Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
1
1. People decide to save 25 percent of their incomes. The value of the marginal propensity to consume is ________ and the value of the spending multiplier is ________.
a. 0.25; 4 d. 0.75; 4
b. 0.75; 25 percent e. 0.75; 2 percent
c. 0.25; 1.25
2. When aggregate demand is low to drive real GDP below full-employment output,
a. there is downward pressure on the price level, and the government may want to conduct contractionary fiscal policy.
b. the economy is slipping into a recession, and the government may want to conduct expansionary fiscal policy.
c. there is upward pressure on the price level, and the government may want to conduct contractionary fiscal policy.
d. there is upward pressure on the price level, and the government may want to conduct expansionary fiscal policy.
3. Contractionary fiscal policy occurs when the ________ to control inflation.
a. government decreases spending or increases taxes
b. government decreases spending or decreases taxes
c. government increases spending or increases taxes
d. government increases spending or decreases taxes
e. Federal Reserve increases money supply
Expert Solution
Solution:
1. Marginal propensity to consume (MPC) is the proportion of income spent by households, similarly, marginal propensity to save (MPS) is the proportion of income saved by households. We are given, MPS = 25% or 0.25
MPC = 1 - MPS
So, MPC = 1 - 0.25 = 0.75
Spending multiplier = 1/(1 - MPC)
So, spending multiplier = 1/(1 - 0.75) = 1/0.25 = 4
Thus, the correct option is (d).
2. When aggregate demand is too low to drive real GDP below full employment level, there occurs recessionary gap that is economy is slipping into recession. The government may conduct an expansionary fiscal policy, so as to increase the aggregate demand, shifting the AD curve to the right and reaching the full employment level.
Thus, the correct option is (b).
3. Contractionary fiscal policy results in lowered aggregate demand, and so its government action which reduces aggregate spending. This includes decreasing the government spending, or increasing the taxes (so as to decrease household spending), or both.
Thus, the correct option is (a).
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
