Question

25. Some economists find that the expansionary monetary policies of the Fed during the Great Financial Crisis and the Covid-19 Economic Shutdown tend to widen economic and wealth disparity. Such a consequence likely can be characterized as: (a) an unexpected outcome of the policy actions; (b) entirely political and untrue; (c) an unintended consequence of the policy actions; (d) an outcome caused by the Fed raising interest rates.

26. Optimization of consumer spending best takes place where: (a) the consumer’s budget constraint is tangent to his/her highest indifference curve between current and future spending; (b) there is online access to Amazon; (c) savings rates are the highest; (d) marginal tax rates are the highest.

27. 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.

28. According to Solow’s growth model, for any given stock of capital, the: (a) production function determines the allocation of output between consumption and investment; (b) saving function determines how much output the economy produces; (c) depreciation exceeds investment whenever saving exceeds consumption; (d) production function determines how much output the economy produces and the saving function establishes the allocation of output between consumption and investment.

Answer 1

a) "C"

This will be considered as an unintended consequence of the policy action.

b) "A"

the consumer’s budget constraint is tangent to his/her highest indifference curve between current and future spending

c) "D"

it will only increase the output by the actual government expenditure amount because the tax increase will decrease the output multiplier.

d) "D"

production function determines how much output the economy produces and the saving function establishes the allocation of output between consumption and investment.