Suppose that the marginal propensity to consume (MPC) is .75 and there is an inc

Question

Suppose that the marginal propensity to consume (MPC) is .75 and there is an increase in investment spending of $50,000. As a result, equilibrium real Gross Domestic Product (GDP) would increase by

A) $100,000.

B) $150,000.

C) $200,000.

D) $250,000.

When the SRAS curve slopes upward, the actual affect of an increase in real autonomous spending on equilibrium real GDP is smaller than predicted by the multiplier because

A) the price level falls.

B) the price level rises

C) real GDP increases.

D) real GDP decreases.

How does a reduction in the price level affect the position of the C + I + G + X curve and in turn the equilibrium level of real GDP?

A) The C + I + G + X curve shifts down, thereby reducing the equilibrium level of real GDP.

B) The C + I + G + X curve shifts down, thereby increasing the equilibrium level of real GDP.

C) The C + I + G + X curve shifts up, thereby reducing the equilibrium level of real GDP.

D) The C + I + G + X curve shifts up, thereby increasing the equilibrium level of real GDP.

Keynes believed that the way to prevent recessions and depressions was to

A) reduce spending when there is a recessionary gap.

B) only change tax rates as a means of regulating the economy.

C) maximize the crowding out effect.

D) increase aggregate demand through expansionary fiscal policy.

The concept that increased government spending will lead to lower investment and consumer spending is referred to as the

A) inflationary effect.

B) crowding-out effect.

C) aggregate demand effect.

D) Keynesian effect.

Explanation / Answer

1. C

2. B

3. D

4. D

5. B

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