Question

Supposed the Congress enacts a 5 percent decrease in annual military expenditures m. Other things equal, this can be associated with:

A. Movement down along the aggregate demand curve

B. Leftward shift if the aggregate demand curve

C. A movement up along the aggregate demand curve

D. Rightward shift of the aggregate demand curve.

E. Change in the slope of the aggregate demand curve

In the presence of the crowding out effect, the purchase of treasury bonds by the government will result in:

A. A decline in the private sector spending

B. An increase in the interest rates

C. A decrease in the price of bonds

D. An increase in the private sector spending

E. A decrease in the rate of inflation

Supposed total income in country X rides by $500 billion while total consumption rises by $50 billion. What would be the slope of the consumption function for this nation?

A. 0.5

B. 1

C. 0.4

D. 0.25

E. 0.1

Answer 1

Supposed the Congress enacts a 5 percent decrease in annual military expenditures m. Other things equal, this can be associated with:

D. Rightward shift of the aggregate demand curve

Explanation: Increase in government expenditure shifts AD to the right

In the presence of the crowding out effect, the purchase of treasury bonds by the government will result in:

B. An increase in the interest rates

Purchase of treasury bonds leads to fall in loanable funds and results in increase in interest rate.

Supposed total income in country X rides by $500 billion while total consumption rises by $50 billion. What would be the slope of the consumption function for this nation?
Ans. E
MPC = 50/500 = 0.1