ID: 18. The oversimplified formula for the multiplier is misleading because it i
ID: 1111860 • Letter: I
Question
ID: 18. The oversimplified formula for the multiplier is misleading because it ignores the effects of a. price-level changes. b. the foreign sector. c. variable taxes. d. All of the above are correct. 19. In comparison to the oversimplified formula for the multiplier, the real-world multiplier is a. lower b. higher c. almost equal to it. d. higher if taxes are included. 20. Fiscal policy consists of a. taxes and interest rates. b. government purchases and defense spending. the money supply and taxes. c. d. taxes and government spending. 21. Using the standard 45-degree line diagram, how does an increase in autonomous consumption affect the expenditure schedule? It shifts the expenditure schedule downward. It shifts the expenditure schedule upward. It increases the slope of the expenditure schedule. It decreases the slope of the expenditure schedule. a. b. c. d. 22. An increase in autonomous consumption has the same equilibrium effect as a(n) decrease in investment. increase in investment. decrease in net exports. increase in taxes. a. b. c. d. . Assume that the MPC is.75, and investment spending rises by $25 billion. How much will real GDP chan mpc="75125 b B25 billion B 25 billio n a. $25 billion b. $75 billion c· $100 billion d. $175 billion 5p2 If the government increases defense spending by $1 billion and the MPC is 0.8, how much additional spending will occur in the third "round" of spending? a. $640 million b. $800 million c. $1 billion d. $1.8 billion Government transfer payments a. are subtracted from national income to obtain disposable income. b. can be considered as negative taxes. c. intervene between national product and disposable income in the same way as taxes. d. are counted the same as taxes in computing national income.Explanation / Answer
Correct choice for question number 18 is option D. This is because the simplified spending multiplier keeps the tax rate constant, as well as the purchase of domestic goods by foreign consumers unchanged. Also the price level changes which reduces the aggregate effect of income change.
Correct option for question number 19 is option A. When taxes on variable and price level changes are encountered the multiplier value will be reduced.
The correct option for question number 20 is option D. This is governments discretionary policy in which it increases the tax rate and decreases spending during expansion and does the opposite during recession
Correct answer for question number 21 is option B. Autonomous consumption expenditure is a straight line horizontal to the income axis. An increase in autonomous consumption expenditure will shift the aggregate expenditure upwards by a constant amount
The correct choice for question number 22 is option B. This is because an increase in investment which is autonomous in nature is also a constant value and so it shifts the aggregate demand and aggregate expenditure curve upwards.
Correct option for question number 23 is option C. Hands when investment is increased by 25 billion, income will increase by 25*4=100