Question

1)) A $100 billion increase in government purchases has a greater effect on real GDP than a $100 billion reduction in net taxes because

a		some of the income consumers gain from the tax reduction will be saved rather than spent
b		some of the income consumers gain from the tax reduction will be spent on services rather than products
c		some of the income consumers gain from the tax reduction will be spent on goods made in foreign countries
d		the consumers' MPC is higher than the government's
e		the consumers' MPC is 1

2)) A decrease in net taxes

a		raises aggregate expenditure by raising disposable income, thereby increasing consumption
b		raises aggregate expenditure by raising disposable income, thereby decreasing consumption
c		lowers aggregate expenditure by lowering disposable income, thereby decreasing consumption
d		lowers aggregate expenditure by lowering disposable income, thereby increasing consumption
e		has no effect on aggregate expenditure

3)) A federal budget deficit occurs when

	a	there is deflation
	b	federal government purchases exceed net taxes
	c	there is inflation
	d	aggregate demand is greater than aggregate supply
	e	aggregate supply is greater than aggregate demand

4)) A leading Classical economist and author of The Wealth Of Nations was

a		David Ricardo
b		François Quesnay
c		Simon Kuznets
d		John Maynard Keynes
e		Adam Smith

Answer 1

Answer Option D)the consumers' MPC is higher than the government's

A $100 billion increase in government purchases has a greater effect on real GDP than a $100 billion reduction in net taxes because the consumers' MPC is higher than the government's. The reason is that government spending goes toward increase in aggregate demand .

Answer Option A) raises aggregate expenditure by raising disposable income, thereby increasing consumption.

A decrease in net taxes raises aggregate expenditure by raising disposable income, thereby increasing consumption. The reason is that with decrease in taxes liquidity increases and disposable income increases due to which aggregate consumption rises.

Answer Option B) federal government purchases exceed net taxes

Federal budget deficit takes place when government expenditure exceeds than government receipt.

Answer Option E) Adam Smith

A leading Classical economist and author of The Wealth of Nations was Adam smith.