Macro true and false

True/False

1. If productivity and wages both rise by 3 percent, then the aggregate supply curve shifts up.

2. The larger the mpc, the more repercussions there are from a change in expenditures or production and the greater the multiplier.

3. Government policy can affect business investment by altering expectations about the future.

4. The purpose of an expansionary fiscal policy is to increase equilibrium income.

5. If an economy is in a recession, one fiscal policy that might help it recover is a cut in the income tax rate.

6. A country that runs a budget surplus will not have a debt.

7. Government debt is defined as accumulated deficits minus accumulated surpluses.

8. Printing money is the most desirable way to finance a deficit.

9. If the price level is rising, the real deficit must be lower than the nominal deficit.

10. External government debt is government debt owed to individuals and firms in foreign countries.

Multiple Choice

1. The paradox of thrift occurs when:

A) an increase in saving raises output.
B) an increase in saving reduces output.
C) a decrease in saving raises output.
D) a decrease in saving reduces output.

2. Keynes argued that:

A) the long-run is more relevant than the short-run.
B) the short-run is more relevant than the long-run.
C) both the short-run and the long-run are
equally important.
D) the distinction between the short-run and the long
-run is irrelevant.

3. The multiplier model focuses on:

A) interest rate adjustment.
B) price level adjustment.
C) income adjustment.
D) policy adjustment.

4. The multiplier equals:

A) the mpc.
B) 1 / mpc .
C) 1 / (1 - mpc).
D) 1 / (mpc - 1).

5. As the marginal propensity to consume rises, the multiplier:

A) decreases.
B) remains constant.
C) increases.
D) changes unpredictably.

6. To cool down an overheating economy the U.S. government decides to decrease income by 2000. If the mps is 0.2, the government should decrease its spending by:

A) 400.
B) 500.
C) 1,000.
D) 1,600.

7. A cut in defense spending is an example of:

A) an expansionary monetary policy.
B) a contractionary monetary policy.
C) an expansionary fiscal policy.
D) a contractionary fiscal policy.

Solution Summary

Macro true and false with explanations