Suppose real GDP is 12.6 trillion and potential GDP is 12.4 trillion. To move the economy back to ...

Suppose real GDP is 12.6 trillion and potential GDP is 12.4 trillion. To move the economy back to potential GDP, Congress should
 
  A) lower government purchases by 200 billion.
  B) raise taxes by 200 billion.
  C) lower government purchases by an amount less than 200 billion.
  D) lower taxes by 200 billion.
  E) raise taxes by an amount more than 200 billion.

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Ques. 2

If consumption is defined as C = 4,500 + 0.75Y, then the marginal propensity to save is 0.25.
 
  Indicate whether the statement is true or false

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Ques. 3

If the Fed chose to change its policy actions implemented during the heart of the recession faster than the timing suggested by the White House, this would be an indication of the Fed's
 
  A) independence. B) frictional relationship with the White House.
  C) changing its monetary policy target. D) lack of credibility.

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Ques. 4

When housing prices ________ as they did beginning in 2006 following the housing market bubble, most banks and other lenders tightened the requirement for borrowers, making it ________ for potential home buyers to obtain mortgages.
 
  A) fell; easier B) rose; easier C) rose; harder D) fell; harder

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Ques. 5

Suppose Congress increased spending by 100 billion and raised taxes by 100 billion to keep the budget balanced. What will happen to real equilibrium GDP?
 
  A) Real equilibrium GDP will fall.
  B) Real equilibrium GDP will rise.
  C) Real equilibrium GDP will initially rise, but then fall below its previous equilibrium value.
  D) There will be no change in real equilibrium GDP.

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Ques. 6

A decrease in the tax rate will ________ the disposable income of households and ________ the size of the multiplier effect.
 
  A) decrease; decrease
  B) decrease; increase
  C) increase; decrease
  D) increase; increase
  E) increase; not change

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Ques. 7

If the required reserve ratio is 100 percent, could the Federal Reserve still change the money supply with open market operations? Explain whether they could or could not.
 
  What will be an ideal response?

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Ques. 8

If consumption is defined as C = 2,400 + 0.9Y, then the marginal propensity to consume is 0.9.
 
  Indicate whether the statement is true or false