Question Details

Which policy reaction is most appropriate 



1. "The" multiplier definitely becomes bigger if 
a) the MPC (marginal propensity to consume) and the MPM (marginal propensity to import) become bigger 
b) the MPC and the MPM become smaller 
c) the MPC becomes bigger and the MPM becomes smaller 
d) the MPC becomes smaller and the MPM becomes bigger 
2. If everyone is forced to pay an extra $100 in taxes each year, "the" multiplier 
a) is unchanged and income falls b) becomes smaller and income falls 
c) becomes larger and income falls d) becomes larger and income rises 
3. If everyone is given a $100 reduction in their taxes, "the" multiplier 
a) is unchanged b) becomes larger c) becomes smaller 21 
d) not enough information to tell 
4. Suppose an economy at full employment begins to experience a fall in inventories. Which policy reaction is most appropriate ? 
a) increase taxes b) increase transfer payments 
c) increase the money supply d) increase government spending 
5. Equilibrium GDP cannot be when total spending exceeds output because 
a) firms will cut prices to move the excess inventories 
b) firms will notice that inventories are piling up and will cut back on production levels 
c) firms will lay off workers to cut costs and GDP will move to a lower equilibrium level 
d) firms will notice that inventories are being depleted and will step up production to meet the higher demand



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