15. Which of the following would cause the aggregate demand curve to shift to the right?
a. an increase in purchases by the federal government
b. an increase in real interest rates
c. an appreciation of the American dollar
d. a decrease in the money supply

16. Assume that an economy begins in macroeconomic equilibrium. Then, taxes are significantly decreased. As a result of this change:
a. there is expansion and inflation in the US c. there is stagflation in the US
b. there is recession and deflation in the US d. there is expansion and deflation in the US

17. A large increase in oil prices, such as the ones occurring in 1973 and 1979, will cause
a. inflation and expansion c. inflation and recession
b. recession and disinflation d. expansion and deflation

18. Assume that production in the United States is valued at $10,000. National income is therefore $10,000. Of their income, workers pay $1,000 in taxes, save $500, spend $8,000 on consumer goods, and spend $500 on imports. Businesses spend $1,000 in new investment spending. And, foreigners spend $500 on exports. In order to avoid any problems of inflation or unemployment, the government should have a budget deficit or surplus of:
a. 0 b. $500 surplus c. $500 deficit d. $1,000 deficit e. $2,000 deficit

19. From 1990 to 1995, the U.S. economy was in a recessionary gap. According to the classical economists, which of the following should have occurred?
a. wages should have fallen which would cause more workers to be hired
b. prices should have fallen which would increase consumer spending
c. interest rates should have fallen which would increase consumer and investment spending
d. all of the above should have occurred

20. Which of the following statements is/are true about the classical quantity theory of money?
a. The equation of exchange is MV = PQ
b. The classical economists assumed that V would rise when real interest rates rise
c. The classical economists concluded that increases in the money supply cause increases
in real GDP and nothing else
d. all of the above

21. Assume that the United States and Great Britain are both on the Gold Standard. There is
inflation in the United States but not in Great Britain. As a result of the inflation in the United States,
a. Gold would leave the United States and go to Great Britain
b. Gold would leave Great Britain and go to the United States
c. The American dollar would depreciate
d. The American money supply would increase

22. At an income of $100,000, I spent $90,000 on consumer goods. When my income rose to $200,000, I spent $160,000 on consumer goods. My marginal propensity to consume is:
a. 0.9 b. 0.8 c. 0.7 d. 1 e. $70,000

23. National Disposable
Income Taxes Income Consumption Investment Government
$100 $100 0 $ 50 $ 25 $100
200 100 100 125 25 100
300 100 200 200 25 100
400 100 300 275 25 100
500 100 400 350 25 100
600 100 500 425 25 100
700 100 600 500 25 100
800 100 700 575 25 100

Using these numbers, the equilibrium real GDP (equal to National Income) is:
a. 300 b. 400 c. 500 d. 600 e. 700

24. Which of the following would cause consumption to rise?
a. the GDP Deflator rises
b. a greater proportion of the population is between age 20 and 30
c. transitory income increases
d. income is taken from poor people and given to rich people

25. Which of the following would cause business investment spending to rise?
a. an increase in real interest rates from 5% to 8%
b. a decrease in the corporate profits tax rate from 48% to 34%
c. a reduction of the investment tax credit from 10% to 2%
d. sales falling in relation to capacity from 90% to 60%
26. Assume that net exports increase by $1 billion. Equilibrium Real GDP will rise by more than $1 billion. Explain why. (i.e., why is there a multiplier?).
a. an increase in net exports appreciates the dollar causing a further increase in net exports
b. an increase in net exports causes an increase in tax revenues which increases
government spending
c. an increase in net exports increases income causing an increase in induced consumption
d. an increase in net exports causes an increase in the money supply

27. The largest transfer in the federal budget is:
a. defense b. education c. social security d. welfare e. police

28. The largest tax collected at the federal government level is the:
a. income tax b. sales tax c. property tax d. social security tax

29. A person had an income of $20,000 last year and paid $10,000 in tax. This year, the person
had an income of $100,000 and paid $30,000 in tax. The person's marginal tax rate is:
a. 25% b. 30% c. 50% d. 100%

30. The tax in question 29 is:
a. progressive b. regressive c. proportional