The basics of Macro Economics- Spending Multiplier, Aggregate demand, and Laffer curve.
1) When households' marginal propensity to consume (MPC) increases, the size of the spending multiplier:
1. decreases.
2. remains unchanged.
3. also increases.
4. reacts unpredictably.
2) According to the Laffer Curve, when the tax rate is 100 percent, tax revenue will be:
1. at the maximum value.
2. greater than it would be at a 50 percent tax rate.
3. the same as it would be at a 20 percent tax rate.
4. 0.
5. the same as it would be at a 50 percent tax rate.
3) Which of the following statements is true?
1. The presence of the automatic stabilizers tends to destabilize the economy.
2. To combat inflation, Keynesians recommend lower taxes and greater government spending.
3. A reduction in tax rates along the downward-sloping portion of the Laffer curve would increase tax revenues.
4. According to supply-side fiscal policy, lower tax rates would shift the aggregate demand curve to the right, expanding the economy and creating some inflation.
4) The Laffer curve shows as tax rates rise, tax revenue:
1. first rises, then falls, and then rises again.
2. first rises, and then falls.
3. rises.
4. remains at a constant level.
5. falls.
5) Assume Congress enacts a $10 billion increase in spending and a $10 billion tax increase to finance the additional government spending. The result of this balanced-budget approach is a:
1. $20 billion increase in aggregate demand.
2. $10 billion decrease in aggregate demand.
3. $10 billion increase in aggregate demand.
4. $100 billion increase in aggregate demand.
6) Which of the following is not an automatic stabilizer?
1. Corporate income tax revenue.
2. Personal income tax revenue.
3. Unemployment compensation benefits.
4. Property tax revenue.
7) The ratio of the change in GDP to an initial change in aggregate spending is the:
1. marginal propensity to consume.
2. marginal expenditure rate.
3. permanent income rate.
4. spending multiplier.
8) A $10 million increase in government spending has the same economic impact as a $10 million tax cut.
1. False
2. True
9) As the marginal propensity to consume (MPC) increases, the spending multiplier:
1. decreases.
2. becomes undefinable.
3. increases.
4. remains constant.
10) Illustrate which of the following countries devote the smallest percentage of its GDP to taxes?
1. Germany.
2. The United States.
3. The United Kingdom.
4. Sweden.