Question

1. Since government spending and planned investment are both fixed variables, what must be true of the aggregate expenditure function?
O A. The aggregate expenditure function is horizontal.
O B. The aggregate expenditure function is below and parallel to the consumption function.
O C. The aggregate expenditure function is above and parallel to the consumption function.
O D. The aggregate expenditure function is flatter than the consumption function and intersects it at the equilibrium output level.

2. Expansionary fiscal policy is used by the government to
A. create new jobs in the economy.
B. reduce the national debt.
C. reduce the budget deficit.
D. control inflation.

3. When government spending increases by $1, planned expenditures increase by $1
O A. and the equilibrium level of income will increase by $1.
O B. times the spending multiplier and the equilibrium level of income will increase by $1.
O C. and the equilibrium level of income will increase by $1 times the spending multiplier.
O D. and the equilibrium level of income will increase by less than $1.

4. When taxes are cut by $1, planned expenditures
O A. increase by $1 and the equilibrium level of income will increase by $1 times the tax multiplier.
O B. increase by less than $1 and the equilibrium level of income will increase by $1 times the tax
multiplier.
O C. increase by $1 and the equilibrium level of income will increase by $1 times the spending
multiplier.
O D. decrease by $1 and the equilibrium level of income will decrease by $1 times the tax multiplier.

4. Consider the following information on aggregate income, consumption expenditure, and planned investment for a country:

Aggregate Output/Income Consumption Planned Investment

  
$10,700 $10,280 $500   
10,900 10,460 500
11,100 10,640 500   
11,300 10,820 500   
11,500 11,000 500
11,700 11,180   500   
11,900 11,360 500

  
12,100 11,540   500   
When aggregate income is $11,100,
O A. saving is $40 and unplanned investment (inventory change) is - $40.
O B. saving is $460 and unplanned investment (inventory change) is - $40.
O C. saving is - $460 and unplanned investment (inventory change) is $500.
O D. saving is - $40 and unplanned investment (inventory change) is $500.
The equilibrium level of output/income is $ . (Enter your response as an integer.)
Based on the information above, calculate the MPC and MPS.
MPC = . (Round your response to two decimal places.)
MPS = . (Round your response to two decimal places.)
The investment multiplier is . (Enter your response as an integer.)
Suppose there is no change in the level of the MPC and the MPS and planned investment jumps by $200. Calculate
the change in the equilibrium value of income/output.
The change in equilibrium income/output is $ . (Enter your response as an integer.)

Answer 1

1, C. The aggregate expenditure function is above and parallel to the consumption function.

Reason Since government spending and planned investment are both fixed variables, keeping the other variable constant. aggregate expenditure function will shift up but will parallel to the consumption function.

2. (A) create new jobs

Reason expansionary fiscal policy increase the job enrollment but it increase budget deficit, national debts and inflation ,only jobs are created by this kind of policy.

3. (C) and the equilibrium level of income will increase by $1 times the spending multiplier.

Reason spending multiplier will increase the equilibrium income in ratio of government expenditure to aggregate expenditure.

4. (B)

An cut in taxes increases disposable income   Taxable amount and increases consumption by MPC x change in T. For any given level of income Y, planned expenditure increases by less than $1, and the equilibrium level will increase by $1 times the tax multiplier.

5. B. saving is $460 and unplanned investment (inventory change) is - $40.
reason S = y-c

= 11100-10640

= 460

unplanned investment = Y - consumption expenditure + planned investment

=11100-(10640+500) = -40

aggregate income	aggregate consumption	planned investment	saving= Y-C	change in saving	change in consumption	change in income	MPC= ▲c/▲y	MPS=▲s/▲y
10700	10280	500	420	-	-	-
10900	10460	500	440	20	180	200	0.9	0.1
11100	10640	500	460	20	180	200	0.9	0.1
11300	10820	500	480	20	180	200	0.9	0.1
11500	11000	500	500	20	180	200	0.9	0.1
11700	11180	500	520	20	180	200	0.9	0.1
11900	11360	500	540	20	180	200	0.9	0.1
12100	11540	500	560	20	180	200	0.9	0.1

investment multiplier= 1/ 1-MPC

= 1/1- 0.9

=1/ .1

=10

K= change in income / change in investment

10 = X / 200

X= 2000