Assignment:
1. The U.S. dollar is called fiat money because
(a) each dollar entitles the bearer to a certain amount of gold (b) it is subject to the double coincidence of wants problem
(c) it allows Americans to buy a Fiat car
(d) it is intrinsically valueless, its value is guaranteed by the government
2. During a boom, the government should
(a) implement a contractionary fiscal policy: that is, cut spending G and increase taxes T (b) implement an expansionary fiscal policy: that is, increase spending G and cut taxes T
(c) keep the budget balanced
(d) implement an expansionary fiscal policy: that is, increase taxes and cut spending
3. A bank run is:
(a) a bank operation to increase the amount of reserves (b) an annual race held between bankers
(c) a massive withdrawal of deposits that creates the risk of bank bankruptcy (d) none of the above
4. Suppose that the government taxes household proportionally to their income. What happens to the value of the multiplier when the tax rate decreases?
(a) it will not change (b) it will decrease
(c) it will become equal to one (d) it will increase
5. Suppose that the MPC is 0.6 and the tax rate is 0.4. What is the value of the multiplier?
(a) 2.5 (b) 1.56
(c) 0 (d) 1
6. The reason why proportional taxation is called "an automatic stabilizer" is because
(a) it increases the multiplier and hence makes the economy over-expand during a boom (b) it stabilizes the MPC of the agents, which, otherwise, will take values above 1
(c) it reduces the impact of both positive and negative shocks on economic activity (d) it automatically makes everybody's income the same.
7. An expansionary fiscal policy might not be as successful as planned by the government if, meanwhile 1
(a) imports increase
(b) he stock market crashes and hence consumption decreases
(c) physical investments (I) decrease (d) all of the above