1.Assume that the marginal propensity to save is 0.2. If we consider the multiplier effect and hold all the other factors, a $200 billion income tax cut can increase the real GDP totally in the long run by

a)$40 billion

b)$250 billion

c)$800 billion

d)$1 Trillion

2.Which of the following cannot explain why the multiple creation of money supply from your checking deposit is less than the theoretical result?

a)Cash leakage from money borrowers.

b)Banks cannot always lend all the excess reserve to customers.

c)In order to avoid risk, banks set a reserve ratio higher than the required reserve ratio.

d)The Fed buys U.S. bonds from banks frequently.

3.Which of the following can explain that the crowding-out effect might not occur?

a)The current aggregate demand will decrease.

b)People will save more currently to prepare for the expected high tax rate in the future.

c)The current long-run aggregate supply will decrease.

d)People will spend more currently to increase the current money demand.

4.In 2017, assume that the inflation rate is 4% and the nominal GDP growth rate is 3%. Which of the following statements is correct?

a)The nominal GDP in 2017 is less than that in 2016.

b)The consumer price index (CPI) declines in 2017.

c)The real GDP declines in 2017.

d)The inflation rate in 2017 should be calculated as 1%.

5.Which of the following events is most likely to decrease (i.e. leftward shift) an economy's short-run aggregate supply (SRAS)?

a)The price of crude oil declines.

b)A new technology lowers production costs.

c)No natural disaster in the year.

d)Lockdown of economy by virus pandemic.

6.Once the crowding-out effect of expansionary fiscal policy occurs, which component in real GDP will be crowded out?

a)Household consumption

b)Government spending

c)Imports

d)Exports

7.If the required reserve ratio (RRR) in U.S. is 10 percent and you deposit $5,000, which is wired from your parents' bank account in Germany to your checking account in the U.S. National Bank, then the change in the U.S. money supply eventually should be

a)no change.

b)a $5,000 increase.

c)a $45,000 increase.

d)a $50,000 increase.

8.If people are very sensitive to the interest rate change, which of the following is a more effective policy to boost the economy in the short run?

a)An expansionary fiscal policy

b)A restrictive monetary policy

c)The Fed buys U.S. bonds from banks

d)A ten-year tax-cutting plan.

9.Fiscal policy is best defined as

a)government policy with respect to trade deficits.

b)government policy with respect to transfer payments such as social security benefit.

c)government spending and tax decisions driven by macroeconomic policy goals.

d)government policy to retire the federal debt.

10.By definition, M1 money supply includes all the followingexcept

a)coins in circulation

b)checking account balances

c)travelers' checks

d)savings account balances