3. The elimination of automatic stabilizers would most likely increase the need for more fiscal policy prescriptions.
6. Suppose the U.S. economy is in a recession, and the recessionary gap is equal to $250. If the mpe is 0.80, how much should the government spend to eliminate the recessionary gap?
A. Increase spending by $250.
B. Increase spending by $125.
C. Increase spending by $50.
D. Increase spending by $25.
7. Based upon what we have learned in this chapter, the best way to help reduce/eliminate an inflationary gap and decrease the economy's equilibrium income down to its potential income level is to:
A. increase aggregate expenditures by a government spending decrease or a tax increase.
B. increase aggregate expenditures by a government spending increase or tax decrease.
C. decrease aggregate expenditures by a government spending increase or tax decrease.
D. decrease aggregate expenditures by a government spending decrease or tax increase.
8. If the mpe is equal to 0.90 and equilibrium income is $300 billion more than potential income, the Multiplier Model predicts that potential income can be attained by ______________ government spending ___________________.
A. decreasing; by $300 billion
B. decreasing; by $90 billion
C. decreasing; by $60 billion
D. decreasing; by $30 billion
1. True. Contractionary policy will contain inflation.
3. True. Automatic stabilizers help keep the economy on an even keel. Without ...
Keynes and automatic stabilizers