Suppose the government spending multiplier is 2. The federal government cuts spending by 40 billion. What is the change in GDP if the price level is not held constant?
A) a decrease of more than 80 billion
B) an increase of less than 80 billion
C) an increase equal to 80 billion
D) an increase of greater than 80 billion
E) a decrease of less than 80 billion
Ques. 2The larger the fraction of an investment financed by borrowing
A) the greater the potential return and the smaller the potential loss on that investment.
B) the smaller the potential return and potential loss on that investment.
C) the greater the potential return and potential loss on that investment.
D) the smaller the potential return and the greater the potential loss on that investment.
Ques. 3The policy which holds that the federal government should not allow large financial firms to fail, for fear of damaging the financial system, is known as the ________ policy.
A) too-big-to-fail B) Dodd-Frank
C) mandatory bailout D) rational expectations
Ques. 4If consumption is defined as C = 2,000 + 0.8Y, then the marginal propensity to save is 0.8.
Indicate whether the statement is true or false
Ques. 5If the tax multiplier is -1.5 and a 200 billion tax increase is implemented, what is the change in GDP, holding everything else constant? (Assume the price level stays constant.)
A) a 300 billion decrease in GDP
B) a 30 billion increase in GDP
C) a 300 billion increase in GDP
D) a 133.33 billion increase in GDP
E) a 133.33 billion decrease in GDP
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