Question

Each question has 6-7 parts, depending on the work. Please answer every part. Thank you.

-Suppose Government spending increases by $400 and Taxes increase by $400, and MPC = .80. Assuming that there is no crowding out, what will be the change in equilibrium income (Y*)?

Group of answer choices

- $400

NO CHANGE

+ $400

- $320

+$320

-

Which of the following is NOT a Keynesian conjecture regarding consumption?

Group of answer choices

As income rises, APC falls.

As income rises MPC falls.

MPC is some number between zero and one.

Consumption is a function of disposable income.

-

Which of the following is most relevant to an income approach formula for Gross Domestic Product (GDP)?

Group of answer choices

Depreciation + Indirect Business Taxes + Rent + Wages + Interest + Profit

Rent + Wages + Interest + Profit

Income - Taxes

Indirect Business Taxes + Rent + Wages + Interest + Profit

National Income + Government transfer payments – Social Security contributions – Undistributed corporate profits

-

Which of the following is most relevant to an income approach formula for Net Domestic Product (NDP)?

Group of answer choices

Income - Taxes

National Income + Government transfer payments – Social Security contributions – Undistributed corporate profits

Indirect Business Taxes + Rent + Wages + Interest + Profit

Depreciation + Indirect Business Taxes + Rent + Wages + Interest + Profit

Rent + Wages + Interest + Profit

-

Which of the following is most relevant to an income approach formula for National Income (NI)?

Group of answer choices

Indirect Business Taxes + Rent + Wages + Interest + Profit

Income - Taxes

Depreciation + Indirect Business Taxes + Rent + Wages + Interest + Profit

Personal Income + Government transfer payments – Social Security contributions – Undistributed corporate profits

Rent + Wages + Interest + Profit

-

Which of the following is most relevant to an income approach formula for Disposable Income (Yd)?

Group of answer choices

Indirect Business Taxes + Rent + Wages + Interest + Profit

Rent + Wages + Interest + Profit

Personal Income + Government transfer payments – Social Security contributions – Undistributed corporate profits

Depreciation + Indirect Business Taxes + Rent + Wages + Interest + Profit

Income - Taxes

-

The increase in the overall price level is known as …

Group of answer choices

stagflation.

stagnation.

disinflation.

inflation.

deflation.

-

Public policy which changes taxes AND / OR changes government spending is referred to as …

Group of answer choices

fiscal policy.

supply-side policy.

monetary policy.

socialist policy.

income policy.

Answer 1

1. The correct answer is +$400

Weknow that spending Multiplier(K =1/1-MPC

So k = 1/1-0.80 = 1/.20 = 5. We also known that multiplier (k) = ∆Y/ ∆I so 5 = ∆Y/400 = ∆Y = 2000.

It means when government increase it's spending by $400 the income increase by $2000.

We know that tax multiplier (k) = -MPC/1-MPC

k = 0.8/1-0.8 = -4 we also know that k = ∆Y/ ∆T

So -4 = ∆Y/400 = ∆Y = -$1600. It means when tax increase by $400 the income decrease by $1600.

So change in equilibrium = 2000-1600 = +$400.

2. The correct answer is When income rises APC falls.

Because when income rises the Consumption rises by rise in Consumption is less than rise in Income. So APC falls.

7. The correct answer is the correct answer is inflation.

Because the general rise in the price level of goods and services is known as inflation.

8. The correct answer is fiscal policy.

Because fiscal policy refers to a policy used by the government by making changes in the tax rate and its spending.