1.When we compare the total impact on aggregate demand of a $10 billion increase in government expenditures and a $10 billion decrease in taxes we find that the:

Answers:

A.

Increase in government expenditures will have a greater total impact on aggregate demand.

B.

Total impact on aggregate demand of the two policies will be the same.

C.

Decrease in taxes will have a greater total impact on aggregate demand.

D.

Total impact on aggregate demand will be the same but in opposite directions.

2.If the government reduces expenditures by $5 billion and the MPC = 0.9, then total decrease in aggregate demand for the economy will be:

Answers:

A.

$5.0 billion

B.

$50 billion

C.

$4.5 billion

D.

$5.5 billion

3.Which of the following isnotan example of government spending hike that will increase aggregate demand?

Answers:

A.

The construction of a new highway.

B.

Unemployment compensation.

C.

Government purchase of new military jet fighters.

D.

Government purchase of new health care plan for retirees.

4.Which of the following economies has the largest multiplier?

Answers:

A.

Economy A with an MPS of 0.5.

B.

Economy B with an MPS of 0.1.

C.

Economy C with an MPC of 0.8.

D.

Economy D with an MPC of 0.6.