Which of the following set of events would most likely reduce aggregate demand?

Other things being equal, the higher the price level, the lower the level of real output purchased. This occurs because of:

A. the wealth effect

B. consumer spending on capital goods

C. the full –employment unemployment rate

D. the sensitivity to demand-pull inflation

2. Which of the following set of events would most likely reduce aggregate demand?

A. a reduction in the excess capital of the existing capital stock

B. a reduction in business and personal tax rates

C. an increase in investment spending

D. an increase in personal income tax rates

3. Which of the following would most likely increase aggregate supply?

A. an increase in the prices of imported goods

B. an increase in productivity

C. a decrease in business subsidies

D. a decrease in net exports

Use the table below to answer question 4 – 7

National Income(GDP)



Government Expenditure

































4. The marginal propensity to consume is:


B. 0.4

C. 0.6

D. 0.8

5. The equilibrium level of national income is:

A. $2000

B. $2500

C. $3000

D. $3500

6. The equation for the consumption function is

A. C = -400 + 0.2Y

B. C = 400 + 0.2Y

C. C = 400 + 0.8Y

D. C = -400 + 0.8Y

7. At income level $2000, the economic activity of the economy:

A. is in equilibrium

B. will tend to expand

C. will tend to be contracting

D. may be expanding or contracting

8. Holding the money deposits of businesses and households and making loans to the public are the basic functions of:

A. the Reserve Bank

B. commercial banks and thrift institutions

C. Board of Governors of the Reserve Bank

D. Insurance Corporation

9. If you deposit $1 200 in a commercial bank which has an 18 percent reserve requirement, the bank will have increased:

A. required reserves by $216

B. excess reserves by $900

C. excess reserves by $1200

D. required reserves by $1 200

10. A single commercial bank must meet a 25 percent reserve requirement. If it initially has no excess reserves and then $2000 in cash is deposited in the bank, it can increase its loans by a maximum of:

A. $2000

B. $1250

C. $1500

D. $1000

11. The use of government spending and taxation for the purpose of stabilizing the economy is called:

A. exchange rate policy

B. monetary policy

C. fiscal policy

D. trade policy

12. Which of the following is true of contractionary fiscal policy?

A. the government budget is balanced

B. Aggregate demand increases.

C. the tax rate increases

D. a budget deficit occurs

13. In order to remove a given deflationary/recessionary gap, the government could –

A. decrease aggregate demand by budgeting for a deficit

B. increase aggregate demand by budgeting for a deficit

C. decrease aggregate demand by budgeting for a surplus

D. increase aggregate demand by budgeting for a surplus

14. The balanced-budget multiplier suggests that when taxes and government spending are increased by the same amount, there will be (hint: compare government expenditure multiplier and taxation multiplier formulas)

A. no change in the equilibrium level of output

B. a decrease in the equilibrium level of output

C. an increase in the equilibrium level of output

D. first an increase and then a decrease in the equilibrium level of output.

15. The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as (an)

A. law making lag

B. recognition lag

C. operational lag

D. impact lag

PART B: “TRUE or FALSE and WHY?” – Questions (10 marks)

Answer all questions and justify your answer. Each question is worth 2 marks.

An increase in business taxes will increase investment demand.

Answer True or False


The marginal propensity to consume shows the fraction of any level of total income that is consumed.

Homework Market
Calculate your paper price
Pages (550 words)
Approximate price: -

Why Homework Market


Quality Researched Papers

We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.

Homework Market

Qualified Writers

We have hired a team of professional writers experienced in academic and business writing. Most of them are native speakers and PhD holders able to take care of any assignment you need help with.


Unlimited Revision

If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account.


Timely Delivery

All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. We will always strive to deliver on time.


Original & Confidential

We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text.


Customer Support 24/7

Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.

Try it now!

Calculate the price of your order

Total price:

How it works?

Follow these simple steps to get your paper done

Homework Market

Place your order

Fill in the order form and provide all details of your assignment.

Homework Market

Proceed with the payment

Choose the payment system that suits you most.

Homework Market

Receive the final file

Once your paper is ready, we will email it to you.

Homework Market Writing Services

No need to work on essay at night. Sleep tight, we will cover your back. We offer all kinds of essay writing services.

HomeworkMarket HomeworkMrket


Essay Writing Services

No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.

HomeworkMarket HomeworkMarket


Admission Essays

An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.

HomeworkMarket HomeworkMarket


Essay Editing

Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.

HomeworkMarket HomeworkMarket

Research Paper

Research Paper

If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied.