SOLVED

18.4  The Government Purchases and Tax Multipliers 1) Economists refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the ________ effect. A) multiplier B) expenditure C) consumption D) aggregate demand 2) The multiplier effect refers to the series of A) autonomous increases in consumption spending that result from an initial increase in induced expenditures. B) induced increases in consumption spending that result from an initial increase in autonomous expenditures. C) autonomous increases in investment spending that result from an initial increase in induced expenditures. D) induced increases in investment spending that result from an initial increase in autonomous expenditures. 3) The aggregate demand curve will shift to the right ________ the initial increase in government purchases. A) by less than B) by more than C) by the same amount as D) sometimes by more than and other times by less than 4) The aggregate demand curve will shift to the left ________ the initial decrease in government purchases. A) by less than B) by more than C) by the same amount as D) sometimes by more than and other times by less than 5) The aggregate demand curve will shift to the right ________ the initial decrease in taxes. A) by less than B) by more than C) by the same amount D) sometimes by more than and other times by less than 6) Refer to Figure 18-4. In the graph above, the shift from AD1 to AD2 represents the total change in aggregate demand. If government purchases increased by $50 billion, then the distance from point A to point B ________ $50 billion. A) would be equal to B) would be greater than C) would be less than D) may be greater than or less than 7) A change in consumption spending caused by income changes is ________ change in spending, and a change in government spending that occurs to improve roads and bridges is ________ change in spending. A) an induced; an autonomous B) an expansionary; a contractionary C) an autonomous; an induced D) a contractionary; an expansionary 8) The government purchases multiplier equals the change in ________ divided by the change in ________. A) government purchases; equilibrium real GDP B) equilibrium real GDP; government purchases C) government purchases; consumption spending D) consumption spending; government purchases 9) The tax multiplier equals the change in ________ divided by the change in ________. A) taxes; equilibrium real GDP B) equilibrium real GDP; taxes C) taxes; consumption spending D) consumption spending; taxes 10) Which of the following would increase the size of the government purchases multiplier? A) an increase in the tax rate B) an increase in the quantity of imports purchased by households from an increase in income C) a decrease in the amount of consumption spending by households from an increase in income D) a decrease in the amount saved by households from an increase in income