Question

31.   An increase in government spending of $200 million financed by a new tax of $200 million in an economy with a marginal propensity to consume of .90 could result in an increase in nominal GDP (assuming a closed economy with no taxes or leakages) of up to how much? (a) $0; (b) $2,000 million; (c) $180 million; (d) $200 million.

32.   One important consequence of widened income and wealth disparities is a: (a) higher rate of inflation than would exist if incomes were more equal; (b) a savings glut due to the lower marginal propensity to consume of the relatively wealthy compared to the less affluent; (c) a diminished aggregate demand for public services and income redistribution policies among the less affluent; (d) greater flows of capital into the real economy and less into the financial sector than when the labor share of capital is larger.

33.   A permanent increase in the overall rate of taxation, all other things remaining the same, would be expected to: (a) increase consumer spending; (b) create fiscal stimulus, because the government would spend more; (c) dampen the spending multiplier; (d) aggravate inflation over the near term.

34.   Which of the following is NOT considered a common motive for business investment? (a) capacity expansion; (b) low levels of capacity utilization at the plant level; (c) productivity enhancement; (d) acquisition of existing companies, such as competitors.

35.   Growing wealth disparity, especially in developed market economies, likely reflects: (a) massive inflows of liquidity into both equities and fixed-income assets; (b) increases in tax rates on low- and moderate-income taxpayers; (c) reductions in the interest rate on excess reserves paid by the Fed; (d) shrinking spreads on the bond yields between AAA-rated and high-yield securities.

36.   Investment is characterized by all of the following, except: (a) uncertainty about the stream of returns over time; (b) decisions from an array of possible alterative actions; (c) financing exclusively from retained earnings; (d) an upward sloping supply curve for capital assets.

37.   Which statement about the rate of return to education is true? (a) all racial cohorts tend to see similar rates of return to education; (b) after a bachelor’s degree, additional education tends to have negligible rates of return; (c) education level does not at all determine the level of a worker’s lifetime earnings; (d) advanced post-graduate degrees typically result in delayed acceleration of earnings, but higher peak and lifetime levels.

38.   Investment tends to go forward whenever: (a) expected profits exceed 8% a year; (b) the unemployment rate drops below its natural rate; (c) the marginal efficiency of capital exceeds long-term interest rates; (d) there is strength in the foreign exchange value of the U.S. dollar.

39.   A high and rising level of long-term debt relative to short-term debt might signify that: (a) inflation expectations are worsening; (b) monetary policy is too tight; (c) borrowers have confidence in the outlook for inflation and real economic growth; (d) major debt restructuring is imminent.

40.   Normally, falling tax rates and rising government spending can be expected to: (a) dampen investment spending; (b) create fiscal stimulus; (c) win legislative approval from the Federal Reserve; (d) cause long-term interest rates to fall.

41.   Which of the following is a transfer payment? (a) wages paid to government worker; (b) interest paid to owners of Treasury securities; (c) payments to a defense contractor for building a tank; (d) Medicaid.

Answer 1

31. Ans - d) $200 million

Explanation:

When taxes and govt spending both increases by sam eamount so GDp can maximum increase by that same amount.

32. Ans - b)  a savings glut due to the lower marginal propensity to consume of the relatively wealthy compared to the less affluent

33. Ans - c) dampen the spending multiplier

34. Ans - c) productivity enhancement

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