Unit 10 Practice

GBS students receive a stimulus checks of $100. On average, the students decide to spend $90 and save $10. Their Marginal Propensity to Consume is...

• 0.1

• 0.5

• 0.8

• 0.9

With an MPC of 0.9, the spending multiplier is...

• 2

• 3

• 9

• 10

With an MPC of 0.9, the tax multiplier is...

• -2

• -3

• -9

• -10

If the MPC is 0.9 and there is a recessionary output gap of 90 billion dollars, then the government can restore the economy to its potential by... (Check all that apply)

• Increasing spending by $90 billion

• Increasing spending by $9 billion

• Increasing spending by $10 billion

• Reducing taxes by $9 billion

• Reducing taxes by $10 billion

Which of the following equations represents Aggregate Demand?

• GDP = X + I + C + (Y - Z)

• GDP = C + I + G + (X - M)

• GDP = C + I + X + (G - T)

• GDP = (1/MPS)*G + I + C

What does the vertical axis represent on the aggregate demand curve?

• Real GDP

• Nominal GDP

• Aggregate Price Level

• The Multiplier

Which of the following events will increase the level of Aggregate Demand? Check all that apply.

• An increase in income taxes

• The Fed lowers interest rates

• A rise in the cost of raw material

• An increase in worker productivity

• An increase in consumer confidence

If consumer wealth decreases in real value, what happens to the aggregate demand curve?

• AD shifts left

• AD shifts right

• Upward movement along the AD curve

• Downward movement along AD curve

If real GDP falls below potential GDP, then the economy is experiencing a ____________

• Recessionary Gap

• Inflationary Gap

This economy is experiencing...

• long-run equilibrium

• an inflationary gap

• a recessionary gap