1. If MPC = 0.75, a $40 billion decrease in governmentpurchases would have what

Question

1. If MPC = 0.75, a $40 billion decrease in governmentpurchases would have what size effect on the "first round" ofinduced added consumption?
a. $30 billion
b. $40 billion
c. $120 billion
d. $160 billion 2. Refer to Figure 27-2. In order for the economy pictured toget back to RGDP(NR), this economy could use: a. decreased taxes and increased government purchases. b. increased taxes and increased government purchases. c. decreased taxes and decreased government purchases. d. increased taxes and decreased government purchases. 3. If government policymakers were worried about the inflationary potential of theeconomy, which of the following would be a correct fiscal policychange?
a. Decrease consumption taxes.
b. Decrease government purchases of goods and services.
c. Increase transfer payments.
d. Increase the budget deficit.
e. None of the above.

4. An increase in taxes will do which of the following in the longrun?
a. increase unemployment
b. decrease the price level
c. decrease real output
d. None of the above.

5. A larger crowding-out effect:
a. increases the magnitude of a given fiscal policy's effect oninterest rates and increases the
magnitude of its effects on net exports.
b. increases the magnitude of a given fiscal policy's effect oninterest rates and decreases the
magnitude of its effects on net exports.
c. decreases the magnitude of a given fiscal policy's effect oninterest rates and increases the
magnitude of its effects on net exports.
d. decreases the magnitude of a given fiscal policy's effect oninterest rates and decreases the
magnitude of its effects on net exports.

Explanation / Answer

3. b 4. b (AD shifts left, then SRAS shifts right in the longrun) 5. either a or b, but I'm not sure which.

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