Income-Expenditure Model: Sample Quiz

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1. The use of government purchases, taxes and transfer payments to influence the level of economic activity is:

fiscal policy.
monetary policy.
noninterventionist policy.
portfolio policy.

2. Keynes argued that the amount consumers spend depends primarily on:

where they live.
the ages of the members of the family.
the rate of growth in money stock.
their incomes.

3. Government policy concerning its level of spending and taxation is called:

the quantity theory of money.
fiscal policy.
business cycles.
monetary policy.

4. Suppose that when government spending is 10 billion, GNP will be 79 billion. If the government-spending multiplier is 3, which of the following combinations will result in a GNP of 100 billion in a simple income-expenditure model?

Decrease G by 7, no change in taxes
Decrease G by 21, increase taxes by 7
Increase G by 7, no change in taxes
Increase G by 21, no change in taxes
No change in G, decrease taxes by 7

5. A basic idea of Keynesian economics is that:

left to itself, a market system will not necessarily adjust to full employment.
monetary policy is more important than fiscal policy.
wage and price controls will become a permanent feature of post-industrial capitalism.
full employment and price stability are inevitable in the long run.

6. Mary has a marginal propensity of save of zero. This means that:

if she gets additional income, she will spend all of it.
her spending just equals her income.
she has no net worth.
she has no assets.

7. Which of the following is an example of fiscal policy that will increase GDP?

A tax cut.
A cut in transfer payments.
A cut in government purchases.
A cut in the discount rate.

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Copyright Robert Schenk