Question 3 (1 point)
[Question 3 Unsaved]
If the spending multiplier is 8, the tax multiplier is
Question 3 options:
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.
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 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.
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