Question

Question 3 (1 point)

[Question 3 Unsaved]
If the spending multiplier is 8, the tax multiplier is

Question 3 options:

A) 0.
B) -1.
C) -7.
D) -8.

Question 4 (1 point)

[Question 4 Unsaved]
Suppose the marginal propensity to consume (MPC) is 0.90. If the government increases both its spending and taxes by $50 million, then aggregate demand will

Question 4 options:

A) increase by $50 million.
B) increase by $45 million.
C) remain unchanged.
D) increase by $4.5 million.

Question 5 (1 point)

[Question 5 Unsaved]
Which of the following types of economic policy was advocated by the Reagan administration?

Question 5 options:

A) Keynesian fiscal policy.
B) Supply-side fiscal policy.
C) Balanced-budget fiscal policy.
D) Automatic stabilizers.

Question 6 (1 point)

[Question 6 Unsaved]
The Laffer curve is a graph of the relationship between tax rates and

Question 6 options:

A) government spending.
B) inflation.
C) real GDP.
D) total tax revenues.

Question 7 (1 point)

[Question 7 Unsaved]
Supply-side fiscal policies primarily focus on

Question 7 options:

A) improving incentives to work, save, and invest.
B) adjusting interest rates and the money supply.
C) expanding overseas markets.
D) developing the nation's infrastructure.

Answer 1

Answer 3: c

Spending multiplier = 1/(1-MPC)

8 = 1/(1-MPC)

MPC = 0.875

Tax muliplier = -MPC/MPS = 0.875/0.125 = -7

Answer 4: a

MPC = 0.9

Government muliplier = 1/(1-mpc)

Tax muliplier = -mpc(1/1-mpc)

Aggregate effect of policy = 1/(1-mpc) - mpc(1-mpc) = 1

The the aggregate demand will increase by equal amount.

Answer 5: b

Reagan administration followed polices that improved the supply side of the economy such reducing income tax and government regulations.

Answer 6: d

Laffer curve show relationship between tax rate and tax revenue collected

Answer 7: a

These includes policies that increases the productive capacity of the economy.