Question

1. Consider the simple spending multiplier where there are no taxes. This multiplier:

   	a.	is smaller than the tax multiplier in absolute value
   	b.	is less than 1
   	c.	is greater than 1
   	d.	is equal to 1

3 points   

QUESTION 4

1. Suppose that the Federal Government and the Federal Reserve want to raise output but keep interest rates constant. This can be accomplished

   using:

   	a.	expansionary monetary policy and contractionary fiscal policy
   	b.	contractionary monetary policy and expansionary fiscal policy
   	c.	expansionary monetary policy and expansionary fiscal policy
   	d.	contractionary monetary policy and contractionary fiscal policy

3 points   

QUESTION 5

1. Consider the spending multiplier with taxes. Let t = marginal tax rate. Suppose that t = 1. It follows that the spending multiplier with

   taxes is:

   	a.	equal to 0
   	b.	greater than 1
   	c.	equal to 1
   	d.	equal to ∞

Answer 1

QUESTION 3

The simple spending multiplier where there are no taxes is less than 1.

The tax multiplier will be always smaller than the spending multiplier because the entire government spending increase moves towards increasing aggregate demand and only a portion of the increased disposable income is consumed.

QUESTION 4

The Federal Government and the Federal Reserve want to raise output but keep interest rates constant. This can be accomplished using contractionary monetary policy and expansionary fiscal policy.

QUESTION 5

The spending multiplier with taxes is greater than 1.