Mod 21

Assume that marginal propensity to consume is 0.8, and potential output is $800 billion. The government spending multiplier is:

• 5

• 1.25

• 10

• 4

• .5

Assume that marginal propensity to consume is 0.8, and potential output is $800 billion. If current real GDP is $700 billion, which of the following policies would bring the economy to potential output?

• Increase government spending by $25 billion.

• Increase government spending by $100 billion.

• Increase government spending by $20 billion.

• Decrease government spending by $100 billion.

• Increase government spending by $800 billion.

If the MPC is 0.9, then the government spending multiplier is:

• 0.1.

• 1.11

• 9

• 10

• 5

If the marginal propensity to consume is .80, and the federal government decreases spending by $200 billion, the income expenditure model would predict that real GDP will decrease by:

• $160 billion.

• $200 billion.

• $800 billion.

• $1000 billion.

• $750 billion.

Assume that marginal propensity to consume is 0.8, and potential output is $800 billion. If current GDP is $850 billion:

• there is an inflationary gap.

• there is a recessionary gap.

• the economy is in long-run equilibrium.

• taxes should be decreased.

• transfer payments should be increased.