Answer & Explanation:NEW ENGLAND COLLEGE
INTRODUCTION TO MACROECONOMICS
THIRD MACRO ASSIGNMENT
1.
The marginal propensity
to consume for an individual is:
A)
the percentage of total
income that the person consumes.
B)
the percentage that the
person consumes out of additional dollar income.
C)
the change in the
person’s consumption divided by the change in person’s income.
D)
( A) and (C) above.
E) (A)
and (B) above.
2.
Classical economists
believe that in the long-run the economy is:
A)
not cabable of reaching
full employment.
B)
self-correcting and
will reach full employment equilibrium on its own..
C)
naturally unfair.
D)
all of the above..
E)
none of the above.
3.
According to the
Classical economists the most important factor in determining how much people
will save and how much businesses invest is:
A)
expectation about the
future.
B)
government regulations.
C)
interest rate.
D)
all of the above.
E) none of the above.
4.
The consumption
function will shift as a result of:
A)
change in expectation
about the future.
B)
change in income.
C)
change in liquidity.
D)
all of the above.
E)
only (A) and (C) above.
5.
Economically speaking,
the decision to build more aircraft carriers to keep employment high is an
example of:
A)
prudent defense
spending.
B)
expansionary fiscal
policy.
C)
neutral fiscal policy.
D)
being prepared to
defend the country.
E) all of the above.
6.
Automatic stabilizers
are government policies (spending and taxation) that:
A)
make bad economic
situation worse and good economic situation better.
B)
cause recessions and
inflation to disappear.
C)
Require constant
government intervention.
D)
Always move in the
opposite direction of the general economic situation..
E) none of the above.
7.
The MPS plus the
MPC must equal:
A)
zero.
B)
one.
C)
total income.
D)
total saving.
E) (C)
and (D) above.
8.
According
to the Classical economists, in the long run, inflationary and recessionary
gaps are corrected by the market due to:
A)
flexibility of interest
rate in the money market.
B)
flexibility of wages in
the labor market.
C)
flexibility of prices
in the commodity market.
D)
all of the above.
E)
none of the above.
9.
An economy experiences
a recessionary gap when:
A)
full employment GDP is
below equilibrium GDP.
B)
full employment GDP is
greater than equilibrium GDP.
C)
full employment GDP is
equal to equilibrium GDP.
D)
any of the above.
E) (A)
and (C) above.
10.
A Balanced Budget
Amendment would:
A)
increase the power of the
Federal government to influence the economy.
B)
increase the
effectiveness of Fiscal policy.
C)
has no effect on the
power of the Federal government to influence the economy.
D)
reduces the power of
the Federal government to influence the government.
E)
none of the above.
11.
To close an
inflationary gap employing fiscal policy, the government could:
A)
reduce budget
allocations to interstate highway maintenance.
B)
increase federal
subsidies to state universities.
C)
lower the corporate
income tax rate.
D)
raise the average
amount awarded for a disability pension.
E) none of the above.
12.
Contractionary fiscal
policy would include:
A)
increased government
spending.
B)
decrease government
spending.
C)
increased taxes.
D)
decrease taxes.
E) (B)
and (D) above.
13.
According to Keynes,
the most important determinant of consumer spending is:
A)
the government budget
deficit or surplus.
B)
the price of gasoline.
C)
the trade deficit.
D)
disposable income.
E) all
of the above.
14.
The life-cycle
hypothesis and Permanent Income Hypothesis theories of consumption:
A)
are attempts to
discredit the Keynesian consumption theory.
B)
believe that consumers
do not have any autonomous consumption.
C)
assert that consumption
is a necessity of life and does not depend on income.
D)
all of the above.
E) none of the above.
15.
Helen’s consumption
function may be stated as $1,000 + 0.75 × YD . Her autonomous consumption is:
A)
0.75.
B)
0.25.
C)
$750
D)
$1000.
E)
none of the above.
16.
Helen’s consumption
function may be stated as $1,000 + 0.75 × YD. If her income is $50,000, her consumption
will be:
A)
37,500.
B)
$51,000.
C)
$1,000.
D)
$38,500.
E)
none of the above.
The island of Bijouxville has marginal propensity to
consume of 0.8 and full employment GDP level is $800 billion. Use the information
to answer questions 17-22.
17.
If Bijouxville’s current
equilibrium GDP is $700 billion:
A)
there is an
inflationary gap $100 billion..
B)
there is a recessionary
gap of $100 billion.
C)
the economy is in
long-run equilibrium.
D)
The economy is at full
employment equilibrium.
E)
none of the above.
18.
If Bijouxville’s
current equilibrium GDP is $700 billion which of the following policies would
bring the economy to full employment level?
A)
Increase government
spending by $25 billion.
B)
Increase government
spending by $100 billion.
C)
Increase government
spending by $20 billion.
D)
Decrease government
spending by $100 billion.
E)
None of the above.
19.
If Bijouxville’s
current equilibrium GDP is $850 billion:
A)
there is an
inflationary gap of $150 billion.
B)
there is a recessionary
gap of $150 billion.
C)
the economy is in
long-run equilibrium.
D)
taxes should be
decreased.
E) none
of the above.
20.
If Bijouxville’s
current equilibrium GDP is $850, which of the following policies would bring
the economy to potential output?
A)
Decrease government
spending by $50 billion.
B)
Increase government
spending by $50 billion.
C)
Decrease government
transfers by $50 billion.
D)
Decrease government
spending by $10 billion.
E)
None of the above.
21.
If Bijouxville’s
current equilibrium GDP is $700 billion, which of the following policies
would bring the economy to full employment level?
A)
Decrease taxes by $100
billion.
B)
Increase taxes by $100
billion.
C)
Decrease taxes by $25
billion.
D)
Decrease government
transfers by $25 billion.
E)
None of the above.
22.
If Bijouxville’s
current equilibrium GDP is $850, which of the following policies would bring
the economy to potential output?
A)
Increase taxes by $50
billion.
B)
Increase taxes by $10
billion.
C)
Increase taxes by $12.5
billion.
D)
Increase transfers by
$12.5 billion.
E)
None of the above.
23.
A cut in taxes will
have a greater impact on aggregate demand if it is given to :
A)
people with a low MPC.
B)
people with a high MPC.
C)
everyone in the
economy.
D)
Those who hold a large
amount of wealth.
E)
none of the above.
24.
Discretionary fiscal
policy refers to:
A)
any changes in interest
rates.
B)
any change in money
supply.
C)
changes in government
spending or taxes to close a recessionary or inflationary gap.
D)
changes in taxes to
account for externalities and control pollution.
E) any of the above.
25.
Sometimes
when a large number of people in a society decide to increase their savings,
the national savings actually decreases.
This is known as:
A)
discretionary fiscal
policy.
B)
contractionary fiscal
policy.
C)
Paradox of Nature.
D)
Paradox of Thrift.
E)
none of the above.
ESSAY:
From time to time, governments
launch some economic policies to stimulate the economy. In recent years the US government has initiated
economic stimulus packages to help the sluggish US economy. Among other thing, these packages include a
one-time payment of $250 to retirees and Social Security recipients, reduction
in Social Security Tax for one year, and spending on “Shovel Ready” projects
across the country. State reason(s) for
these actions and take a position in support or against these policies.
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