Deficit spending occurs when the: a Business community borrows heavily from the

Question

Deficit spending occurs when the: a Business community borrows heavily from the commercial banking system. b. Federal government borrows funds to finance expenditures that exceed tax revenues. c. Federal Reserve raises the reserve ratio, d None of the above. The marginal propensity to consume represents: A the proportion of total disposable income spent on consumption. B. The proportion of total disposable income saved. c. The fraction of each additional dollar of disposable income spent on consumption. d. The fraction of each additional dollar of gross income spent on consumption The primary determinants of investment expenditure (I) arc: A expectations, interest rates, and the national debt. B. The savings rate, the marginal propensity to consume, and technology, c expectations, interest rates, and technology. d The current account balance, the reserve requirement, and interest rates. Given the consumption function, C = a + 0.75Y_d, a represents and the marginal propensity to consume equals A. savings. 0.25 B. autonomous consumption, 0.25 c. savings, 0.75 d. autonomous consumption, 0.75 Given a marginal propensity to save equal to 0.10, the simple Keynesian multiplier equals: a 0.90 B 4 c 0.10 d. 10 Historically, the most unstable component of aggregate demand (AD) has been: A net exports (X-M). B consumption expenditures(C). C government expenditures(G). d investment expenditures (I). In the context of the circular flow, the condition, $ > I, implies: A macro equilibrium. B a spending excess that will produce rising inventories. c a spending shortfall that will produce rising inventories. d a required reserve shortfall. The fed funds market is a market: A that is not affected by the Fed's open market operations. B in which a bank may borrow excess reserves overnight from another bank in order to cover a required reserve shortfall. C in which the Fed's discount rate of interest is determined, d in which the U.S. Treasury sells U.S. government bonds.

Explanation / Answer

1. b) Federal government borrows funds to finance expenditure that exceeds tax revenue.

Deficit occurs when government spending is more than its revenue.

2. c) the fraction of each additional dollar of disposable income spent on consumption.

MPC = Change in C / Change in Y

3. c) expectation, interest rate and technology

4. d) autonomous consumption; 075

5. d) 10

Multiplier = 1/(1-MPC) = 1/0.10 = 100/10 = 10

6. d) Invesment expenditure

7. b) a spending excess that will produce rising inventories.

8. b) in which a bank may borrow excess reserves overnight from another bank in order to cover a required reserve shortfall.

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