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Macroeconomics, 6/e

Rudi Dornbusch, Massachusetts Institute of Technology
Stanley Fischer, International Monetary Fund, on leave from MIT
Richard Startz, University of Washington
Frank Atkins, University of Calgary
Gordon Sparks, Queen's University

Income and Spending

Quick Quiz


1	Assume a model with no government and no foreign sector. If we had savings function that is defined as S = - 200 + (0.1)Y and autonomous investment decreases by 50, by how much will consumption change?
		A)	100
		B)	150
		C)	250
		D)	450


2	In a model with no government and no foreign sector, if autonomous consumption is C^* = 200, autonomous investment is Io = 100, and the level of equilibrium income 1,200, then the marginal is propensity to save is
		A)	0.10
		B)	0.25
		C)	0.50
		D)	0.75


3	Assume a model with no government or foreign sector. If an increase in autonomous investment of 200 leads to an increase in income of 600, then the size of the expenditure multiplier is
		A)	4.0
		B)	3.0
		C)	2.0
		D)	0.75


4	The size of the expenditure multiplier
		A)	increases with a increase in transfer payments
		B)	increases an increase in the marginal propensity to save
		C)	increases a decrease in the marginal propensity to save
		D)	decreases with a decrease in the income tax rate


5	The effect on the level of output resulting from a change in autonomous investment spending is generally greater if
		A)	the marginal propensity to consume is larger
		B)	the marginal propensity to save is larger
		C)	the marginal propensity to import is larger
		D)	the income tax rate is larger


6	Assume a closed macro model where consumption function is of the form C = 600 + (3/4)YD and the income tax rate is t = 20%. If autonomous investment increases by 100, then income will increase by
		A)	100
		B)	150
		C)	250
		D)	400


7	Assume a closed macro model where consumption function is of the form C = 600 + (3/4)YD and the income tax rate is t = 20%. If autonomous investment increases by 100, then actual budget surplus will increase by
		A)	nothing
		B)	50
		C)	100
		D)	250


8	Assume a closed macro model where consumption function is of the form C = 600 + (3/4)YD and the income tax rate is t = 20%. If autonomous investment increases by 100, then the full-employment budget surplus will increase
		A)	nothing
		B)	50
		C)	100
		D)	250


9	Assume a closed macro model where the consumption function is of the form C = 800 + (0.75)YD and the income tax rate is t = 0.2. A decrease in government transfers (TR) by 200 will lead to
		A)	a decrease in income by 150
		B)	a decrease in income by 200
		C)	a decrease in income by 375
		D)	a decrease in income by 800


10	In a model with income taxes, assume that autonomous investment decreases. Which of the following will be true?
		A)	the full-employment budget-surplus will decline
		B)	actual budget deficit will increase
		C)	the cyclical component of the budget deficit will decrease
		D)	the actual budget deficit will not be affected


11	Assume a model with expenditure-income identity. If the marginal propensity to save is 0.2, the income-tax rate is 0.25 and the marginal propensity to import is 0.1 then the size of the investment multiplier is
		A)	2
		B)	2.5
		C)	4.5
		D)	5


12	If the full-employment budget surplus is positive, but the actual budget surplus is negative, then we can conclude
		A)	nothing
		B)	that the economy is in boom
		C)	that the economy is at full-employment
		D)	that fiscal policy is expansionary


13	Assume a model with income taxes in which imports increase proportionately with income. Which of the following statements is false?
		A)	The government expenditure multiplier decreases with an increase in the marginal propensity to import
		B)	The government expenditure multiplier decreases with an increase in the marginal income tax rate
		C)	The government expenditure multiplier decreases with a decrease in the marginal propensity to save
		D)	The government expenditure multiplier decreases with a decrease in the marginal propensity to consume


14	In an income-expenditure model with marginal propensity to import as 0.1 and income tax rate as 0.2 , a decline of investment of $100 will lead to a decline in income of $200 if marginal propensity to consume is
		A)	.0.5
		B)	0.6
		C)	0.7
		D)	0.5


15	A decrease in the income tax rate will
		A)	increase the full-employment budget surplus
		B)	increase the size of the expenditure multiplier
		C)	increase consumption but decrease savings
		D)	decrease imports


16	The full-employment budget surplus will decrease if
		A)	the economy goes into a recession
		B)	welfare spending is increased
		C)	the income tax rate is increased
		D)	government transfer payments are decreased

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