Question

Which of the following is likely to occur when the economy goes into a recession?

	A general increase in deficit spending
	A general decrease in the national debt
	A general reduction in deficit spending
	A general increase in the interest rate level

If the marginal propensity to consume is 0.9, then the government spending multiplier is:

10.

9.

0.1.

1.11.

At the present moment, which of the following percentages is closest to the actual gross debt to GDP ratio for the U.S.?

77%
	105%
	28%
	50%

Answer 1

1. When economy goes into recession, the government increase their spending as a expansionary fiscal policy tools to get out from a the recession as a result of increase in spending the deficit spending increase (note: deficit spending is excess of spending over revenue).

So, the correct answer is an option (a).

2. Multiplier = [1/(1 - MPC)]

Multiplier = [1/(1 - 0.9)]

Multiplier = [1/0.1]

Multiplier = 10

So, the correct answer is an option (a).

3. The actual gross debt to GDP ratio for the US is 105%.

So, the correct answer is an option (b).