ECON202 Quiz 5 (2024 Q1) (M This is a preview of the draft version of the quiz Started: Mar 6 at 2:13pm Quiz Instructions Instructions: - You have FIVE attempts for this quiz. - 1 will only keep the score of your latest attempt (not the best score among all attempts), please make sure that you answer all the questions for your latest attempt. - You may want to download the following file to save a copy of the quiz. - Do the quiz individually. - You can see whether you get the questions right/wrong and the points you get for each question only after the quiz/exam is closed and your grade is finalized. - The purpose of multiple attempts is not to let students get a perfect score by \"trials and errors\". In case you think that you make mistakes in your previous attempt, you can take the quiz/exam again to correct the mistakes before the quiz/exam is closed. Question 1 1 pts People decide to spend 60 percent of their incomes. The value of the marginal propensity to consume is and the value of the spending multiplier is O 0.4; 1.67 O 0.6; 2.5 O 0.4; 60 percent O 0.4; 40 percent Question 2 1 pts MPC = 0.8. The government increases spending by $50 million. Calculate the increase in AD. O $40 million O $50 million O $200 million O $250 million Question 3 1 pts Country Y is in the midst of a recession. If the government wants output to again equal full- employment output, then it should pursue fiscal policy and shift the curve to the expansionary; aggregate demand (AD); right O contractionary; short-run aggregate supply (SRAS); left expansionary; aggregate demand (AD); left O expansionary; short-run aggregate supply (SRAS); left Question 4 1 pts Refer to the following Laffer curve.Tax revenue B A C t Tax rate The economy is currently at point C. Tax revenue when tax rate O increases; increases O increases; decreases O decreases; decreases Question 5 8 pts For each of the following separate scenarios, determine the associated shortcoming of fiscal policy: The economy is in recession, but the [ Choose ] v government does not know that and still increases taxes. Mary chooses to attend a public college [ Choose | G instead of a private college because she can receive a scholarship from the government if she goes to a public college. The recession is going on for one year. [ Choose | o The president wanted to raise spending but the policy was blocked by the Congress. Government borrows money from the [ Choose ] v loanable funds market. This drives up interest rate and firms invest less. Since it takes time for the government to [ Choose ] v collect data, there is a delay for the government to know that a problem exists in the economy. The government has been increasing [ Choose | 2 spending and cutting taxes, but the economy still has not started to recover. After the tax cut, households spend less money to prepare for possible higher taxes in the future. [ Choose ] v Students do not need to buy laptops as [ Choose | Sz government gives student laptops for free. Question 6 2 pts The economy of a country is overheating because of the increase in consumer confidence. In short run after the increase in consumer confidence, the government implements a contractionary policy to bring the real GDP back to full-employment output and prevent the economy from overheating. (a) When implementing the contractionary fiscal policy, what does the government do? [ Select ] v (b) After implementing the contractionary fiscal policy, will the price level rise or fall? [ Select ] v Question 7 1 pts MPC = 0.9, calculate the spending multiplier. Question 8 2 pts MPC increases. (a) Do households save more or save less? [Select] (b) Will the multiplier effects be larger or smaller? [ Select] The graph shows the loanable funds market of country A. Suppose the government borrows $100 million in the loanable funds market to finance spending. Assumes the government does not borrow initially. Point A is the market equilibrium before the government borrowing. Point B is the market equilibrium after the government borrowing. Use the given information to answer questions 9 to 11. Market for loanable funds Interest rate Demand a E\\O\\ - i I I I [ $800 $840 Savings / investments + government borrowings (in millions) Question 9 1 pts How much is the firms investment before the government borrowing? O $800 million O $840 million O $900 million Question 10 1 pts Does equilibrium interest rate increase or decrease after the government borrowing? [ Select ] Question 11 1 pts How much is the firms investment after the government borrowing? O $740 million O $800 million O $840 million O $880 million Not saved Submit Quiz