ECO 372T Wk 4 – Apply: Quiz

he economy is in a recession. The government enacts a policy to increase spending by $6 billion. The MPS is 0.25. What would be the full increase in real GDP from the change in government spending, assuming that the aggregate supply curve is horizontal across the range of GDP being considered?

Multiple Choice

• $24 billion
• $6 billion
• $144 billion
• $12 billion

Money Market Mutual Fund Balances Held by Businesses   $100

Money Market Mutual Fund Balances Held by Individuals  250

Currency in Banks  10

Currency in Circulation  60

Savings Deposits, Including Money Market Deposit Accounts    80

Large-denominated ($100,000 or more) Time Deposits       180

Small-denominated ($100,000 or less) Time Deposits  110

Checkable Deposits 70

Refer to the table. The value of the near monies that are part of M2 is

Multiple Choice

• $440.
• $250.
• $80.
• $450.

Money Market Mutual Fund Balances Held by Businesses   $100

Money Market Mutual Fund Balances Held by Individuals  220

Currency in Banks  10

Currency in Circulation  70

Savings Deposits, Including Money Market Deposit Accounts    50

Large-denominated ($100,000 or more) Time Deposits       180

Small-denominated ($100,000 or less) Time Deposits  80

Checkable Deposits 80

Refer to the table. Money supply M2 for this economy is

Multiple Choice

• $500.
• $70.
• $80.
• $510.

If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $90 billion by

Multiple Choice

• increasing taxes by $30 billion.
• reducing government expenditures by $14 billion.
• increasing taxes by $22.5 billion.
• reducing government expenditures by $90 billion.

If the MPC in an economy is 0.75, government could shift the aggregate demand curve rightward by $36 billion by

Multiple Choice

• decreasing taxes by $12 billion.
• increasing government spending by $12 billion.
• increasing government spending by $27 billion.
• decreasing taxes by $36 billion.

Suppose the federal government had budget deficits of $40 billion in year 1 and $50 billion in year 2 but had budget surpluses of $10 billion in year 3 and $50 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the federal government’s public debt would have

Multiple Choice

• increased by $30 billion.
• increased by $90 billion.
• decreased by $60 billion.
• decreased by $30 billion.

If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $50 billion by

Multiple Choice

• increasing government spending by $5 billion.
• increasing government spending by $50 billion.
• decreasing taxes by $5 billion.
• increasing taxes by $5 billion.

If the MPS in an economy is 0.25, government could shift the aggregate demand curve leftward by $48 billion by

Multiple Choice

• reducing government expenditures by $12 billion.
• reducing government expenditures by $192 billion.
• increasing taxes by $48 billion.
• increasing taxes by $384 billion.

Item Billions of Dollars

Checkable Deposits $597

Small Time Deposits      818

Currency 639

Money-Market Mutual Funds Held by Businesses 1,045

Savings Deposits, Including Money-Market Deposit Accounts    2,866

Money-Market Mutual Funds Held by Individuals       979

Refer to the accompanying table. The size of the M2 money supply is

Multiple Choice

• $5,899 billion.
• $2,054 billion.
• $2,696 billion.
• $6,792 billion.

Security  Amount (in Billions)

Treasury Bills $300

Corporate Bonds    140

Treasury Notes       80

Corporate Stock     200

US Savings Bonds  60

Treasury Bonds      100

The public debt for the economy is

Multiple Choice

• $540 billion.
• $680 billion.
• $480 billion.
• $740 billion.