# Solved > 1) In an open economy, the government purchases:1854036 …

1) In an open economy, the government purchases multiplier will be smaller the

A) smaller the marginal propensity to import.

B) larger the tax rate.

C) larger the marginal propensity to consume.

D) All of the above are correct.

2) Assume a closed economy with fixed taxes and the marginal propensity to consume is equal to 0.9. What is the government spending multiplier?

A) 10

B) 9

C) 5

D) 1

3) Suppose that Congress allocates \$5 billion to an “energy-efficient appliance rebate” program. It also raises taxes by \$5 billion to keep the deficit from growing. If the marginal propensity to consume is 0.8, what is the effect on equilibrium GDP?

A) GDP does not change.

B) GDP increases by \$25 billion.

C) GDP increases by \$4 billion.

D) GDP increases by \$5 billion.

4) Suppose President Obama is successful in passing a \$10 billion tax increase. Assume that taxes are fixed, the economy is closed, and the marginal propensity to consume is 0.8. What happens to equilibrium GDP?

A) There is a \$50 billion increase in equilibrium GDP.

B) There is a \$50 billion decrease in equilibrium GDP.

C) There is a \$40 billion increase in equilibrium GDP.

D) There is a \$40 billion decrease in equilibrium GDP.

5) What is the government purchases multiplier if the tax rate is 0.2 and the marginal propensity to consume is 0.8? Assume the economy is closed.

A) 2.78

B) 5

C) 6.25

D) 100

6) In an open economy, the government purchases multiplier will be

A) larger as the marginal propensity to import decreases.

B) smaller as the marginal propensity to import decreases.

C) smaller as the marginal propensity to tax decreases.

D) larger as the marginal propensity to consume decreases.

7) Calculate the government purchases multiplier if the marginal propensity to consume equals 0.75, the tax rate is 0.2, and the marginal propensity to import equals 0.3.

A) 1.43

B) 1.6

C) 3.33

D) 4

8) In an open economy, the government purchases multiplier will be larger the

A) smaller the marginal propensity to import.

B) smaller the marginal income tax rate.

C) larger the marginal propensity to consume.

D) All of the above are correct.

9) Assume a closed economy, that taxes are fixed, and the marginal propensity to consume is equal to 0.8. What is the government spending multiplier?

A) 10

B) 5

C) 4

D) 3

10) Suppose that Congress allocates \$1 billion to clean up after the hurricanes of 2005. It also raises taxes by \$1 billion to keep the deficit from growing. If the marginal propensity to consume is 0.9, what is the effect on equilibrium GDP?

A) GDP does not change.

B) GDP increases by \$10 billion.

C) GDP increases by \$900,000.

D) GDP increases by \$1 billion.

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