1. In an economy with no foreign trade and a marginal propensity to consume of 0.8, which of the following will be true?
a. If taxes are increased by $100M, GDP will decrease by $500M.
b. If autonomous consumption increases by $50M, GDP will increase by $200M.
c. If both taxes and government spending increase by $100M, GDP will increase by $250M.
d. If taxes are decreased by $100M, GDP will increase by $400M.
e. If autonomous consumption decreases by $100M, GDP will decrease by $800M.
2. Looking at the circular flows model, how can the saving equals investment equation be derived?
a. By looking at flows into and out of goods markets
b. By looking at flows into and out of financial markets
c. By looking at flows into and out of households
d. By looking at flows into and out of firms
e. By looking at flows into and out of the government
3. What will be the short-run effect of a 10% increase in the money supply for an economy operating in the Keynesian portion of the aggregate supply curve?
a. Real GDP will increase by 10% if velocity doesn't change.
b. Real GDP and the price level will both increase by 5% if velocity doesn't change.
c. Real GDP won't change, but the price level will increase by 10% if velocity doesn't change.
d. Velocity will fall by 5%, the price level will increase by 5%, and real GDP won't change.
e. According to the quantity theory of money, velocity will fall by 10%, and nothing else will change
4. Which of the following will make monetary policy more effective in changing nominal GDP?
a. A fixed velocity of money
b. A flat investment demand curve
c. A high marginal propensity to save
d. A money demand curve that is very flat
e. An aggregate expenditure curve that is very flat