Assume a simple model of the expenditure sector with no income taxes. If a lump sum tax decrease of 200 leads to an increase in income of 800, what is the size of the mps?
A. 0.1
B. 0.2
C. 0.25
D. 0.4
E. 0.8
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If autonomous investment increases by 100 and government purchases decrease by 100, which of the following is true?
A. income will increase by 100
B. income will increase by 200
C. income will increase by the multiplier times 100
D. income will decrease by the multiplier times 100
E. income will not change
Assume a model with no government, where consumption is the only component of aggregate demand. If the consumption function is of the form C = 400 + (0.9)Y, what is the equilibrium level of consumption?
A. 400
B. 1
C. 1600
D. 3600
E. 4000
Assume a model of the expenditure sector with no government or foreign sector. If the savings function is defined as S = - 300 + (0.1)Y and autonomous investment increases by 200, by how much will consumption increase?
A. 180
B. 200
C. 1800
D. 2000
E. 2100
The reason that an increase in autonomous spending leads to an even greater increase in equilibrium level of output is that
A. as firms increase output to meet demand, income increases, and this induces more consumption spending
B. the multiplier increases with an increase in autonomous spending
C. prices rise with increased output and this raises nominal GDP
D. people save less as their income increases
E. there is unwanted inventory accumulation, leading firms to lower prices and encouraging increased consumer spending