Question

Refer to thve informatiion provided in the tble below to anweq s 7 ugh 13 Income Taxes Dispole Income CY B00 1,300 2,00 3,300 4300 1,000 2,000 3,000 4,000 5,000 Conmumgtio 200 vetment Gvement 200 200 200 200 200 7. The marginal propensity to consume is Spending (G) 400 1,00 340 340 340 340 340 1,360 2M0 3MA 4360 500 400 6,000 400 400 5,800 400 340 400 a) 0.6. b) 0.75. 085 d) none of the sbove e) c) O.8. 8. The government spending multiplier is a) 5-4 b) 5;4 c) 4;-3 and the tax multipliver is d) 4,3. e) none of the shove 9. Equilibrium income level is a) 6,000. b) 5,000. c) 4,000. d) 3,000. e) none of the sbove 10. In equilibrium, the government has a deficit of 200 d) none of the sbove surplus of 240 a) e) surplus of 200. deficit of 240. b) c) d) decreased by 200 e) none of the above. 11. The equilibrium income would be $6,000 if government spending increased by 1,000. a) increased by 200. b) decreased by 1,000. The equilibrium income would be $3,500 if government spending a) b) increased by 300. c) decreased by 1,500. c) d) decreased by 300. none of the above 12. e) increased by 1,000. 13. The equilibrium income would be $4,000 if net taxes e) increased by 200. none of the above. decreased by 250. a) b) decreased by 200. increased by 250. c)

Answer 1

7. MPC = (change in C/ Change in Y)

= (1860-1060)/ (2000-1000)= 800/1000= 0.8

Hence,option(C) is correct.

8. Government spending multiplier = 1/1-MPC = 1/1-0.8= 1/0.2 =5

And tax multiplier = -MPC/1-MPC = (-0.8/ 1-0.8) = -0.8/0.2 = -4

Hence,option (A) is correct.

9. Equilibrium income level is 5000 because at this level ,aggregate expenditure equals Y. AE = (4260+340+400) = 5000= Y. Hence,option(B) is correct.

10. In equilibrium the government has a deficit of (G-T) = (400-200) = 200. Hence,option(D) is correct.