Multiple Choice Questions:
1. If the government wanted to offset the effect of a boom in consumer and investor confidence on AD, it might?
a. Decrease government purchases.
b. Decrease taxes.
c. Increase taxes.
d. Do either a or c.
2. An increase in taxes combined with a decrease in government purchases would?
a. Increase AD.
b. Decrease AD.
c. Leave AD unchanged.
d. Have an indeterminate effect on AD.
3. A combination of an increase in government purchases and a decrease in taxes would?
a. Increase AD.
b. Decrease AD.
c. Leave AD unchanged.
d. Have an indeterminate effect on AD.
4. AD will shift to the right, other things being equal, when?
a. The government budget deficit increases because government purchases rose.
b. The government budget deficit increases because taxes fell.
c. The government budget deficit increases because transfer payments rose.
d. Any of the above circumstances exist.
5. If the marginal propensity to consume is two-thirds, the multiplier is
a. 30.
b. 66.
c. 1.5.
d. 3.
6. The multiplier effect is based on the fact that _____________ by one person is (are) _____________ to another.
a. Income; income
b. Expenditures; expenditures
c. Expenditures; income
d. Income; expenditures
7. The expenditure multiplier is
a. 1/MPC.
b. 1/(1 – MPC).
c. (1 – MPC)/1.
d. 1/change in MPC.