43) The tax multiplier is smaller in absolute value than the government purchase
ID: 1206476 • Letter: 4
Question
43) The tax multiplier is smaller in absolute value than the government purchases multiplier because some portion of the
A) decrease in taxes will be saved by households and not spent, and some portion will be spent on imported goods.
B) decrease in taxes will be saved by households and not spent, and some portion will be spent on consumer durable goods.
C) increase in government purchases will be saved by households and not spent, and some portion will be spent on imported goods.
D) increase in government purchases will be saved by households and not spent, and some portion will be spent on consumer durable goods.
44) The multiplier effect is the series of ________ increases in ________ expenditures that result from an initial increase in ________ expenditures.
A) induced; investment; autonomous
B) induced; consumption; autonomous
C) autonomous; consumption; induced
D) autonomous; investment; induced
45) A cut in tax rates effects equilibrium real GDP through two channels: ________ disposable income and consumer spending, and ________ the size of the multiplier effect.
A) increasing; decreasing
B) decreasing; increasing
C) increasing; increasing
D) decreasing; decreasing
46) A tax rebate, which is expected to be offered in this and all future years, will
A) have a small positive effect on consumption and aggregate demand.
B) have no effect on consumption and aggregate demand.
C) have a significant positive effect on consumption and aggregate demand, with aggregate demand growing by a multiple of the tax rebate.
D) increase aggregate supply and aggregate demand.
47) A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.
A) increase; rise; falls
B) increase; fall; rises
C) decrease; rise; falls
D) decrease; fall; rises
48) During recessions, government expenditure automatically
A) falls because of programs such as unemployment insurance and Medicaid.
B) rises because of programs such as unemployment insurance and Medicaid.
C) falls because of the progressive income tax system.
D) rises because of the progressive income tax system.
Explanation / Answer
(43) The correct answer is option (A). The tax multiplier is smaller in absolute value than the government purchases multiplier because some portion of the decrease in taxes will be saved by households and not spent, and some portion will be spent on imported goods.
(44) The correct answer is option (B). The multiplier effect is the series of induced increases in consumption expenditures that result from an initial increase in autonomous expenditures.
(45) The correct answer is option (C). A cut in tax rates effects equilibrium real GDP through two channels: increases disposable income and consumer spending, and increases the size of the multiplier effect.
(46) The correct answer is option (C).A tax rebate, which is expected to be offered in this and all future years, will have a significant positive effect on consumption and aggregate demand, with aggregate demand growing by a multiple of the tax rebate.
(47) The correct answer is option (A). A recession tends to cause the federal budget deficit to increase because tax revenues rise and government spending on transfer payments fall.
(48) The correct answer is option (B). During recessions, government expenditure automatically rises because of programs such as unemployment insurance and Medicaid.
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