Tackle the Test: Multiple-Choice Questions

1. Question

   The marginal propensity to consume

   
   

   
   

   1. has a negative relationship to the spending multiplier.

      
      
   
   

   2. is equal to 1.

      
      
   
   

   3. 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

   The marginal propensity to consume

2. Question

   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 MPC.

   E.

   a decrease of $100 million.

   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

3. Question

   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.

   The presence of income taxes has what effect on the spending multiplier? They

4. Question

   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.

   A lum

5. Question

   Which of the following is NOT an automatic stabilizer?

   A.

   income taxes

   B.

   unemployment insurance

   C.

   Medicaid

   D.

   food stamps

   E.

   monetary policy

   Which of the following is NOT an automatic stabilizer?