Correct answer: (D) lower the autonomous expenditure multiplier
242. In the simple Keynesian model, if the tax function is given by T=0.15Y and the consumption function is C= 50 + 0.7 YD then a 10-unit ncrease in government spending would increase equilibrium income by
10 units
11.2 units
22.4 units
30 units
None of these
Correct answer: (B) 11.2 units
243. According to the Keynesian model, the optimal fiscal policy is to
Increase cyclical but not structural deficits during a recession
Reduce cyclical and structural deficits during a recession
Increase structural deficits during a recession
Maintain a balanced budget in case of national emergency
Correct answer: (A) Increase cyclical but not structural deficits during a recession
244. During the recession of 2001,
There were a number of proposals for tax increases or spending cuts to stir the economy, but the failed due to worries about their effects on the already large deficit
A series of tax cuts were passed, though the only occurred in late 2001
All the proposed tax and spending cuts were approved in order to motivate the economy and reduce the large deficit
The cyclical deficit increased but the structural deficit remained unchanged
Correct answer: (B) A series of tax cuts were passed, though the only occurred in late 2001
245. The structural deficit is the deficit that
Is composed by of non discretionary spending by the federal government
Results from the economy being below is natural rate of output
Exists when output is at its natural rate of output
Results from temporary tax cuts
Correct answer: (C) Exists when output is at its natural rate of output
246. According to the concept of rational expectations
Budget deficits are irrelevant to output in the short-run
Higher deficits should increase output in the short run if they are expected
Lower deficits can be used to stabilize output during expansions
None of these
Correct answer: (A) Budget deficits are irrelevant to output in the short-run
247. A fall in the price of a commodity leads to
A shift in demand
A fall in demand
A rise in the consumer's real income
A fall in the consumer's real income
Correct answer: (C) A rise in the consumer's real income
248. The horizontal demand curve for a commodity shows that its demand is:
Perfectly elastic
Highly elastic
Perfectly inelastic
Moderately elastic
Correct answer: (A) Perfectly elastic
249. The utility of a commodity is:
Its expected social value
The extent of its practical use
Its relative scarcity
The degree of its fashion
Correct answer: (C) Its relative scarcity
250. Cross elasticity of demand between tea and sugar is: