Question Details

If the government increases spending by 8 billion dollars, the budget deficit will 


1. If "the" multiplier is 5 and income increased by $65 billion, the increase in autonomous spending must have been 
a) $11 b b) $13 b c) $325b d) $0.077b 
2. If "the" multiplier is 4 and the government wants to increase the level of income by $30 billion, it should increase government spending by 
a) $4b b) $7.5b c) $30b d)$120b 
3. Suppose that the income multiplier with respect to government spending is 2.5 and the marginal tax rate is 25 percent. If the government increases spending by 8 billion dollars, the budget deficit will 
a) decrease or be unaffected b) increase by $3b or less 
c) increase by more than $3b but less than $8b d) increase by $8b or more 
4. Suppose the current level of income is $600 billion, "the" multiplier is 4, the marginal tax rate is 20 percent, and the current budget deficit is $20 billion. If government spending is increased to raise income to $630b, once equilibrium is attained the budget deficit will be 
a) $20b or less b) more than $20b but less than $22b 
c) at least $22b but less than $27b d) $27b or more 20 
Suppose "the" multiplier is 4 and the government increases spending by $5 billion but the economy is at full employment at nominal income level $600 billion, so that an increase in government spending elicits price increases rather than output increases. 
5. Nominal income and real income will increase by 
a) $20b and zero, respectively b) $20b and $20b, respectively 
c) zero and zero, respectively d) zero and $20b, respectively 
36. The price level will increase by 
a) 2% or less b) more than 2% but not more than 3% 
c) more than 3% but not more than 4% d) more than 4% 



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