36. Topic: Fiscal policy , Answer: C Fiscal policy is government action to influence aggregate demand and in turn to influence the level of real GDP and the price level, through:
a. expanding and contracting the money supply. b. regulation of net exports. c. changes in government spending and/or tax revenues. d. encouraging businesses to invest. 37. Topic: Fiscal policy, Answer: D The government is pursuing an expansionary fiscal policy if it: 38. Topic: Spending multiplier, Answer: A If the value of the marginal propensity to consume (MPC) is 0.90, the value of the spending multiplier is: 39. Topic: Fiscal policy to combat recession, Answer: A Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC) is 0.75, and the government follows Keynesian economics by using expansionary fiscal policy to increase aggregate demand (total spending). If the government increases government spending by $250 and there is no inflation, we expect real GDP to expand 40. Topic: Tax multiplier, Answer: b Assume the marginal propensity to consume (MPC) is 0.l75 and the government cuts taxes by $250 billion. We will expect an initial change in Consumption (ΔC) of: a. $250 billion b. $187.75 billion c. $1,000 billion d. $333.3 billion
Use the following information to answer questions 41 to 43: Assuming an economy with a full employment (potential) real GDP of $600 billion, an actual (equilibrium) real GDP of $500 billion, and an MPC = 0.9, answer the following questions: 41.. What type of gap exists in this economy? 42. To close this gap using only changes in government spending (G) means that government spending must _______________ by $ _______ billion 43. To eliminate this gap using only changes in taxes (T) means that taxes must _______________ by $ _______ billion 44. In using expansionary fiscal policy, the tax cut (T) must be larger than the proposed increase in government spending (G) if it is to achieve the same amount of rightward shift in the aggregate demand curve. a) TRUE b. FALSE
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