If the mpc = 0.75. then the government purchases multiplier is about

Take your time and answer right. 1. If the MPC is 0.75, then the spending multiplier is: A) -o.57 B) 0.57 C) 4.0 D) -4.0
2. If the MPC is 0.9 and government spending increases by $1,000, real GDP will: A) increase by $9000 B) Increase by $10,000 C) Decrease by $10,000 D) Decrease by 9,000
3. If the MPC is 0.6 and taxes are cut by $2000, real GDP will A) increase by $1500 B) increase by $3000 C) increase by $750 D) decrease by $750
4. Which is correct: A) A $1 tax cut will have the same effect on GDP as a $1 increase in government expenditures B) A $1 tax cut will have a smaller effect on GDP than a $1 increase in government expenditures C) A $1 tax cut will have a larger effect on GDP as a $1 increase in government expenditures D) None of the above
5. Which is true about the national debt A) The debt can continue to safely grow indefinitely as long as the nation’s income grows at least as fast as total interest payments B) can safely grow as long as interest rates are falling C) can safely gr ow as long as the govenment can print money D) cannot safely grow indefinitely
6. Budget changes that occur automatically during expansions and recessions A) make economic fluctuations more pronounced than they would otherwise be B) have no effect on economic fluctuations C) make economic fluctuations less pronounced than they would otherwise be D) None of the above
7. Automatic stabilizers A) work to smooth out economic fluctuations B) work to increase the deficit during a boom C) work to decrease the deficit during a recession D) All of these
8. The federal debt as a percentage of GDP is _______than it was during World War II and _______than it was during the 1990’s A) higher, higher B) higher, lower C) lower, higher D) lower, lower
9. An economic expansion will cause the federal budget deficit to ______ because tax revenues ______ and government transfer payments ______ A) increase, fall, rise B) decrease, fall, rise C) decrease, rise, fall D) increase, rise, fall
10. Suppose in a given fiscal year government purchases equal $1000, tax revenues are $1200, and transfer payments are $200. There is a budget deficit of A) $200 B) $400 C) $600 D) The budget is balanced
11. In 2009, Congress passed a stimulus bill that consisted of A) a cut in taxes B) an increase in government purchases C) an increase in transfer payments D) All of the above
12. Estimates of the govenment spending multiplier range from 1.0 to 2.5. If government spending increases by $1 million how much will GDP increase A) GDP will not increase due to crowding out B) from $1 to $2.5 million C) under $1 million D) more than $2.5 million


Correct Answers: 1)C 2)B 3)B 4)B 5)A 6)C 7)A 8)C 9)C 10)D 11)D 12)B

MPC 0.75 Spending Multiplier - 1/(1-MPC) 11-0.75) -1/0.25-4 Thus, correct option (c) 4 2. MPC 0.9 Spending Multiplier - 1/(1-

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