Question 1

If the MPC in an economy is .9,a $1 billion increase in government spending will ultimately increase consumption by:

Accepted Answer

The MPC (Marginal Propensity to Consume) is the proportion of an increase in income that is spent, rather than saved. If the MPC is 0.9, this means that for every additional $1 in income, 90 cents will be spent and 10 cents will be saved.
 
With a $1 billion increase in government spending, this will increase income and in turn, increase consumption. The total increase in consumption will be the MPC multiplied by the increase in income, which is:
 
$1 billion x 0.9 = $900 million
 
Therefore, the answer is D) $9 billion.

Question 2

If a $10 billion decrease in lump-sum taxes increases equilibrium GDP by $40 billion,then:

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Question 3

If a lump-sum tax of $40 billion is imposed and the MPC is .6,the saving schedule will shift:

Accepted Answer

A lump-sum tax reduces disposable income, leading to a decrease in both consumption and saving. With an MPC of 0.6, the marginal propensity to save (MPS) is 0.4. Therefore, the saving schedule will shift downward by 0.4 times the tax amount, which is $16 billion.

Question 4

The effect of imposing a lump-sum tax is to:

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Question 5

Answer the question on the basis of the following table:  Refer to the table.If an additional lump-sum tax of $20 were imposed,we would expect:

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Question 6

It is true that:

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The answer of It is true that:
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Question 7

Answer the question on the basis of the following table:  The MPC and MPS in the economy:

Accepted Answer

The MPS (Marginal Propensity to Save) is the fraction of additional income that individuals save rather than spend, and the MPC (Marginal Propensity to Consume) is the fraction of additional income that individuals spend rather than save. Looking at the table, we see that when disposable income increases by 100, consumption spending increases by 60 and saving increases by 40. This means that the MPC is 0.6 and the MPS is 0.4, so the correct choice is B.

Question 8

If the marginal propensity to consume in an economy is .8,net exports are zero,and government spending is $33 billion at each level of real GDP,the slope of the economy's aggregate expenditures schedule will be:

Accepted Answer

The slope of the aggregate expenditures schedule is equal to the marginal propensity to consume (MPC) multiplied by 1 minus the marginal tax rate (MTR) plus the marginal propensity to import (MPI). Since the question states that net exports are zero, we can ignore the MPI term. Additionally, it does not provide information on the marginal tax rate, so we can assume it is also zero. Therefore, the slope of the aggregate expenditures schedule is equal to the MPC, which is .8. Thus, the correct answer is A) .8.

Question 9

If the MPC in an economy is .75,a $1 billion increase in taxes will ultimately reduce consumption by:

Accepted Answer

The marginal propensity to consume (MPC) is 0.75, meaning that for every dollar of income, consumption increases by 75 cents. A $1 billion tax increase reduces disposable income by $1 billion, leading to an initial reduction in consumption of $0.75 billion. The multiplier effect further reduces consumption, calculated as 1/(1-MPC) = 4. Thus, the total reduction in consumption is $0.75 billion * 4 = $3 billion.

Question 10

If a $20 billion increase in government expenditures increases equilibrium GDP by $50 billion,then:

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Question 11

In an aggregate expenditures diagram,a lump-sum tax (T)will:

Accepted Answer

A lump-sum tax reduces disposable income, which decreases consumption by an amount equal to the tax times the marginal propensity to consume (MPC), shifting the aggregate expenditures line downward by T × MPC.

Question 12

In the aggregate expenditures model,a reduction in taxes may:

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Question 13

If government increases its tax revenues by $15 billion and the MPC is 2/3,then we can expect the equilibrium GDP to:

Accepted Answer

The tax multiplier is calculated as -MPC/(1-MPC). With an MPC of 2/3, the tax multiplier is -2/3 / (1-2/3) = -2. The change in GDP is the tax multiplier times the change in taxes: -2 * $15 billion = -$30 billion.

Question 14

If the marginal propensity to save in a closed economy is .25 and a lump-sum tax is imposed,the slope of the economy's aggregate expenditures schedule will be:

Accepted Answer

The marginal propensity to consume (MPC) is 1 - marginal propensity to save (MPS), so MPC = 0.75. The slope of the aggregate expenditures schedule is equal to the MPC, which is 0.75. A lump-sum tax does not change the MPC, so the slope remains 0.75.

Question 15

In the aggregate expenditures model,an increase in government spending may:

Accepted Answer

An increase in government spending would increase the aggregate expenditures in the economy, which would increase the demand for goods and services, leading to an increase in output and employment. This is due to the multiplier effect, where an initial increase in spending leads to a larger increase in output and income.

Question 16

Answer the question on the basis of the following table:  The tax in the economy is a:

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Question 17

In a mixed open economy,which of the following all affect the equilibrium GDP in the same direction?

Accepted Answer

In a mixed open economy, the following factors affect the equilibrium GDP in the same direction: - Any change in autonomous spending (CS or T) - Any change in net exports (X-M) Therefore, out of the given options, only B includes both factors that affect equilibrium GDP in the same direction: S_a (autonomous spending), T (taxes), and M (net exports).

Question 18

If government increases its purchases by $15 billion and the MPC is 2/3,then we would expect the equilibrium GDP to:

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Question 19

A lump-sum tax means that:

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Question 20

If MPC = .5,a simultaneous increase in both taxes and government spending of $20 will:

Accepted Answer

With an MPC of 0.5, the multiplier is 2. An increase in government spending of $20 increases GDP by $40, while an increase in taxes of $20 decreases GDP by $20. The net effect is an increase in GDP by $20.

Quiz 30: The Aggregate Expenditures Model