MCQ s on multiplier, MPC, fiscal policy, aggregate demand also budget deficit

1. ____ taxes are designed to take the same percentage of high incomes as compared to lower incomes.

1. Progressive

2. Regressive

3. Proportional

4. Negative

2. If the marginal propensity to consume is 2/3, the multiplier is:

1. 30.

2. 66.

3. 1.5.

4. 3.

3. If the government decides to spend an extra $5 billion on health care which they would otherwise have spent on road construction also the MPC = 0.75, Illustrate what is the effect on AD?

1. It has no effect.

2. It increases by $5 billion.

3. It increases by $15 billion.

4. It increases by $20 billion.

4. An increase in transfer payments, combined with a decrease in government purchases, would:

1. Increase AD.

2. Decrease AD.

3. Leave AD unchanged.

4. Have an indeterminate effect on AD.

5. Contraction fiscal policy consists of:

1. Increased government purchases, increased taxes also increased transfer payments.

2. Decreased government purchases, decreased taxes also decreased transfer payments.

3. Decreased government purchases, increased taxes also decreased transfer payments.

4. Increased government purchases, decreased taxes also increased transfer payments.

6. The smaller the MPC:

1. The smaller the fraction of an increase in AD due to an increase in government purchases which is consumption.

2. The greater the fraction of an increase in AD due to an increase in government purchases which is consumption.

3. The greater the change in government purchases required to achieve a given change in AD.

4. Both a) also c).

5. Both b) also c).

7. An increase in government purchases or a decrease in taxes, other things being equal, will tend to:

1. Increase interest rates also increase net exports.

2. Increase interest rates also decrease net exports.

3. Decrease interest rates also increase net exports.

4. Decrease interest rates also decrease net exports.

8. If there is initially a federal budget deficit also government purchases also taxes both rise:

1. AD increases also the budget deficit increases.

2. AD increases also the budget deficit decreases.

3. AD decreases also the budget deficit increases.

4. AD decreases also the budget deficit decreases.

5. There is an indeterminate effect on both AD also the budget deficit.

9. AD will shift to the right, other things being equal, Whenever:

1. The government budget surplus increases because government purchases rose.

2. The government budget surplus increases because taxes fell.

3. The government budget surplus increases because transfer payments rose.

4. Under any of the above circumstances.

5. Under none of the above circumstances.

10. During a recession, total welfare payments also employment insurance payments automatically increase while income taxes automatically decrease. Which of the following best describes the effect of these changes on aggregate demand?

1. Aggregate demand will be less than it would be without these automatic stabilizers.

2. Aggregate demand will be the same as it was before the recession.

3. Aggregate demand will be more than it would be without these automatic stabilizers.

4. Aggregate demand will be greater than it was before the recession.