuestion 20Which one of the following statements is true?The fact that people tend to spend some of their money on imported goods tends to reduce the multiplier effect as compared to an economy without a foreign sector.A country should always seek to minimize imports.The United States is currently running a trade surplus.The multiplier in the presence of international trade is always greater in value than it would be in the absence of trade.A country should always seek to maximize imports.Flag this QuestionQuestion 21 Suppose government spending increases by \$1 million. The multiplier effect implies that income (Y) will increase by less than \$1 million.TrueFalseFlag this QuestionQuestion 22 Suppose government spending increases by \$50 million and the marginal propensity to consume is 0.9. According to the Keynesian macroeconomic model, this will cause equilibrium output to increase by \$500 million.TrueFalseFlag this QuestionQuestion 23 Disposable income is the income available after people have paid for necessary items like food and shelter.TrueFalseFlag this QuestionQuestion 24 The tax multiplier is always one-half the value of the regular income/spending multiplier.TrueFalseFlag this QuestionQuestion 25 Decreasing taxes is an example of expansionary fiscal policy.TrueFalseFlag this QuestionQuestion 26Expansionary fiscal policy is a potential means to counteract a high inflation rate.TrueFalseFlag this QuestionQuestion 27The largest source of federal outlays in the United States is national defense.TrueFalseFlag this QuestionQuestion 28 The United States federal debt is currently a larger percentage of the national economy than it was during World War II.TrueFalseFlag this QuestionQuestion 29 The data from the United States demonstrates that economic growth is always higher when the government is running a budget surplus.TrueFalseFlag this QuestionQuestion 30 According to the logic of supply-side economics, a tax cut may actually lead to an increase in government revenues.TrueFalseFlag this QuestionQuestion 31The presence of international trade will tend to increase multiplier effects.TrueFalseFlag this QuestionQuestion 32 The three leakages in the macroeconomic model presented in the text are savings, taxes, and imports.TrueFalseFlag this QuestionQuestion 33 In a macroeconomic model with all three injections and all three leakages present, the economy is always in equilibrium.TrueFalseFlag this QuestionQuestion 34Prior to the New Deal, which was put in place in 1931, the U.S. federal budget had been in surplus twice as often as it was in deficit. Since 1931 the Federal budget has been…consistently in surplus.consistently in deficit.in deficit except for 7 surplus years.in surplus except for 10 deficit years.in deficit approximately as often as in surplus.

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