sp01-3 - Name _ University of Colorado at Denver Principles...

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Name _____________________________________________________________ University of Colorado at Denver Principles of Economics: Macroeconomics, Econ 2012, Spring 2001 Instructor: Vijaya Sharma, Ph.D. Exam 3 Answer all 30 multiple-choice questions, each worth one point. 1. When the aggregate demand (AD) decreases and the economy enters into recession from its initial full employment level, what happens to the general price level, or price index (PI), in the Keynesian version of the AD-AS model? a. PI remains the same. 2. Which is correct about household consumption, according to Keynes? a. Consumption is a function of disposable income. b. Consumption is not a function of disposable income. c. One component of consumption is autonomous, whereas another component is a function of disposable income. d. Consumption is a function of government spending. 3. Income, or expenditure, multiplier in the Keynesian model is ________. a. zero b. one c. less than one d. more than one 4. Suppose the marginal propensity to consume in an economy is 0.8. What is the value of the income multiplier? a. 10 b. 8 c. 5 d. 2 5. The recessionary GDP gap in an economy is $1,000 and its income multiplier is 4. What should be the change in the government expenditures to bring the economy back to its full employment level? a. Increase government expenditures by $1,000. b. Decrease government expenditures by $1,000. c. Increase government expenditures by $250. d. Decrease government expenditures by $250. 6. During an inflationary period, which fiscal policy does a Keynesian economist consider appropriate for controlling inflation? a. Increase income tax rate. b. Increase government expenditures.
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c. Do either a or b. d. Do nothing. 7. During an inflationary period, which fiscal policy does a classical economist consider appropriate? a. Increase income tax rate. b. Increase government expenditures. c. Do either a or b. d.
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sp01-3 - Name _ University of Colorado at Denver Principles...

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