Question

1. A decreasing MPC leads to a spending multipler that is

a) becomes indefinable

b) decreasing

c) increasing

d) constant

2. What would you recommend to eliminate a recessionary gap?

a) decrease consumptio

b) decrease government spending

c) increase taxes

d) increase investment

3. regarding keynes, an economy will have long term high unemployment if

a) its total spending is too low

b) firms make too many investments

c) markets operate freely

d) the government runs a budget deficit

4.when aggregate expenditures is less than the aggregate output which of the following will occur

a) output will rise

b) inventories will tend to decline

c) inventories accumulate to a decrease in productio

d) prises will rise

Answer 1

Answer 1

Spending multiplier is a multiplier which shows the multiple by which the GDP will increase or decrease with respect to increase or decrease in government expenditure or investments.

MPC stands for marginal propensity to consume, It is the change in consumption with respect to the

The relation between MPC and spending multiplier is

Hence, a decrease in MPC will increase the denominator and therefore lead to a decreasing spending multiplier

Option b is the answer

Answer 2

Recessionary is a term used to describe an economy that is operating below its full employment level. In the recessionary gap, the GDP growth is less than the full employment level.

To eliminate the recessionary gap, expansionary fiscal policy should be used. Hence, investment should increase

Option d is the answer

Answer 3

Keynes believe that unemployment is caused if there is less expenditure in the economy. Out of the given options only option a tells about low investment.

Hence, the answer is option a

Answer 4

If the aggregate expenditure is less than the aggregate output. The inventories will increase and the price will fall

Hence Option c is the answer