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Exercises Chapter 5 – Government and Fiscal Policy

Exercises Chapter 5 – Government and Fiscal Policy. Exercises Chapter 5 – Government and Fiscal Policy. 1) Disposable income A) increases when net taxes increase. B) increases when income increases. C) decreases when saving increases. D) increases when saving decreases.

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Exercises Chapter 5 – Government and Fiscal Policy

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  1. Exercises Chapter 5 – Government and Fiscal Policy

  2. Exercises Chapter 5 – Government and Fiscal Policy 1) Disposable income A) increases when net taxes increase. B) increases when income increases. C) decreases when saving increases. D) increases when saving decreases

  3. Exercises Chapter 5 – Government and Fiscal Policy 2) Billʹs income is $1,000 and his net taxes are $350. His disposable income is A) $1,350. B) $650. C) -$350. D) $750

  4. Exercises Chapter 5 – Government and Fiscal Policy 3) When the government sector is included in the income-expenditure model, the equation for aggregate income is A) Y = C + S - T. B)Y = C + I. C) Y = C + I + G. D)Y = C + S + I.

  5. Exercises Chapter 5 – Government and Fiscal Policy 4) When the government sector is included in the income-expenditure model, the equation for aggregate income is • Y = C + S - T. B)Y = C + I. C) Y = C + I + G. D)Y = C + S + I.

  6. Exercises Chapter 5 – Government and Fiscal Policy 5) The difference between what a government spends and what it collects in taxes in a year is A) net revenue. B) net taxes. C) the government budget deficit or surplus. D) the government debt.

  7. Exercises Chapter 5 – Government and Fiscal Policy 6) In 2007, the city of Canfield collected $500,000 in taxes and spent $450,000. In 2007, the city of Canfield had a A) budget surplus of $450,000. B) budget surplus of $50,000. C) budget deficit of $50,000. D) budget surplus of $5,000

  8. Exercises Chapter 5 – Government and Fiscal Policy 7) After government is added to the income-expenditure model, the formula for the aggregate consumption function is A) C = a - b(Y - T). B) C = a - b(T - Y). C) C = a + b(Y + T). D) C = a + b(Y - T).

  9. Exercises Chapter 5 – Government and Fiscal Policy 8) Disposable income A) increases when net taxes increase. B) increases when income increases. C) decreases when saving increases. D) increases when saving decreases

  10. Exercises Chapter 5 – Government and Fiscal Policy 9) The aggregate consumption function is C = 100 + .6Yd. If income is $1,000 and net taxes are $300, consumption equals A) 800. B) 520. C) 580. D) 700

  11. Exercises Chapter 5 – Government and Fiscal Policy 10) The aggregate consumption function is C = 100 + .8Yd. If income is $600 and net taxes are zero, consumption equals A) zero. B) 460. C) 580. D) 360

  12. Exercises Chapter 5 – Government and Fiscal Policy Refer to the information provided in Table 9.1 below to answer the questions that follow.

  13. Exercises Chapter 5 – Government and Fiscal Policy 1) Refer to Table 9.1. At an output level of $1,200 billion, the level of aggregate expenditure is A) $1,000 billion. B) $1,200 billion. C) $1,300 billion. D) $1,400 billion

  14. Exercises Chapter 5 – Government and Fiscal Policy 2) Refer to Table 9.1. At an output level of $1,200 billion, there is an unplanned inventory change of • positive $10 billion. • B) zero. C) negative $100 billion. D) positive $100 billion

  15. Exercises Chapter 5 – Government and Fiscal Policy 3) Refer to Table 9.1. At an output level of $2,000 billion, the level of aggregate expenditure is • $1,500 billion. • B) $1,800 billion. • C) $1,900 billion. • D) $2,000 billion.

  16. Exercises Chapter 5 – Government and Fiscal Policy 4) Refer to Table 9.1. At an output level of $2,000 billion, there is an unplanned inventory change of A) positive $100 billion. B) positive $10 billion. C) negative $100 billion. D) zero.

  17. Exercises Chapter 5 – Government and Fiscal Policy 5) Refer to Table 9.1. The equilibrium level of output is ________ billion. A) $800 B) $1,200 C) $1,600 D) $2,000 Answer: C

  18. Exercises Chapter 5 – Government and Fiscal Policy 6) Refer to Table 9.1. At an output level of $800 billion, disposable income equals ________ billion. A) $800 B) $700 C) $600 D) $500 Answer: B

  19. Exercises Chapter 5 – Government and Fiscal Policy 7) Refer to Table 9.1. At an output level of $2,000 billion, the value of saving A) cannot be determined from the given information. B) is $300 billion. C) is $200 billion. D) is $100 billion. Answer: B

  20. Exercises Chapter 5 – Government and Fiscal Policy 8) Refer to Table 9.1. At the equilibrium level of income, leakages equal ________ billion. • $0 • B) $100 • C) $200 • D) $300 Answer: D

  21. Exercises Chapter 5 – Government and Fiscal Policy 9) Refer to Table 9.1 At an output level of $1,200 billion, there is a tendency for output • to fall. • B) to increase. C) to remain constant. D) to either increase or decrease. Answer: B

  22. Exercises Chapter 5 – Government and Fiscal Policy The Italian economy can be characterized by Equation 9.1. EQUATION 9.1: C = 300 + .8Yd G = 400 T = 200 I = 200

  23. Exercises Chapter 5 – Government and Fiscal Policy 1) Refer to Equation 9.1. The equilibrium level of output for the Italian economy is • $2,850. • B) $3,700. • C) $3,145. • D) $3,800. Answer: B

  24. Exercises Chapter 5 – Government and Fiscal Policy 2) Refer to Equation 9.1. At the equilibrium level of output in Italy, consumption equals A) $3,100. B) $3,250. C) $3,400. D) $3,625. Answer: A

  25. Exercises Chapter 5 – Government and Fiscal Policy 3) Refer to Equation 9.1. At the equilibrium level of output in Italy, saving equals • $450. • B) $400. • C) $550. • D) $500. Answer: B

  26. Exercises Chapter 5 – Government and Fiscal Policy 4) Refer to Equation 9.1. At the equilibrium level of output in Italy, leakages equal • $650. • $600. • $750. • $700. Answer: B

  27. Exercises Chapter 5 – Government and Fiscal Policy 1) Assuming there is no foreign trade in the economy, the economy is in equilibrium when • S + T = C + I. • I + G = S + T. • IT = S + G. • G + T = S + I.

  28. Exercises Chapter 5 – Government and Fiscal Policy Refer to the information provided in Figure 9.1 below to answer the questions that follow.

  29. Exercises Chapter 5 – Government and Fiscal Policy 1) Refer to Figure 9.1. The equilibrium level of aggregate expenditure is $________ billion. • 3,000 • 2,000 • 4,000 • 1,500

  30. Exercises Chapter 5 – Government and Fiscal Policy 2). Refer to Figure 9.1. The MPC in this economy is A) 0.4. B) 0.6. C) 0.5. D) cannot be determined from the given information

  31. Exercises Chapter 5 – Government and Fiscal Policy 3). Refer to Figure 9.1. At equilibrium, injections • can be greater than $1,000 billion. • equal $1,500 billion. C) equal leakages. D) equal $2,000 billion. Answer: C

  32. Exercises Chapter 5 – Government and Fiscal Policy 4). Refer to Figure 9.1. At equilibrium, the part of consumption that is dependent on income equals $________ billion. A) $1,500 B) $1,000 C) $2,000 D) cannot be determined from the given information

  33. Exercises Chapter 5 – Government and Fiscal Policy 5). Refer to Figure 9.1. Suppose that the consumption function is C = 400 + 0.5Yd and taxes are $200 billion, at equilibrium the value of injections are • $700 billion. • $500 billion. • $650 billion. • $350 billion. Answer: A

  34. Exercises Chapter 5 – Government and Fiscal Policy • 6). Refer to Figure 9.1. Suppose that the consumption function is C = 400 + 0.5Yd and taxes are $200 billion, at equilibrium the value of autonomous consumption is • A) $400 billion. • B) $300 billion. • C) $100 billion. • D) $200 billion

  35. Exercises Chapter 5 – Government and Fiscal Policy 7). Refer to Figure 9.1. Suppose that the consumption function is C = 400 + 0.5Yd and taxes are $200 billion, at equilibrium, what is the value of consumption? A) $1,350 B) $2,000 C) $1,300 D) $1,150 Answer: C

  36. Exercises Chapter 5 – Government and Fiscal Policy 8). If planned injections exceed leakages, output will A) decrease. B) increase. C) remain constant. D) either increase or decrease Answer: B

  37. Exercises Chapter 5 – Government and Fiscal Policy Refer to the information provided in Table 9.3 below to answer the questions that follow.

  38. Exercises Chapter 5 – Government and Fiscal Policy 1). Refer to Table 9.3. Assuming constant MPC, at income of $1,000 million, consumption is $________ million, and at income of $1,300 million, consumption is $________ million. A) 600; 860 B) 640; 900 C) 680; 920 D) 720; 960

  39. Exercises Chapter 5 – Government and Fiscal Policy • 2). Refer to Table 9.3. Assuming constant MPC, at income of $1,200 million, saving is $________ million, at income of $1,600 million, saving is $________ million. • A) 150; 230 • B) 160; 240 • C) 170; 250 • D) 180; 260

  40. Exercises Chapter 5 – Government and Fiscal Policy • 3). Refer to Table 9.3. The MPC in this economy is ________ and the MPS is ________. • A) 0.5; 0.5 • B) 0.7; 0.5 • C) 0.9; 0.1 • D) 0.8; 0.2

  41. Exercises Chapter 5 – Government and Fiscal Policy • 4). Refer to Table 9.3. The equilibrium level of aggregate output is $________ million. • A) 1,200 • B) 1,300 • C) 1,400 • D) 1,500

  42. Exercises Chapter 5 – Government and Fiscal Policy 5). Refer to Table 9.3. Suppose the economy is in equilibrium and the government increases spending by $50 million, the new equilibrium output is $________ million A) 1,650 B) 1,450 C) 1,750 D) 1,350

  43. Exercises Chapter 5 – Government and Fiscal Policy 6). Refer to Table 9.3. Suppose the economy is in equilibrium and the government raises taxes from $200 million to $220 million, equilibrium output will ________ by $________ million. A) decrease; 20 B) increase; 20 C) decrease; 80 D) increase; 80

  44. Exercises Chapter 5 – Government and Fiscal Policy

  45. Exercises Chapter 5 – Government and Fiscal Policy 1). Refer to Table 9.4. The equilibrium level of income is A) $3,400 billion. B) $3,800 billion. C) $2,000 billion. D) $3,600 billion. Answer: A

  46. Exercises Chapter 5 – Government and Fiscal Policy 2). Refer to Table 9.4. The MPS A) is .8. B) is .1. C) is .2 D) cannot be determined from the available information.

  47. Exercises Chapter 5 – Government and Fiscal Policy 3). Refer to Table 9.4. The value of the government spending multiplier A) is 10. B) is .9. C) is 5. D) cannot be determined from the available information. Answer: A

  48. Exercises Chapter 5 – Government and Fiscal Policy 4). Refer to Table 9.4. The economy is at the equilibrium level of output. If government spending increases to a level of $400 billion, the new equilibrium level of output is A) $5,400 billion. B) $2,100 billion. C) $6,040 billion. D) $6,600 billion. Answer: A

  49. Exercises Chapter 5 – Government and Fiscal Policy 5). Refer to Table 9.4. The economy is at the equilibrium level of output. If government spending decreases by $100 billion, the new equilibrium level of output is A) $3,100 billion. B) $2,400 billion. C) $1,450 billion. D) $1,550 billion. Answer: B

  50. Exercises Chapter 5 – Government and Fiscal Policy 6). Refer to Table 9.4. If taxes are reduced from $100 billion to $50 billion, the new equilibrium level of output is A) $4,050 billion. B) $1,600 billion. C) $3,850 billion. D) $2,100 billion. Answer: C

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