1. Which of the following will make crowding out caused by government borrowing more severe?
A. A steep (inelastic) investment demand curve
B. A global credit market
C. Tax increases
D. A steep (inelastic) supply curve in the loanable funds market
E. None of the above
2. Crowding out could cause:
A. reduced long-run growth.
B. reductions in private investment.
C. higher interest rates.
D. greater returns to saving.
E. All of the above
3. If the MPC = 0.80 and taxes are increased by $1,000, the Keynesian model predicts the change in equilibrium GDP will be:
A. +$5,000.
B. +$4,000.
C. -$1,000.
D. -$4,000.
E. -$5,000.
4. If the economy is at full employment with an MPC of 0.90 and the government decreases taxes by $1,000, the resulting increase in output will be:
A. less than $4,000.
B. less than $5,000.
C. less than $8,000.
D. less than $9,000.
E. more than $9,000.
5. Government spending policies can be developed to work against the problems of unemployment and inflation because government spending can:
A. decrease aggregate demand to combat unemployment and increase aggregate demand to combat inflation.
B. increase aggregate supply to combat unemployment and decrease aggregate demand to combat inflation.
C. increase aggregate supply to combat unemployment and decrease aggregate supply to combat inflation.
D. increase aggregate demand to combat unemployment and increase aggregate demand to combat inflation.
E. increase aggregate demand to combat unemployment and decrease aggregate demand to combat inflation.