Practice Questions
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Which of the following best describes the effect of government spending on the economy, known as the spending multiplier?
When the government spends money, it helps the economy grow. Other options are incorrect because Some might think that spending less helps the economy...
If the marginal propensity to consume (MPC) in an economy is 0.8, what is the spending multiplier effect?
The spending multiplier is found by using the formula 1 divided by (1 - MPC). Other options are incorrect because This answer suggests a smaller effec...
How does an increase in government spending affect aggregate demand through the multiplier effect?
When the government spends more money, it puts cash into the economy. Other options are incorrect because Some might think that higher taxes from gove...
How does a government increase economic output through fiscal policy, considering the effects of spending and tax multipliers?
When the government spends more money, it creates jobs and boosts demand. Other options are incorrect because Some think that raising taxes helps peop...
How do changes in taxation impact aggregate demand when considering the concept of crowding out in an economy?
When taxes go down, people have more money to spend. Other options are incorrect because Some might think that higher taxes just mean less spending ov...
What is the primary effect of an increase in government spending on the economy, according to the multiplier effect?
When the government spends more money, it puts cash into the economy. Other options are incorrect because Some might think that spending less leads to...
Which of the following best describes the effect of government spending on the economy, known as the spending multiplier?
When the government spends money, it helps the economy grow. Other options are incorrect because Some might think that spending less helps the economy...
What is the primary effect of an increase in government spending on aggregate demand in the economy?
When the government spends more money, it puts more cash into the economy. Other options are incorrect because Some might think that spending less wou...
Arrange the following steps in the correct order for how fiscal policy changes affect aggregate demand through the spending multiplier: A) Government increases spending, B) Consumers receive income from government projects, C) Overall demand in the economy rises, D) Increased consumption leads to further economic activity.
First, the government increases spending. Other options are incorrect because This option suggests that consumers receive income before government spe...
If the government increases spending by $100 million and the marginal propensity to save (MPS) is 0.2, what is the expected increase in aggregate demand?
When the government spends money, it creates more income for people. Other options are incorrect because This answer might come from thinking that the...
In Keynesian economics, the impact of an increase in government spending on aggregate demand can be assessed using the __________, which is calculated as 1 divided by the marginal propensity to save (MPS).
The spending multiplier shows how much total demand increases when the government spends money. Other options are incorrect because Some might think t...
Spending is to the spending multiplier as tax cuts are to what?
When the government cuts taxes, people have more money to spend. Other options are incorrect because Some might think tax cuts directly increase gover...
Which of the following statements accurately describe the effects of spending and tax multipliers on aggregate demand? Select all that apply.
All the statements misunderstand how spending and tax multipliers work in the economy. Other options are incorrect because This statement suggests tha...
A government decides to increase its spending by $1 million to boost economic activity. Which of the following statements best classifies the effect of this increase in spending according to Keynesian economics?
When the government spends money, it increases demand for goods and services. Other options are incorrect because This answer suggests that government...
If the government increases spending by $100 million and the spending multiplier is 2, what is the expected total increase in aggregate demand?
When the government spends money, it can create more spending in the economy. Other options are incorrect because This answer thinks the total increas...
If government spending increases by $100 million, leading to an overall increase in aggregate demand of $400 million, what is the most likely reason for this observed increase?
When the government spends money, it creates jobs and income. Other options are incorrect because Some might think that more spending means more taxes...
A government is considering a new policy to increase public spending on infrastructure by $500 million to stimulate the economy. If the marginal propensity to save (MPS) is determined to be 0.2, what is the expected overall increase in aggregate demand based on the spending multiplier, and how might this impact future tax revenues?
When the government spends $500 million, it creates jobs and income. Other options are incorrect because This answer misunderstands the multiplier eff...
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