unemployment and fiscal policy Flashcards
The figure depicts a consumption function of an economy, where C is the aggregate consumption spending and Y is the current income of the economy. You can click on the figure to enlarge it.
Based on this information, which of the following statements is correct?
the MPC is normally less than 1 as some households are able to smooth their consumptions
The figure depicts the change in the aggregate goods market equilibrium when there is a €2bn increase in investment. You can click on the figure to enlarge it.
The economy’s marginal propensity to consume is 0.5. Based on this information, which of the following statements is correct?
the multiplier is 2
Which of the following statements is correct regarding household wealth?
the total broad wealth = material wealth + expected future earnings
he figure depicts possible investment projects for firms A and B. You can click on the figure to enlarge it.
Based on this information, which of the following statements is correct?
an unexpected rise in energy price leads to a fall in the expected profit rates resulting in fewer projects being proditble at a given interest rate. this results in reduced investment
The figure depicts the aggregate investment function of an economy. You can click on the figure to enlarge it.
Based on this information, which of the following statements is correct?
a forecast of permanent demand increase shifts the investment line outwards
Examine these two equations (you can click on them to enlarge them). In equation 1, the aggregate demand of an open economy is given by the after-tax domestic consumption C, the investment I (which depends on the interest rate r), the government spending G and net exports X – M. where c^0 is the autonomous consumption, c^1 is the marginal propensity to consume and m is the marginal propensity to import.
In the economy’s equilibrium this equals its output: AD = Y. Solving for Y yields equation 2.
Given equation 2, which of the following increases the multiplier?
a fall in the marginal propensity to import
Which of the following statements is correct regarding the multiplier (that is, the effect on output of a given increase in government spending)?
following a negative shock if households anticipate the government fiscal policy to be effective then the multiplier would be higher
Which of the following statements is correct regarding the multiplier?
reverse cautation when estimating the multiplier empircally
The figure shows the effects of France’s increased government spending and tax cuts in 1982 on the economies of France and Germany. You can click on the figure to enlarge it.
Based on this information, which of the following statements are correct?
the french budget balance worsened by more than 3% as a result of the fiscal expansion
the german economy benefitted from the spill over effect of high french imports of german goods
The figure shows the labour market and the multiplier diagrams, representing the medium- and long-run supply side and the short-run demand side of the aggregate economy, respectively. You can click on the figure to enlarge it.
Assume that the economy’s production function is given by Y = N, where Y is the output and N is the employment. Based on this information, which of the following statements is correct?
the shift in AD causes short run cyclical fluctuations in unemployment around the medium level shown in the labour market diagram
