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If the federal government decreases spending by $50 billion and also cuts taxes by $50 billion, when the MPC is .8, then the AD curve will a. shift...

If the federal government decreases spending by $50 billion and also cuts taxes by $50 billion, when the MPC is .8, then the AD curve will

a. shift to the left by $200 billion

b. will not shift at all

c. shift to left by $50 billion

d. shift to the right by $50


An increase in government spending will tend to

a. decrease interest rates and increase investment spending

b. decrease interest rates and investment spending

c. increase interest rates and lower investment spending

d. increase interest rates and investment spending


A budget deficit will lead to a trade deficit because


a. budget deficits increase interest rates and appreciate the exchange rate

b. budget deficits decrease interest rates and depreciate the exchange rate

c. budget deficits increase interest rates without affect the exchange rate

d. budget deficits increase interest rates and depreciate the exchange rate


If taxes decline, in the short-run

a. firms produce more because prices decline leading to higher profits when wages are sticky

b. firms produce less because prices decline leading to lower profits when wages are sticky

c. firms produce less because prices increase leading to lower profits when wages are sticky

d. firms produce more because  prices rise leading to higher profits per unit when wages are sticky


In the long-run, higher government spending at the same level of taxes will


a. lead to crowding out of investment spending

b. tend to make the trade deficit worse

c. leave output unchanged

d. all of the above


Which of the following is an example of an increase in government purchases?

a. The government builds new roads

b. The Federal Reserve purchases government bonds.

c. The government decreases personal income taxes.

d. The government increases unemployment insurance benefit payments.



Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

a. the crowding-out effect

b. the multiplier effect

c. the interest rate effect

d. the exchange rate effect


If the government spends an additional $50 billion to increases the number of troops when the MPC = .8,  this would shift the aggregate demand curve


a. to the right by $50 billion

b. to the right by $40 billion

c. to the right by $250 billlion

d. to the left by $250 billion


When the government increases personal income taxes, it's first effect is to

a. decrease consumption

b. decrease investment

c. decrease net exports

d. decrease the money supply


Which of the following events shifts the aggregate-demand curve leftward?

a. A decrease in government expenditures, but not a change in the price level.

b. An increase in government expenditures or a decrease in the price level.

c. A decrease in government expenditures or an increase in the price level. This is what he put

d. An increase in the price level, but not a decrease in government expenditures.


The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

a. the crowding out effect

b. the wealth effect

c. the multiplier effect

d. the Fisher effect

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