How Government Affects Output

Question 1

Closed economy model consisted of __

Answer 1

Consumers and Firms

Question 2

What affects government output?

Answer 2

Consumers, Firms and government

Question 3

The ways in which the government can affect the aggregate output is ___

Answer 3

Taxation and Government Spending

Question 4

Consumption drops as ___

Answer 4

Taxation increases

Question 5

When Government spending increases, There is a___

Answer 5

Multiplier Effect

Question 6

a number that indicates how much change in aggregate demand would result from a given change in spending.

Answer 6

government spending multiplier

Question 7

The government spending multiplier effect is evident when an incremental increase in spending leads to

Answer 7

rise in income and consumption.

Question 8

the magnification effect of a change in taxes on aggregate demand.

Answer 8

tax multiplier

Question 9

decrease in taxes has

Answer 9

a similar effect on income and consumption as an increase in government spending.

Question 10

When the government cuts taxes

Answer 10

there is an increase in disposable income

Question 11

Government Expenditure Multiplier formula

Answer 11

= 1 / (1 - MPC) or = 1 / (MPS).

Question 12

Increase in Government multiplier is equal to

Answer 12

total increase in output

Question 13

Fiscal Policy involves changes in ____

Answer 13

government spending, taxation and the level of government borrowing.

Question 14

3 government spending

Answer 14

welfare, public services, capital spending(infastructres)

Question 15

Cut taxes and increased spending

Answer 15

Expansionary Fiscal policy

Question 16

The expenditures multiplier measures changes in aggregate production caused by

Answer 16

changes in an autonomous expenditure

Question 17

If, for example, the MPC is 0.75, then an autonomous $1 trillion change in investment expenditures results in a change in aggregate production of

Answer 17

$4 trillion.

Question 18

if the MPC is high, the amount of government spending needed to close _____

Answer 18

the recessionary gap is less

Question 19

Change in spending is equal to

Answer 19

Change in spending= initial change x multiplier