Question Details

This offset would happen because higher money costs would cause 



1. Suppose that an increase in GDP of $100 increases taxes by $30, imports by $12, consumption by $60, and investment by $2. After three rounds of the multiplier process, by how much will an increase in government spending of $2,000 have increased income? 
a) $2,000 or less b) more than $2,000 but not more than $3,000 
c) more than $3,000 but not more than $4,000 d) more than $4,000 
2. "Of course, if Washington needed less cash it would undoubtedly ease the strain on the states and the corporate sector." This strain happens because 
a) consumers are crowded out b) higher interest rates are costly 
c) higher taxes are difficult to pay 
d) higher government spending sets the multiplier in motion 23 
3. "There are enough programs so that the federal deficit will swell as existing programs are maintained while tax revenues fall as a result of the weak economy." These two phenomena 
a) decrease the multiplier b) increase productivity 
c) destabilize the economy d) help balance the budget 
4. "The bang from a buck of direct government spending - say, highway construction - is far greater than the punch from a tax cut of equal dollar magnitude." This happens because 
a) some of the taxes are avoided 
b) a tax cut only increases aggregate demand by the marginal propensity to save times the tax cut 
c) a tax cut only increases aggregate demand by the marginal propensity to consume times the tax cut 
d) higher government spending sets the multiplier in motion whereas a tax cut does not 
5. "Clinton has promised to get the economy moving strongly again but if that requires increased government spending, financial markets may insist on an interest rate premium in anticipation of problems funding an even larger U.S. public debt. And those higher money costs could offset any benefit of higher government spending." This offset would happen because higher money costs would cause 
a) taxes to rise b) inflation to rise c) unemployment to fall d) aggregate demand to fall



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