1 of 1 Final Exam Study Question (Ch 34) . Sometimes during wars, government exp
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1 of 1 Final Exam Study Question (Ch 34) . Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates a. the Central Bank could increase the money supply by buying bonds. b. the Central Bank could increase the money supply by selling bonds c. the Central Bank could decrease the money supply by buying bonds d. the Central Bank could decrease the money supply by selling bonds 2. If net exports fall $20 billion and the MPC is 7/10 and there is a multiplier effect, but no crowding out and no investment accelerator, then a. aggregate demand falls by 10/3 x $20 billion b. aggregate demand falls by 7/3 x $20 billion c. aggregate demand falls by 7/10 x $20 billion d. None of the above is correct. 3. If the MPC is 0.60 and there are no crowding-out or accelerator (multiplier) effects, then an initial increase in aggregate demand of S200 billon will eventually shift the aggregate demand curve to the right by a. S80 billion. b. $125 billion c. $250 billion d. S500 billion 4. Assume the 'MPC is 0.625. Assuming only the multiplier effect matters, a decrease in government purchases of S10 billion will shift the aggregate demand curve to the a. left by about $13.3 billion. b. eft by about $26.7 billion. c. right by about $36.7 billion d. None of the above is correct. 5. Imagine that the government increases its spending by $20 billon. Which of the following by itself would tend to make the change in aggregate demand different from $20 billion? a. both the multiplier effect and the crowding-out effect b. the multiplier effect, but not the crowding-out effect c. the crowding-out effect, but not the multiplier effect d. neither the crowding out effect nor the multiplier effect 6. If a $2,000 increase in income leads to a S1500 increase in consumption expenditures, then the marginal propensity to consume is a. 0.75 and the multiplier is 1/3 b. 0.75 and the multiplier is 4 c. 0.25 and the multiplier is 1/3 d. 0.25 and the multiplier is 4 7. To reduce the effects of crowding out caused by an increase in government expenditures, the Central Bank cou a. increase the money supply by buying bonds b. increase the money supply by selling bonds. c. decrease the money supply by buying bonds. incr ease the money supply by selling bonds.Explanation / Answer
1.Ans: a. the Central bank could increase the money supply by buying bonds.
2.Ans: a. aggregate demand falls by 10/3 * 20 billion
3.Ans: d. $500 billion
4.Ans: b. left by about $26.7 billion.
5.Ans: b the
6.Ans: .75
7.Ans: a. Increase the money supply by buying bonds.
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