Question

To cover the recessionary gap the government is using a policy called ______________, and is changing spending and/or decreasing taxes by the amount__________ than the gap because of the effect of_____________

A) Contractionary; bigger; insufficient demand

B) Expansionary: less; multiplier

C) Non-discretionary (automatic); equal; excessive demand

D) Active (discretionary); smaller; Marginal Propensity to Save

The marginal propensity to consume is:

  A)      That part of the average consumer dollar that goes to the purchase of final goods.

  B)      The change in consumption divided by the change in saving.

  C)      The fraction of each additional dollar of disposable income spent on consumption.

  D)      1 + MPS.

. The “Crowding out” effect may occur with:

A)  Legislative policy recognition, administrative, and operational lags

B)  Political business cycle

C)   State and local government constitutional requirements to balance their budget every year;

D) Government deficit spending, which may increase interest rates or reduce private spending

Money serves as a

A) means of payment, legal obligation, and public tax.

B) medium of exchange, unit of account, and store of value.

C) means of settling debts, transaction lubricant, and private commodity.

D) means to conduct barter transactions.

Answer 1

1. The correct answer is B. Expansionary, less; multiplier.

Because to reduce the recessionary gap in the economy the government should use expansionary fiscal policy.

2. The correct answer is C. The fraction of each additional dollar of disposal income spent on consumption.

Because Marginal propensity to consume is the ratio of change in consumption and change in income.

3. The correct answer is D. Government deficit spending, which may increase interest rate and reduce private spending.

Because crowding out effect is a situation when government spending fails to increase the over all aggregate Demand because higher government spending causes fall in private sector spending.

4. The correct answer is B. Medium of exchange unit of account, and store of value.

Because all these are functions of money.