Question

1. If the government reduces spending A) the IS curve will shift to the right B) output will increase if interest rates remain fixed C) consumption will increase D) all of the above 2. If the government cuts taxes A) disposable income falls B) planned expenditures rise C) the IS curve shifts to the left D) all of the above 3. Qualitatively, an increase in government purchases has the same impact as an increase in autonomous A) consumption B) investment C) net exports D) none of the above 4. Actual expenditure is to planned expenditure as is to A) desire; accomplishment B) aggregate demand; aggregate supply C) output; income D) observed; theoretical 5. Total aggregate demand includes A) planned investment spending B) consumption expenditures C) net exports D) all of the above

Answer 1

1) Ans: (c) consumption will increase.

When the government reduces spending, disposable income increases. Thus, consumption increases.

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