1. Other things the same, automatic stabilizers tend to

	raise expenditures during recessions and lower expendituresduring expansions.
	raise expenditures during expansions and recessions.

	lower expenditures during expansions and recessions.
	raise expenditures during expansions and lower expendituresduring recessions.

2. For the following questions, use the diagram below:

Figure 34-7.

Refer to Figure 34-7. The aggregate-demandcurve could shiftfrom AD₁ to AD₂ asa result of

	a decrease in net exports.
	a decrease in the price level.

	households saving a smaller fraction of their income.
	an increase in government purchases.

3. When there is an increase in government expenditures, whichof the following raises investment spending?

	neither the investment accelerator or crowding out
	crowding out but not the investment accelerator

	the investment accelerator and crowding out
	the investment accelerator but not crowding out

4. If the price level rises, then

	the interest rate rises and spending on goods and servicesfalls.
	the interest rate falls and spending on goods and servicesrises.

	the interest rate rises and spending on goods and servicesrises.
	the interest rate falls and spending on goods and servicesfalls.

5. Economists who are skeptical about the relevance of“liquidity traps” argue that

	a central bank continues to have the option of committing itselfto future monetary contraction, even after its interest rate targethits its lower bound of zero.
	a central bank continues to have tools to stimulate the economy,even after its interest rate target hits its lower bound ofzero.

	while the concept of a liquidity trap is theoretically possible,nothing resembling a liquidity trap ever has been observed in thereal world.
	a central bank can greatly reduce the likelihood of a liquiditytrap by setting the target rate of inflation at zero.

6. If the MPC is 3/5 then the multiplier is

	1.5, so a $100 increase in government spending increases outputby $150.
	1.67, so a $100 increase in government spending increases outputby $166.67.

	4, so a $100 increase in government spending increases aggregatedemand by $400.
	2.5, so a $100 increase in government spending increasesaggregate demand by $250.