Chapter 21, Fiscal Policy and Multiplier Effects Video Solutions, Krugman's Economics for AP

Problem 1

The marginal propensity to consume
I. has a negative relationship to the spending multiplier.
II. is equal to 1.
III. represents the proportion of consumers' disposable income that is spent.
a. I only
b. II only
c. III only
d. I and III only
e. I, II, and III

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Numerade Educator

Problem 2

Assume that taxes and interest rates remain unchanged when government spending increases, and that both savings and consumer spending increase when income increases. The ultimate effect on real GDP of a $$\$ 100$$ million increase in government purchases of goods and services will be
a. an increase of $$\$ 100$$ million.
b. an increase of more than $$\$ 100$$ million.
c. an increase of less than $$\$ 100$$ million.
d. an increase of either more than or less than $$\$ 100$$ million, depending on the $M P C$.
e. a decrease of $$\$ 100$$ million.

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Problem 3

The presence of income taxes has what effect on the spending multiplier? They
a. increase it.
b. decrease it.
c. destabilize it.
d. negate it.
e. have no effect on it.

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Problem 4

A lump-sum tax is
a. higher as income increases.
b. lower as income increases.
c. independent of income.
d. the most common form of tax.
e. a type of business tax.

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Numerade Educator

Problem 5

Which of the following is NOT an automatic stabilizer?
a. income taxes
b. unemployment insurance
c. Medicaid
d. food stamps
e. monetary policy

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