Macroeconomics Answers

Considering automatic stabilizer, which of the following is likely to increase the South African government’s existing budget deficit?

1. A decrease in real GDP.
2. A lower unemployment rate.
3. A decrease in the price level.

I, II and III.

II only

II and III only

I only

Which of the following are fiscal policy measures that might be used to reduce a South African budget deficit?

• I. Increasing taxes
• II. Decreasing government spending 
• III. Increasing interest rates

I and II only.

I and III only.

I, II, and III.

II only.

An expansionary fiscal policy might include __________ government spending and/or __________ 

taxes, while a contractionary fiscal policy might include __________ government spending and/or 

__________ taxes.

A. increasing; increasing; decreasing; decreasing

B. decreasing; decreasing; increasing; increasing

C. decreasing; increasing; increasing; decreasing

D. increasing; decreasing; decreasing; increasing

Which of the following, are fiscal policy measures, that might be used to reduce a South African 

budget deficit? 

I. Increasing taxes.

II. Decreasing government spending.

III. Increasing interest rates.

A. I and II only.

B. II only.

C. I and III only.

D. I, II, and III.

An expansionary fiscal policy might include __________ government spending and/or __________ taxes, while a contractionary fiscal policy might include __________ government spending and/or __________ taxes.

increasing; decreasing; decreasing; increasing

decreasing; decreasing; increasing; increasing

decreasing; increasing; increasing; decreasing

increasing; increasing; decreasing; decreasing

The supply-side effects of fiscal policy shows that an increase in the marginal tax rate on labour 

income will do the following:

A. Decreases potential GDP.

B. Increases potential GDP because people work more as they have less disposable income.

C. Increase the incentive to work.

D. Increase the equilibrium quantity of labour as firms demand more workers at the lower wage.

4. An expansionary fiscal policy would most likely cause which of the following changes in output and 

interest rates?

A. Both output and interest rate will increase

B. Output will increase and interest rate falls.

C. Output will fall and interest rate increase.

D. Both output and interest rate will decrease

Considering automatic stabilizer, which of the following is likely to increase the South African 

government’s existing budget deficit? 

I. A decrease in real GDP.

II. Lower unemployment rate. 

III. A decrease in the price level.

A. I only

B. II only 

C. II and III only

D. I, II and III

You’re given the following data concerning Freedonia, a legendary country:

1)     Consumption function: C=200+0.8Y

2)     Investment function: I=100

3)     AE=C+I

4)     AE=Y

a.      What is the marginal propensity to consume in Freedonia, and what is the marginal propensity to save?

b.     Graph equations (3) and (4) and solve for equilibrium income.

c.      Suppose aquation (2) is changed to (2’) I=110. What is the new equilibrium level of income? By how much does the $10 increase in planned investment change equilibrium income? What is the value of multiplier?

d.     Calculate the saving function for Freedonia. Plot this saving function on a graph with equation (2). Explain why the equilibrium income in this graph must be the same as in part b.

Can you explain the Fama-French 3 and 5 factor model with math examples?