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| 1 | |
In the Keynesian model of income determination, the adjustment that leads the economy to the equilibrium level of output is based on |
| | A) | unintended inventory changes |
| | B) | continuous government intervention |
| | C) | changes in households’ saving behavior |
| | D) | inflows or outflows of funds from or to foreign countries |
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| 2 | |
The Keynesian model of income determination assumes that |
| | A) | the price level is fixed |
| | B) | interest rates are kept constant |
| | C) | the equilibrium output level is determined by aggregate demand |
| | D) | all of the above |
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| 3 | |
The equation for the aggregate consumption used in this chapter is: C = Co + cY, and from this equation we know that the marginal propensity to consume |
| | A) | is always positive and greater than one |
| | B) | is always positive but less than one |
| | C) | shows the proportion of total income that is spent on consumption |
| | D) | changes with changes in income |
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| 4 | |
Assume a model with no government and no foreign sector. If the consumption function is defined as C = 800 + (0.8)Y, and the income level is Y = 2,000, then the level of total saving is |
| | A) | - 800 |
| | B) | - 400 |
| | C) | 0 |
| | D) | 400 |
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| 5 | |
Assume a model with no government and no foreign sector. If we have a 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) | -250 |
| | C) | -450 |
| | D) | -500 |
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| 6 | |
Assume a model of the expenditure sector with no government involvement. If this model is in equilibrium at an income level of Y = 2,000, and autonomous consumption is Co = 300, investment is Io = 150, and net export is NXo = -50, then we can conclude that the marginal propensity to consume must be |
| | A) | 0.80 |
| | B) | 0.50 |
| | C) | 0.20 |
| | D) | 0.10 |
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| 7 | |
In a model with no government and no foreign sector, if autonomous consumption is Co = 200, investment is Io = 100, and the level of equilibrium income Y = 1,200, then the marginal is propensity to save is |
| | A) | 0.10 |
| | B) | 0.25 |
| | C) | 0.50 |
| | D) | 0.75 |
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| 8 | |
Assume a simple model with no government and no foreign sector. If an increase in autonomous investment of 200 leads to an increase in total consumption of 600, then the size of the expenditure multiplier is |
| | A) | 2.0 |
| | B) | 2.5 |
| | C) | 3.0 |
| | D) | 4.0 |
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| 9 | |
Assume a model without income taxation and no foreign sector. If government purchases are increased by $25 billion financed by a lump sum tax increase of $25 billion, then |
| | A) | national income will increase by $25 billion but the budget deficit is unaffected |
| | B) | national income will increase $50 billion but the budget deficit is unaffected |
| | C) | neither national income nor the budget deficit will be affected |
| | D) | we cannot say for sure what will happen to national income or the budget deficit |
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| 10 | |
Assume a model that has income taxation. If the government decreases government purchases and taxes by a lump sum of $10 billion, which of the following will happen? |
| | A) | national income will decrease by $10 billion but the budget deficit will not be affected |
| | B) | national income will decrease by less than $10 billion and the budget deficit will go up |
| | C) | neither national income nor the budget deficit will be affected |
| | D) | we cannot say for sure what will happen to national income or the budget deficit |
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| 11 | |
The size of the expenditure multiplier increases with an increase in |
| | A) | government transfer payments |
| | B) | the marginal propensity to save |
| | C) | marginal propensity to consume |
| | D) | the income tax rate |
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| 12 | |
The size of the expenditure multiplier will increase if |
| | A) | the income tax rate decreases |
| | B) | the marginal propensity to save decreases |
| | C) | marginal propensity to consume increases |
| | D) | all of the above |
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| 13 | |
The effect on output resulting from a change in autonomous investment 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 |
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| 14 | |
Assume the savings function is S = - 200 + (1/4)YD and the marginal tax rate is t = 20%. If the level of government spending increases by 100, by how much will the level of equilibrium income change? |
| | A) | 250 |
| | B) | 300 |
| | C) | 400 |
| | D) | 800 |
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| 15 | |
Assume the consumption function is of the form C = 800 + (0.75)YD and the income tax rate is t = 0.2. What would be the effect of an decrease in government transfers by ΔTRo = - 200 ? |
| | A) | a decrease in income by 150 |
| | B) | a decrease in income by 375 |
| | C) | a decrease in income by 500 |
| | D) | a decrease in income by 800 |
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| 16 | |
Assume a model of the expenditure sector with income taxes. If the level of autonomous investment decreases (due to negative business expectations), which of the following will be true? |
| | A) | the actual budget surplus will not be affected |
| | B) | the actual budget surplus will increase |
| | C) | the structural budget surplus will decrease |
| | D) | the cyclical component of the budget surplus will decrease |
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| 17 | |
Assume the consumption function is C = 600 + (3/4)YD and the income tax rate is t = 20%. What will be the effect on the actual budget surplus of an increase in autonomous investment by 200? |
| | A) | an increase by 150 |
| | B) | an increase by 100 |
| | C) | an increase by 40 |
| | D) | the budget surplus will not be affected at all |
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| 18 | |
Assume the consumption function is C = 200 + (0.8)YD and the income tax rate is t = 0.25. What will be the effect of an increase in government transfers by ΔTR = 100 on the full-employment budget surplus? |
| | A) | an increase by 60 |
| | B) | an increase by 75 |
| | C) | an decrease by 100 |
| | D) | the full-employment budget surplus will not be affected at all |
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| 19 | |
The full-employment budget surplus will increase if |
| | A) | the economy goes into a boom |
| | B) | defense spending is increased |
| | C) | the income tax rate is decreased |
| | D) | government transfer payments are decreased |
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| 20 | |
Changes in the structural budget surplus are not a perfect measure for the strength of fiscal policy since |
| | A) | the economy can go into a recession and this will distort the numbers |
| | B) | an increase in government purchases with a matching tax increase can change national income without a change in the structural budget surplus |
| | C) | changes in the cyclical component of the budget surplus should be used instead |
| | D) | monetary policy changes can also affect the structural budget surplus |
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