Monetary policy can affect aggregate demand and inflation through all of the
following channels EXCEPT:
A. The exchange rate
B. Residential investment
C. Expectations/confidence
D. Taxes and government spending
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D. Taxes and government spending
Which of the following statements is correct regarding fiscal policy?
A. Expansionary fiscal policy (e.g. increasing the government deficit or reducing the
surplus) always has a stabilizing effect for the economy.
B. Unemployment benefits and taxes automatically increase government spending
and cut taxation in a downturn, while they trim spending and raise taxes in a boom.
These are, therefore, automatic stabilizers.
, C. In a recession the aim of a government fiscal expansion is to over-ride the effects
of automatic stabilizers.
D. As a family worried about mounting debts should cut spending and save more, so
should an economy adopt austerity measures when its debt level is high to restore its
public finances to balance.
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B. Unemployment benefits and taxes automatically increase government
spending and cut taxation in a downturn, while they trim spending and raise
taxes in a boom. These are, therefore, automatic stabilizers.
Assuming that there is no government spending or trade, an economy's aggregate
demand is given by its domestic consumption C and investment I, AD = C + I = c0 + c1Y
+ I.
In the economy's goods market equilibrium this equals its output: AD = Y. Solving for Y
this yields:
Y = [1/(1-c1)] (c0+ I)
Given this equation, which of the following statements is correct?
A. The multiplier is given by 1 - c1.
B. The boost in the economy's output is the same whether the aggregate demand
shock comes from an increase in investment I or in autonomous consumption c0.
C. The larger the marginal propensity to consume c1, the smaller the multiplier.
D. If c1 = 1/3, then a £1 million increase in investment would result in a £2 million
increase in the output.
Give this one a try later!
following channels EXCEPT:
A. The exchange rate
B. Residential investment
C. Expectations/confidence
D. Taxes and government spending
Give this one a try later!
D. Taxes and government spending
Which of the following statements is correct regarding fiscal policy?
A. Expansionary fiscal policy (e.g. increasing the government deficit or reducing the
surplus) always has a stabilizing effect for the economy.
B. Unemployment benefits and taxes automatically increase government spending
and cut taxation in a downturn, while they trim spending and raise taxes in a boom.
These are, therefore, automatic stabilizers.
, C. In a recession the aim of a government fiscal expansion is to over-ride the effects
of automatic stabilizers.
D. As a family worried about mounting debts should cut spending and save more, so
should an economy adopt austerity measures when its debt level is high to restore its
public finances to balance.
Give this one a try later!
B. Unemployment benefits and taxes automatically increase government
spending and cut taxation in a downturn, while they trim spending and raise
taxes in a boom. These are, therefore, automatic stabilizers.
Assuming that there is no government spending or trade, an economy's aggregate
demand is given by its domestic consumption C and investment I, AD = C + I = c0 + c1Y
+ I.
In the economy's goods market equilibrium this equals its output: AD = Y. Solving for Y
this yields:
Y = [1/(1-c1)] (c0+ I)
Given this equation, which of the following statements is correct?
A. The multiplier is given by 1 - c1.
B. The boost in the economy's output is the same whether the aggregate demand
shock comes from an increase in investment I or in autonomous consumption c0.
C. The larger the marginal propensity to consume c1, the smaller the multiplier.
D. If c1 = 1/3, then a £1 million increase in investment would result in a £2 million
increase in the output.
Give this one a try later!
