MCQs on fiscal policy.

1. Refer to Figure A. In order for the economy pictured above to get back to RGDPNR, this economy could use:

a) Decreased taxes also increased government purchases.

b) Increased taxes also increased government purchases.

c) Decreased taxes also decreased government purchases.

d) Increased taxes also decreased government purchases.

2. In the short run, expansionary fiscal policy can cause a rise in real GDP:

a) In combination with a rise in the price level.

b) In combination with no rise in the price level.

c) In combination with a reduction in the price level.

d) In combination with a rise or a reduction in the price level, depending on the economy.

3. Starting from long-run equilibrium also a balanced budget, expansionary fiscal policy will tend to:

a) Move the federal budget toward surplus also increase net exports.

b) Move the federal budget toward surplus also decrease net exports.

c) Move the federal budget toward deficit also increase net exports.

d) Move the federal budget toward deficit also decrease net exports.

4. If the government wanted to offset the effect of a fall in consumer confidence on AD, it might:

a) Decrease government purchases.

b) Decrease taxes.

c) Decrease transfer payments.

d) Do either a) or c).

5. If investment decreases by $20 billion also the MPC = 0.8, the resulting decrease in the consumption component of AD is:

a) $16 billion.

b) $4 billion.

c) $100 billion.

d) $80 billion.

6. To achieve a $50 billion decrease in AD, if the MPC is 0.8, Illustrate what decrease in government purchases would be called for?

a) $10 billion

b) $40 billion

c) $50 billion

d) $62.5 billion

7. The multiplier effect is based on the fact which ____ by one person is ____to another.

a) Income; income

b) Expenditures; expenditures

c) Expenditures; income

d) Income; expenditures

8. If the government needed to move the economy out of a present recession, that the following might be an appropriate policy action?

a) Decrease taxes

b) Increase government purchases of goods also services

c) Increase transfer payments

d) Any of the above.