Reference no: EM131093661

1. Which of the following will make crowding out caused by government borrowing more severe?

• A steep (inelastic) investment demand curve
• A global credit market
• Tax increases
• A steep (inelastic) supply curve in the loanable funds market
• None of the above

2. Crowding out could cause:

• reduced long-run growth.
• reductions in private investment.
• higher interest rates.
• greater returns to saving.
• All of the above

3. If the MPC = 0.80 and taxes are increased by $1,000, the Keynesian model predicts the change in equilibrium GDP will be:

• +$5,000.
• +$4,000.
• -$1,000.
• -$4,000.
• -$5,000.

4. If the economy is at full employment with an MPC of 0.90 and the government decreases taxes by $1,000, the resulting increase in output will be:

• less than $4,000.
• less than $5,000.
• less than $8,000.
• less than $9,000.
• more than $9,000.

5. Government spending policies can be developed to work against the problems of unemployment and inflation because government spending can:

• decrease aggregate demand to combat unemployment and increase aggregate demand to combat inflation.
• increase aggregate supply to combat unemployment and decrease aggregate demand to combat inflation.
• increase aggregate supply to combat unemployment and decrease aggregate supply to combat inflation.
• increase aggregate demand to combat unemployment and increase aggregate demand to combat inflation.
• increase aggregate demand to combat unemployment and decrease aggregate demand to combat inflation