Question:

8 .When unemployment is high, government can use the following Demand Management Tools

a.Increase government spending, reduce interest rates, increase taxes

b.Reduce government spending, increase interest rates, increase taxes

c.Reduce government spending, increase interest rates, reduce taxes

d.Increase government spending, reduce interest rates, reduce taxes

2.The Recessionary Expenditure Gap is

a.The amount by which expenditures must rise to bring the economy to full employment

b.The difference between output at full employment and current output

c.the amount by which expenditures must fall to reduce inflation

ANS A. The amount by which expenditures must rise to bring the economy to full employment

In an economy where current output is $900 billion and the MPC = 7/8, government institutes a $16 billion

tax decrease.

3.The multiplier is(show formula) (1/MPS= 1/1-MPS=1/1-7/8=1/1/8=1/0.125=8)

a.2

b.7

c.8

d.16

4.The initial change in spending is(show formula)

a.- $16 billion

b.+ $16 billion

c.- $14 billion

d.+ $14 billion

SHOW FORMULAS AND ALL WORK FOR THESE PROBLEMS

5.If the original output level was $10,000 billion and the change in output was an increase of $500 billion, the new output would be

a.$10,000 billion

b.$10,500 billion

c.$9,500 billion10,000B+500B = 10,500B

d.$5,500 billion

6.In another economy, the MPC = .8 or 4/5, government needs to increase expenditure $30 billion to completea project, but it does not want to increase debt, so it increases taxes $30 billion, as well. In this balanced-budget scenario, what, if any, will be the change in output generated?

a.+$30 billionANS Ac. +$150 billion

b.- $30 billiond. $0 billion

7.In an economy, if current output = $12,000 billion, MPC = .75 or , and

full-employment output = $12,500 billion, the GDPGAP is

a.$12,000 billion

b.$12,500 billion12,000B-12,500B = 500B