Question

1.If an economy saves 50 percent of any increase in income, then an increase in investment of $10 billion
can produce an increase in income of as much as:

	A.	$15 billion
	B.	$10 billion
	C.	$5 billion
	D.	$20 billion

2. For a tax to be classified as proportional, it must be the case that

	A.	As the tax base increases by a certain amount, the tax liability increases by a greater percent.
	B.	As the tax base increases, the percentage of the base paid as taxes diminishes.
	C.	As the tax base increases, the percentage of the base paid as taxes increases at a decreasing rate.
	D.	As the tax base increases by a certain percentage, the tax liability increases by the same percentage.

3.Expansionary fiscal policy involves

	A.	a decrease in government spending and/or an increase in taxes.
	B.	only an increase in taxes.
	C.	an increase in government spending and/or a decrease in taxes.
	D.	only a decrease in government spending.

4. During times of inflation we want to

	A.	raise taxes and run budget deficits.
	B.	lower taxes and run budget surpluses.
	C.	raise taxes and run budget surpluses.
	D.	lower taxes and run budget deficits.

5.Which one of the following is NOT an automatic fiscal stabilizer:

	A.	Personal income taxes
	B.	Unemployment taxes and benefits
	C.	Corporate dividend policy
	D.	Property taxes

Answer 1

1) option D is correct. marginal propensity to save is 50% which means marginal propensity to consume is 1 - 50% which is 50%. Multiplier is 1 / 50% or 2. When investment is increased by $10 income will increase by 10 x 2 = 20 billion dollar

2) option D is correct. Under proportional tax regime fixed percentage of tax is collected from every individual despite his level of income

3) option C is correct. Expansion means the expansion of business activity which happens when government it takes less tax and spends more.

4) option C is correct

5) option C