University of Alabama - ECON 121economics (2)

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Assume autonomous net taxes fall by $300; the MPC=2/3. Net exports, planned investment, taxes, and government purchases are atunomous and remain fixed. As a result, consumption will initially a. re... main unchanged b. rise by $300 c. Fall by $300 d. rise by $200 e. fall by $200 Fiscal policy focuses on manipulating a. Aggregate demand to smooth out business fluctuations b. Aggregate supply to smooth out business fluctuations c. Both aggregate supply and aggregate demand to smooth out business fluctuations d. Aggregate demand to stimulate the economy and aggregate supply to contract it e. Short-run aggregate supply to stimulate the economy and aggregate demand to contract it Assume autonomous net taxes rise by $ 500; the marginal propensity to consume=3/4. Net exports, planned investment, taxes, and government purchases are autonomous and remain fixed. Disposable income will initially a. Remain unchanged b. Fall by $500 c. Fall by $375 d. Fall by $2000 e. Rise by $500 In which of the following ways does government affect the consumption component of planned aggregate expenditures? a. Through net taxes, which change disposable income b. By purchasing goods and services, which increase consumption c. By using subsidies to encourage firms to invest d. By using net taxes to encourage firms to invest e. By producing public goods If autonomous net taxes increase by $200 billion and the MPC equals .75, equilibrium income will a. Decrease by $200 billion b. Decrease by $150 billion c. Decrease by $600 billion d. Decrease by $267 billion e. Decrease, but it is impossible to calculate the exact amount of the change Discretionary fiscal policy works by shifting the aggregate demand curve a. True b. False A decrease in government purchases can close an expansionary gap by shifting the aggregate demand curve. a. True b. False Discretionary fiscal policy works by shifting the short-run aggregate supply curve. a. True b. False If government equilibrium purchases and autonomous net taxes increase by the same amount, the equilibrium level of real GDP will be unchangeda. True b. False Suppose the government reduces its budget deficit at the same time that energy prices rise sharply. Which of the following will happen? a. The price level will rise, since higher energy prices increase the cost of production. b. Real GDP will fall, since both events will tend to cause an economy contraction. c. The price level will fall, because the aggregate demand curve has shifted leftward d. Real GDP will rise; with less government spending, there are more opportunities for the private sector. e. Both the price level and real GDP will fall If the marginal propensity to consume is .8 and the proportional income tax is .25, by how much would the equilibrium level of real GDP demanded increase if government purchases rose by $50 billion? a. $50 billion b. $100 billion c. $500 billion d. $125 billion e. $275 billion When we relax the assumption that net exports do not change with income, the aggregate expenditure function a. Becomes steeper because net exports decrease as real domestic income increases b. Becomes steeper because net exports increase as real domestic income increases c. Becomes flatter because net exports decrease as real domestic income increases d. Becomes flatter because net exports increase as real domestic income increases e. Remains unchanged because it is not affected by changes in net exports If the government wants to increase equilibrium income $150 billion but does not want to change the size of the deficit, it should [Show More]

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