Question

28-

If autonomous spending rises,

		the expenditure equilibrium will rise by the increase in autonomous spending.
		the expenditure equilibrium will increase by the level of GDP times the expenditure multiplier.
		the expenditure equilibrium will fall by the increase in autonomous spending.
		the expenditure equilibrium will rise by the increase in autonomous spending multiplied by the expenditure multiplier.

31-

An example of fiscal policy is

		an increase in autonomous spending by consumers.
		an increase in social security spending by the elderly.
		a reduction in government spending.
		a reduction in investment spending by the private sector.

32-

Which of the circumstances below describes a recessionary gap?

		The actual interest rate is above the equilibrium interest rate.
		The short-run equilibrium level of real GDP is below the long-run level of real GDP.
		The short-run equilibrium level of real GDP is above the long-run level of real GDP.
		The actual interest rate is below the equilibrium interest rate.

34-

If the crowding-out effect is complete, then an increase in government spending of $100 billion will generate how much more real GDP? (Assume a marginal propensity to save of 0.25.)

		$400 billion
		$25 billion
		0
		$100 billion

36-

According to the permanent income hypothesis, taxpayers react to a one-time tax rebate

		by spending more than the amount of the tax rebate.
		by spending all of the tax rebate.
		by saving all of the tax rebate.
		by saving half of the tax rebate and spending the rest.

38-

The period between the recognition of a problem and the implementation of a policy to solve the problem is

		the effect time lag.
		the fine tuning lag.
		the recognition lag.
		the action time lag.

Answer 1

28. If autonomous spending rises , the expenditure equilibrium will rise by the increase in autonomous spending multiplied by the expenditure multiplier. Hence,option(D) is correct.

31. An example of fiscal policy is a reduction in government spending (which represents contractionary fiscal policy). Hence,option(C) is correct.

32. The short run equilibrium level of real GDP is below the long run level of real GDP describes a recessionary gap. Hence,option(B) is correct.

34. If the crowding-out effect is complete , then an increase in G of $100 billion will generate 0 billion of more real GDP. Hence,option(C) is correct.

36. According to the permanent income hypothesis ,taxpayers react to a one time tax rebate by saving all of the tax rebate. Hence,option(C) is correct.

38. The period between the recognition of a problem and the implementation of a policy to solve the problem is the action time lag. Hence,option(D) is correct.