1. Which of the following is the best example of an automatic stabilizer in fiscal policy?

(A) Spending more on national highways.

(B) Paying pensions to retired military personnel.

(C) Paying unemployment insurance benefits.

(D) Decreasing the supply of money.

2. To combat a recession, the government could

(A) lower interest rates by decreasing the cash rate.

(B) decrease taxes to increase aggregate demand.

(C) conduct contractionary fiscal policy by raising taxes.

(D) decrease government spending to balance the budget

3. Suppose the marginal propensity to consume (MPC) is 0.81. What is the tax multiplier?

(A) 0.19

(B) 0.23

(C) -4.26

(D) -0.19

4. Suppose that the MPC is 0.75 and the Malaysian government reduces taxes by RM10 million. After 3 rounds of the multiplier process, real gross domestic product will change by

(A) RM2.5 million.

(B) RM7.5 million.

(C) RM23.13 million.

(D) RM30 million.

5. When the supply for money increases and the demand for money reduces, there will be

(A) a fall in the level of prices.

(B) a decrease in the rate of interest.

(C) an increase in the rate of interest.

(D) a fall in the level of demand.

6. If the interest rate decreases in an economy, it will

(A) decrease the investment expenditure in the economy.

(B) increase the loan repayment by the government.

(C) increase the consumption expenditure in the economy.

(D) increase the total savings in the economy