Question

Macroecomics multiple choice

a) Other things constant, if the government cuts the net tax rate, lowering NT from NT = tọY to NT = t,Y we would expect: an upward shift of the aggregate expenditure curve an increase in the slope the aggregate expenditure curve. a movement down and along the aggregate expenditure curve. O a decrease in the slope of the aggregate expenditure curve b) In an open economy with imports described by the import function: IM 0.25Y and exports equal to X 250: the net export function would be NX 250 + 0.25Y. Oin a diagram the net export function would have a vertical intercept of 250 and a slope (AIM/AY) of - 0.25. if real GDP were 1600 net exports would be zero. exports would be greater than imports at all levels of GDP c) The government's actual budget surplus or deficit is determined by: the net tax rate, the level of government expenditure and the equilibrium level of national income. the level of government spending set by the government. Othe equilibrium level of national income determined by autonomous expenditures and the multiplier. the net tax rate set by the government. d) NT G& NT G GDP (Y) In the diagram NT is tax revenue and G is government expenditure. All figures are in billions. In this economy: tax revenues, government spending and the budget balance all vary inversely with GDP tax revenues vary directly with GDP, but government spending and the budget balance are independent of GDP tax revenues, government spending and the budget balance all vary directly with GDP. government spending is independent of GDP, but tax revenues and the budget balance vary directly with GDP e) If the government's budget function is BB = tY - G, a contractionary or restrictive fiscal policy produces: a downward shift in the budget function but no change in economy's aggregate expenditure curve. an upward shift in the budget function and a downward shift in the economy's aggregate expenditure curve. an upward shift in the budget function and an upward shift in the economy's aggregate expenditure curve. a downward shift in the budget function and a movement along the existing aggregate expenditure curve.

Answer 1

a) b. an increase in the slope of the aggregate expenditure curve.
(Decrease in tax rates leads to non parallel upward shift of the AE curve. This increases the slope of the AE curve.)

b) b. in a diagram .... of -0.25.
(NX = X - IM = 250 - 0.25Y. When Y = 0; NX = 250 is the vertical intercept. Slope = Change in NX or change in IM divided by change in Y = -0.25.)

c) a. the net tax rate ..... national income.
(Actual surplus or deficit is determined by these mentioned factors.)

d) d. government spending .... directly with GDP.
(As G is horizontal, so it is independent whereas NT and BB = NT - G vary directly with GDP.)

e) b. an upward shift in the budget function and a downward shift in the economy's aggregate expenditure curve.
(AE curve shifts down due to restrictive fiscal policy like increase in NT or decrease in G whereas budget function shifts upward.)