1) Which of the following is true? The government expenditures multiplier increa

ID: 1153514 • Letter: 1

Question

1) Which of the following is true?

The government expenditures multiplier increases as “c” increases.

Fiscal policy is successful only in recessions.

Fiscal policy fixes the economy quite rapidly because tax and spending policies affect aggregate demand instantly.

Consumer spending does not immediately react to income tax cuts.

Both a and d.

2) Which of the following is true?

A recessionary gap can be closed completely because of sticky wages.

Theoretically, an inflationary gap can eventually lead to stagflation.

Wages increase in the time of recession for reasons such as minimum wages, union contacts, and government restrictions.

a and b.

3) Which is more likely to happen as a result of a sudden reduction in aggregate demand?

Recession only.

Inflation only.

Stagflation.

None

4) Which of the following is true?

In our simple model of aggregate demand the government expenditures multiplier is smaller than the tax multiplier.

The tax multiplier is negative suggesting that a reduction in taxes decreases our equilibrium output.

The tax multiplier is positive but smaller than the government expenditures multiplier.

None of the above.

1. The correct answer is E.

2. The correct answer is C.

3. The correct answer is A.

4. The correct answer is C.

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