Unit (6).docx - Chapter 11 1 Fiscal policy refers to...

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Chapter 11 1. “ Fiscal policy refers to government purchases, transfer payments, taxes, and borrowing as they affect macroeconomic variables such as real GDP, employment, the price level, and economic growth” (McEachern, 2015, p.174). A) A decrease in government purchases would lead to an increase in the level of GDP demanded. B) An increase in net taxes would lead to a decrease in real GDP demand. C) A reduction in transfer payments would not have a direct effect on the change in the level of the GDP demand. Although, who ever received the transferred payments could cause increased personal consumption would give you an increase in the level of the real GDP. D) A decrease in the marginal propensity to consume will result in a decrease in the level of real GDP demanded. 4. A) 1/1-0.9=10, 10x $10 billion= $100b. 0.9/1-0.9=9, 9x $10 billion= $90b. B) 1/1-0.8=5, 5x $10 billion= $50b. 0.8/1-0.8=4, 4x $10 billion= $40b C) 1/1-0.75=4, 4x $10 billion= $40b. 0.75/1-0.75=3, 3x $10 billion= $30b D) 1/1-0.6=2.5, 2.5x $10 billion= $25b. 0.6/1-0.6=1.5, 1.5x $10 billion= $15b 7.
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