Expansionary fiscal policy

Expansionary fiscal policy is so named because it

A. involves an expansion of the nation’s money supply
B. can only be attained by expanding government consumption
C. is aimed at achieving greater price stability
D. can motivate an expansion of real GDP

Suppose the price level is fixed, the MPC is .5, and the GDP gap isa negative $100 billion. To achieve full-employment output(exactly), government should

A. increase government expenditures by $100 billion
B. increase government expenditures by $50 billion
C. reduce taxes by $50 billion
D. reduce taxes by $200 billion

GDP understates the value of output produced by an economy becauseit

A. includes transactions that do not take place in organizedmarkets, such as home cooked meals
B. includes environmental degradation caused by increased outputproduction
C. excludes value added from the underground economy, such as tipstaken under the table
D. excludes the value of the wages and benefits of governmentemployee

Other things equal, a decrease in the real interest rate will

A. shift the investment demand curve to the right
B. shift the investment demand curve to the left
C. move the economy upward along its existing investment demandcurve
D. move the economy downward along its existing investment demandcurve

Other things equal, a decrease in corporate income taxes will

A. decrease the market price of real capital goods
B. have no effect on the location of the investment demandcurve
C. shift the investment demand curve to the right
D. shift the investment demand curve to the left

Inflation in U.S. prices will cause

A. an increase in the demand for U.S. dollars and an appreciationin the exchange rate
B. an increase in the supply of U.S. dollars and a depreciation inthe exchange rate
C. a decrease in the demand for U.S. dollars and a depreciation inthe exchange rate
D. a decrease in the supply of U.S. dollars and an appreciation inthe exchange rate

The quantity theory of money states that

A. the money supply divided by the velocity of money equals theprice level divided by real output
B. the money supply times the velocity of money equals the pricelevel times real output
C. the money supply times the price level equals real outputdivided by the velocity of money
D. the money supply times the price level equals real output timesthe velocity of money

Suppose that U.S. prices rise 4% over the next year while prices inMexico rise 6%. According to the purchasing power parity theory ofexchange rates, what should happen to the exchange rate between thedollar and the peso?

A. The dollar should depreciate.
B. The peso should appreciate.
C. The peso should depreciate.
D. The dollar will be revalued.

A rise in the domestic interest rate leads to capital

A. outflows and exchange rate appreciation
B. outflows and exchange rate depreciation
C. inflows and exchange rate depreciation
D. inflows and exchange rate appreciation

A firm under monopolistic competition will earn

A. a positive economic profit as it has some monopoly power
B. zero economic profit as it sets P = MC
C. zero economic profit as its P = ATC
D. a positive economic profit as it sets MC = MR

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