Macro Economics Multiple Choice Questions Homework Help Online
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The key assumption of the basic Keynesian model is that in the short run, firms:
• meet demand at preset prices.
• adjust prices to bring sales in line with capacity.
• change prices frequently.
• operate just as they do in the long run.
• change prices rather than quantities.
Suppose a household’s marginal propensity to consume out of disposable income is 0.75 and its exogenous consumption is $250. If household income is $2000 and taxes are a flat $200, how much will the household save each period?
A$100 million increase in government purchases will have a bigger impact on equilibrium output
• The larger are the marginal tax rate and marginal propensity to import and the larger is the marginal propensity to consume.
• The larger are the marginal tax rate and marginal propensity to import and the smaller is the marginal propensity to consume.
• The smaller are the marginal tax rate and marginal propensity to import and the smaller is the marginal propensity to consume.
• The smaller are the marginal tax rate and marginal propensity to import and the larger is the marginal propensity to consume.
• The smaller are the marginal tax rate and marginal propensity to consume and the larger is the marginal propensity to import.
If the marginal propensity to consume equals 0.75, then a $100 increase in after-tax disposable income leads to a _____ increase in consumption.
Planned aggregate expenditure is total:
• value added in the economy.
• planned spending on final goods and services.
• revenue from the sale of goods and services.
• profits in the economy.
• output produced by firms
The amount by which consumption increases when disposable income increases by $1 is called:
• an automatic stabiliser.
• the consumption function.
• the marginal propensity to consume.
• autonomous expenditure.
• the multiplier.
In the basic Keynesian model, all but one of the following are true. Which is the exception?
• Planned consumption always equals actual consumption.
• Planned investment always equals actual investment.
• Planned government spending always equals actual government spending.
• Planned net exports always equal actual net exports.
• Planned aggregate expenditure is always equal to output.
If planned aggregate expenditure (PAE) in an economy equals 2000 + 0.8Y and potential output (Y*) equals 9000, then this economy has:
• an expansionary gap.
• a recessionary gap.
• No output gap.
• no autonomous expenditure.
• no induced expenditure.
In the short-run Keynesian model, in order to close a recessionary gap of $10 billion dollars, government purchases must be
• increased by $10 billion.
• decreased by $10 billion.
• increased by more than $10 billion.
• increased by less than $10 billion.
• decreased by $10 billion while taxes must be cut by $10 billion.
If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the MPC equals .8, and potential output (Y*) equals 9000, then taxes must ______ by ________ to eliminate any output gap.
• decrease, 20
• decrease, 200
• increase, 225
• increase, 250
• increase, 200
Fiscal policy is NOT often used as a stabilisation tool. However, it does have important roles in the economy. Three of these roles are:
• managing income distribution, demographic change, and public debt
• managing public assets, defence projects, and public safety
• managing government monetary policy, inflation and interest rates
• managing collection of taxes, public health and antiterrorism policy
• managing full employment, price stability and exchange rates.
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Dave’s Mirror Company expects to sell $1,000,000 worth of mirror and to produce $1,250,000 worth of mirrors in the coming year. The company purchases $300,000 of new equipment during the year. Sales for the year turn out to be $900,000. Actual investment by Dave’s Mirror Company equals _____ and planned investment equals _______.
• $250,000; $150,000.
• $300,000; $200,000.
• $650,000; $550,000.
• $850,000; $750,000.
When actual investment is less than planned investment
• firms are selling less output than expected.
• firms are selling more output than expected.
• the quantity of output sold is the amount the firm expected to sell.
• autonomous expenditure is less than induced expenditure.
• the stock of inventories must increase.
An increase in government purchases will have a larger effect on real GDP:
• the larger the MPC
• the smaller the MPC
• the larger a tax increase
• the smaller a tax decrease
• the larger the MPS.
Because of automatic stabilisers, when GDP fluctuates the:
• government’s budget remains in balance
• government’s deficit fluctuates directly with GDP
• government’s deficit fluctuates inversely with GDP
• the economy will automatically go to full employment
• none of the above.
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