Business Economics

241. The higher the marginal income tax rate, the

  1. Higher the MPC out of disposable income
  2. Lower the MPC out of disposable income
  3. Highest the autonomous expenditure multiplier
  4. lower the autonomous expenditure multiplier
  5. none of the above
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

  1. 10 units
  2. 11.2 units
  3. 22.4 units
  4. 30 units
  5. None of these
Correct answer: (B)
11.2 units

243. According to the Keynesian model, the optimal fiscal policy is to

  1. Increase cyclical but not structural deficits during a recession
  2. Reduce cyclical and structural deficits during a recession
  3. Increase structural deficits during a recession
  4. 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,

  1. 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
  2. A series of tax cuts were passed, though the only occurred in late 2001
  3. All the proposed tax and spending cuts were approved in order to motivate the economy and reduce the large deficit
  4. 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

  1. Is composed by of non discretionary spending by the federal government
  2. Results from the economy being below is natural rate of output
  3. Exists when output is at its natural rate of output
  4. 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

  1. Budget deficits are irrelevant to output in the short-run
  2. Higher deficits should increase output in the short run if they are expected
  3. Lower deficits can be used to stabilize output during expansions
  4. 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

  1. A shift in demand
  2. A fall in demand
  3. A rise in the consumer's real income
  4. 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:

  1. Perfectly elastic
  2. Highly elastic
  3. Perfectly inelastic
  4. Moderately elastic
Correct answer: (A)
Perfectly elastic

249. The utility of a commodity is:

  1. Its expected social value
  2. The extent of its practical use
  3. Its relative scarcity
  4. The degree of its fashion
Correct answer: (C)
Its relative scarcity

250. Cross elasticity of demand between tea and sugar is:

  1. Positive
  2. Zero
  3. Infinity
  4. Negative
Correct answer: (D)
Negative
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