Macro Unit 3 Module 16 - 21 Nat'l Income, AD/AS Model, Fiscal

The formula for the SPENDING MULTIPLIER is:

• 1/MPC

• 1/1+MPC

• 1/MPS

• 1/1-MPS

The multiplier is useful in determining:

• the full employment rate
• level of business inventories
• rate of inflation
• change in GDP resulting from a change in spending

If the MPC is .7 and gross investment spending increase by $3 billion, GDP will

• increase by $10 billion
• increase by 2.1 billion
• decrease by $4.29 billion
• increase by $4.29 billion

The marginal propensity to consume is

• the change in income over the change in consumption
• the change in consumption as a result of a chang in income
• the slope of the savings curve
• the change in consumption over the change in savings

An autonomous increase in aggregate income of $100 leads to additional spending of $80 in the next period and $64 in the following period and so on. From this information the value of the multiplier coefficient is

• 0.8
• 1.25
• 5
• 6

If MPC = 0.75, the original equilibrium level of income = $300 bn and then investment falls by $20bn then the new equilibrium level of income = 

• $380bn
• $280bn
• $220bn
• $205bn

Suppose 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 according to the macroeconomic model presented in the text?

• €200 million
• €800 million
• €2,000 million
• €2,500 million
• €4,000 million

The 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.

The 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.

Suppose an economy experiences a lump-sum increase in government spending of €20 million. If the multiplier is 4.0, then according to the macroeconomic model presented in the text 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.