TRUE OR FALSE. [ALWAYS ASSUME "OTHER THINGS EQUAL."] 1. Only increases in investment or government spending can have a multiplier effect on GDP; decreases in either type of spending will not have a multiplier effect on GDP. 2. If MPC = 75%, the multiplier = 75. 3. The larger MPC, the larger the multiplier effect will be. 4. For more actual goods and services to be produced through the multiplier effect, available (idle) economic resources need to be available. 5. Corporate income tax revenue is the largest single source of revenue for the U.S. government. 6. Personal income tax revenue is the largest single source of tax revenue for all 50 states. 7. The single largest expenditure for city governments is for education. 8. Sales taxes, excise taxes, and property taxes are all example of progressive taxes. 9. Classical economists believed that full employment of labor would be achieved in the long run. 10. Classical economists believed that the government should take an active role in the economy. 11. Classical economists believed that the government's spending should always match its tax revenues. 12. Keynes did not believe in Say's Law. 13. Keynes believed that the Great Depression was caused by too much private spending (spending by households and business firms). 14. Keynes stressed the Demand side of the economy rather than the Supply side. COMPLETION AND EXTRA CREDIT ON PAGE 2.

COMPLETION. 4 POINTS EACH. 16 TOTAL POINTS. 1. Leakages from the Income Stream include Saving and _________________. 2. ________________________ taxes represent the major source of tax revenue for cities and counties. 3. Say's Law states that _______________ will create its own ______________. (2 points each blank) 4. _______________________was named in class as one of the early Classical economists. EXTRA CREDIT. 2 POINTS EACH QUESTION. 6 POINTS TOTAL. 1. If Real GDP increases by $30 billion when Investment spending increases by $ 6 billion, then THE MULTIPLIER = ______________________ 2. One formula for the multiplier is 1/ ____________________. 3. Exports and ________________ were given as two Injections into the Income Stream