With proportional income tax,
a. The tax multiplier equals (MPC)(1-MPC)
b. The tax multiplier equals –MPC/(1-MPC)
c. The spending multiplier equals (MPC)/(1-MPC)
d. The spending multiplier equals 1/[1-MPC(1-t)]
e. The spending multiplier equals 1/[1-(MPC)t]
Suppose the economy had been operating along a given short-run Philips curve for several years and then experienced a year of stagflation. The year of stagflation would
a. Be represented as a move upward along the short-run Philips curve
b. Be represented as a move downward along the short-run Philips curve
c. Can be represented as a point above the short-run Philips curve
d. Be represented as a point below the short-run Philips curve
e. Correspond to the origin
If the multiplier is 4, a $10 billion increase in autonomous investment will cause a
a. $10 billion increase in equilibrium investment
b. $40 billion increase in equilibrium investment
c. $40 billion increase in equilibrium real GDP demanded
d. $400 billion increase in equilibrium real GDP demanded
e. $40 billion increase in consumption spending
If the price level increases, other things constant, consumption spending
a. Increases because real income rises
b. Decreases because real income rises
c. Increases because the real value of wealth increases
d. Decreases because the real value of wealth decreases
e. Increases because nominal income increases
(billions of dollars)
Net Investment=40
depreciation=30
indirect business taxes (net of subsidies)=25
Income earned but not received=50
income reveived but not earned=60
personal income taxes=20
net earnings of american resources abroad=10
compensation of employees=250
corporate profits=25
proprietors' income=30
rental income of persons=20
net interest=30
According to the data above, the Gross private domestic investment is equal to
a. $30 billion
b. $40 billion
c. $60 billion
d. $70 billion
e. $80 billion
According to the same data above, Net Domestic Product equals
a. $365 billion
b. $375 billion
c. $385 billion
d. $390 billion
e. $420 billion
If net exports increase by $400 billion at every level of income, the aggregate expenditure line will
a. Shift upward by $400 billion
b. Shift downward by $400 billion
c. Shift upward by more than $400 billion because of the multiplier effect
d. Shift upward by less than $400 billion
e. Shift downward by more than $400 billion because of the multiplier effect
When net exports are included in aggregate expenditure function, the spending multiplier
a. Increases
b. Decreases
c. Is affected only if exports are greater than imports
d. Is affected only if exports are less than imports
e. Is affected only if exports are equal to imports
The spending multiplier with variable net exports is
a. (1+MPC)/(MPM
b. 1/(1-MPC)
c. 1/(1-MPC+MPM)
d. 1/(1-MPC-MPM)
e. MPC/MPM
Adding net exports to aggregate expenditure always
a. Increases real GDP
b. Shifts the aggregate expenditure line down
c. Increases the slope of the aggregate expenditure line
d. Decreases the slope of the aggregate expenditure line
e. Decreases GDP
If net exports increases by $350 billion at every level of income, the net export line will
a. Shift upward by $350 billion
b. Shift downward by $350 billion
c. Shift upward by more than $350 billion because of the multiplier effect
d. Shift upward by less than $350 billion
e. Shift downward by more than $350 billion because of the multiplier effect
Which of the following is true concerning the impact of net exports in the model with AE=C+I+NX+g?
a. Net exports are a leakage from the economy if imports exceed exports
b. Net exports are always positive
c. Net exports are negative because exports are assumed to be autonomous
d. Net exports must be negative if planned investment is positive
e. Net exports are an injection into the economy if imports equal exports
If variable net exports increase by the same amount at every level of income, then there is an upward and parallel shift of the net export line.
a. True b. False
The concept of variable net exports is that as domestic income (Y) increases,
a. Exports will increase
b. Exports will decrease
c. Imports will decrease
d. Imports will increase
e. Imports and exports will remain constant
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If the price level increases, other things constant, consumption spending
Proportional income tax refers to a tax system in which the tax rate remains constant regardless of income level. Let's go through each question and explain the correct answer and how to arrive at it:
1. The tax multiplier reflects the effect of changes in taxes on aggregate demand. The correct answer is b. The tax multiplier equals –MPC/(1-MPC), where MPC represents the marginal propensity to consume.
2. Stagflation refers to a situation where there is a combination of high inflation and high unemployment. In this case, the correct answer is c. It can be represented as a point above the short-run Philips curve, indicating a higher level of inflation than expected at a given level of unemployment.
3. The multiplier effect refers to the impact of changes in autonomous spending on the overall economy. If the multiplier is 4, it means that a $10 billion increase in autonomous investment will cause a $40 billion increase in equilibrium real GDP demanded. The correct answer is c.
4. When the price level increases, consumption spending decreases because the real value of wealth decreases. The correct answer is d.
5. To calculate the Gross Private Domestic Investment, we add net investment, depreciation, and indirect business taxes (net of subsidies). The correct answer is b. $40 billion.
6. Net Domestic Product is the sum of personal income (earnings received by individuals) and income earned but not received. According to the given data, the Net Domestic Product equals $375 billion. The correct answer is b.
7. If net exports increase by $400 billion at every level of income, the aggregate expenditure line will shift upward by $400 billion. The correct answer is a.
8. Including net exports in the aggregate expenditure function affects the spending multiplier. Specifically, it increases the value of the multiplier. The correct answer is a.
9. The spending multiplier with variable net exports is given by the formula 1/(1-MPC-MPM), where MPC represents the marginal propensity to consume and MPM represents the marginal propensity to import. The correct answer is d.
10. Adding net exports to aggregate expenditure always increases real GDP. The correct answer is a.
11. If net exports increase by $350 billion at every level of income, the net export line will shift upward by $350 billion. The correct answer is a.
12. The impact of net exports depends on the relationship between imports and exports. Net exports can be a leakage from the economy if imports exceed exports. The correct answer is a.
13. The statement is false. If variable net exports increase by the same amount at every level of income, there will be a parallel shift of the net export line, not necessarily an upward shift.
14. The concept of variable net exports implies that as domestic income increases, imports will increase. The correct answer is d.
15. The concept of variable net exports implies that as domestic income increases, imports will increase while exports may remain constant. The correct answer is e. Imports and exports will not necessarily remain constant.