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ABSE 102 Homework 1. If the government wishes to encourage the economic activity it should: a) reduce the budget deficit; b) reduce taxes; c) reduce government purchases; d) none of the above. 2. A € 100 billion tax cut has: a) the same effect on AD as a €100 billion increase in G; b) a weaker effect on AD than a €100 billion increase in G; c) a stronger effect on AD than a €100 billion increase in G; d) no effect on AD, since it affects only the "supply side" of the economy. 3. Fiscal policy is more effective: a) the lower is the multiplier; b) the greater the multiplier; c) the greater the time lag. d) none of the above. 4. An inflationary gap: a) occurs when AS falls; b) would occur if total output were less then aggregate demand; c) is the amount by which AD exceeds the potential GDP; d) is the amount by which AE exceeds GDP 5. Which of the following statements best indicates that the government is pursuing a restrictive fiscal policy: a) the government budget is at a deficit; b) the budget deficit turns into a surplus; c) the budget surplus turns into a budget deficit; d) none of the above. 6. The government is definitely pursuing an expansionary fiscal policy if, whatever the value of the budget: a) it increases its spending and reduces tax rates; b) it increases its spending and increases tax rates; c) it reduces its spending and reduces tax rates; d) it reduces its spending and increases tax rates. 7. In an economy where potential GDP exceeds AE, more G would result in: a) a smaller recessionary gap; b) a smaller inflationary gap; c) a larger recessionary gap; d) a larger inflationary gap. 8. Other things being equal, when the economy enters a recession, the government budget tends to: a) move toward a surplus; b) move toward a deficit; c) remain unchanged. 9. If in a closed economy with G = 0, MPC = 0.6, and planned Investment increase by €10 million, GDP will increase by: а) €10 million; b) €6 million ; c) €25 million; d) none of the above. 10. Consider the macroeconomic data about OZ: С I G X S T M 300 + 0.8 Y 700 500 900 - 200 + 0.1 Y 0.25 Y 100 + 0.15 Y a) Find the multiplier b) Find the taxation multiplier c) find injections d) find leakages e) find equilibrium income f) Find the increase in G, needed to raise GDP by 300.