Question

Which of the following is an example of fiscal stimulus?

Multiple Choice

• an increase in government spending on new military jet fighters

• an increase in consumption because of improved consumer confidence

• an increase in personal income taxes for families with children

• an increase in the purchase of office buildings by foreign investors

If consumers spend 98 cents out of every extra dollar received, the

Multiple Choice

• marginal propensity to consume is 98.

• marginal propensity to save is 1.02.

• marginal propensity to consume is 0.98.

• marginal propensity to consume is 0.02.

Suppose government spending increases, which causes producers to hire more workers. As a result, households have more income to spend, which causes aggregate demand to increase even more, this is known as the

Multiple Choice

• magnifying process.

• multiplier process.

• saving effect.

• fiscal effect.

The multiplier is equal to

Multiple Choice

• 1 − Marginal propensity to save.

• Marginal propensity to save ÷ Marginal propensity to consume.

• 1 ÷ Marginal propensity to save.

• 1 ÷ Marginal propensity to consume.

Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will increase by

Multiple Choice

• $1 million.

• $20 million.

• $40 million.

• $2 billion.

The buying and selling of government bonds to influence reserves in the banking system is the responsibility of the

Multiple Choice

• twelve regional Federal Reserve banks.

• executive Branch of the government.

• board of Governors of the Federal Reserve.

• federal Open Market Committee.

By raising or lowering the _______, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves.

Multiple Choice

• reserve ratio

• discount rate

• money multiplier

• yield

Answer 1

1 - Option C

An increase in the income taxes for the families with two or more children

The rest do not deal with the source of the government revenue. Thus will not be fiscal stimulus.

2 - Option C

Marginal propensity to consume is 0.98

MPC = 98/100

= 0.98

3 - Option B

Multiplier process

4 - Option C

1 / marginal propensity to save