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100 Cards in this Set

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A government spending and taxation policy to achieve macroeconomic is known as:
a. countercyclical policy.
b. fiscal policy.
c. monetary policy.
d. a balanced budget.
e. presidential discretion.
A government spending and taxation policy to achieve macroeconomic is known as:
ANSWER
b. fiscal policy.
Fiscal policy is government action to influence aggregate demand and in turn to influence the level of real GDP and the price level, through:
a. expanding and contracting the money supply.
b. regulation of net exports.
c. changes in government spending and/or tax revenues.
d. encouraging businesses to invest.
Fiscal policy is government action to influence aggregate demand and in turn to influence the level of real GDP and the price level, through:
ANSWER
c. changes in government spending and/or tax revenues.
Expansionary fiscal policy consists of:
a. increasing government spending.
b. increasing payroll taxes to finance health care.
c. decreasing government spending.
d. raising the minimum wage.
Expansionary fiscal policy consists of:
ANSWER
a. increasing government spending.
The government is pursuing an expansionary policy if it:
a. decreases its spending and increases its tax revenues.
b. increases its spending or increases its tax revenues.
c. decreases its spending or reduces its tax revenues.
d. increases its spending and/or reduces its tax revenues.
The government is pursuing an expansionary policy if it:
ANSWER
d. increases its spending and/or reduces its tax revenues.
An expansionary fiscal policy may include:
a. increases in government spending.
b. discretionary increases in transfer payments.
c. reductions in taxes.
d. All of the above.
An expansionary fiscal policy may include:
ANSWER
d. All of the above.
Suppose the economy is on the classical range of the aggregate supply curve and has a problem with inflation. According to Keynesian theory, which of the following is an appropriate discretionary fiscal policy to use in this situation?
a. A reduction in the money supply.
b. Less government regulation.
c. Increase federal spending.
d. Higher taxes.
Suppose the economy is on the classical range of the aggregate supply curve and has a problem with inflation. According to Keynesian theory, which of the following is an appropriate discretionary fiscal policy to use in this situation?
ANSWER
d. Higher taxes.
Fiscal policy is concerned with:
a. encouraging businesses to invest.
b. regulation of net exports.
c. changes in government spending and/or tax revenues.
d. expanding and contracting the money supply.
Fiscal policy is concerned with:
ANSWER
c. changes in government spending and/or tax revenues.
Which of the following statements is true?
a. Fiscal policy is the manipulation of the nation's money supply to influence the nation's output, employment and price level.
b. Discretionary fiscal policy is the deliberate use of changes in government spending and taxes to stabilize the economy.
c. The tax multiplier is the change in aggregate demand resulting from an initial change in government spending.
d. A budget deficit exists when government tax revenues exceed government spending.
Which of the following statements is true?
ANSWER
b. Discretionary fiscal policy is the deliberate use of changes in government spending and taxes to stabilize the economy.
The fraction of each added dollar of income that is used for consumption is called the:
a. average propensity to consumer (APC).
b. autonomous consumption rate (ACR).
c. marginal consumption propensity (MCP).
d. marginal propensity to consume (MPC).
The fraction of each added dollar of income that is used for consumption is called the:
ANSWER
d. marginal propensity to consume (MPC).
The marginal propensity to consume (MPC) is computed as the change in:
a. consumption divided by the change in savings.
b. consumption divided by the change in income.
c. consumption divided by the change in GDP.
d. None of the above.
The marginal propensity to consume (MPC) is computed as the change in:
ANSWER
b. consumption divided by the change in income.
If your income increases from $30,000 to $35,000 and your consumption increases from $11,000 to $12,000, your marginal propensity to consume (MPC) is:
a. 0.2.
b. 0.4.
c. 0.5.
d. 0.8.
e. 1.0.
If your income increases from $30,000 to $35,000 and your consumption increases from $11,000 to $12,000, your marginal propensity to consume (MPC) is:
ANSWER
a. 0.2.
If your income increases from $33,000 to $41,000 and your consumption increases from $8,000 to $12,000, your marginal propensity to consume (MPC) is:
a. 0.2.
b. 0.4.
c. 0.5.
d. 0.8.
e. 1.0.
If your income increases from $33,000 to $41,000 and your consumption increases from $8,000 to $12,000, your marginal propensity to consume (MPC) is:
ANSWER:
c. 0.5.
The marginal propensity to consume (MPC) is computed as the change in consumption divided by the change in:
a. GDP.
b. income.
c. saving.
d. none of the above.
The marginal propensity to consume (MPC) is computed as the change in consumption divided by the change in:
ANSWER
b. income.
If your income increases from $40,000 to $48,000 and your consumption increases from $35,000 to $39,000, your marginal propensity to consume (MPC) is:
a. 0.20.
b. 0.40.
c. 0.50.
d. 0.80.
e. 1.00.
If your income increases from $40,000 to $48,000 and your consumption increases from $35,000 to $39,000, your marginal propensity to consume (MPC) is:
ANSWER
c. 0.50.
The change in consumption divided by a change in income is defined as:
a. the marginal propensity to consume.
b. autonomous consumption.
c. the consumption function.
d. Keynes’ absolute income hypothesis.
e. transitory consumption.
The change in consumption divided by a change in income is defined as:
ANSWER
a. the marginal propensity to consume.
The nation has its own MPC. When national income increases from $300 billion to $400 billion, national consumption increases from $300 billion to $360 billion. At Y = $400 billion, the MPC is:
a. 0.2.
b. 0.5.
c. 0.6.
d. 0.67.
e. 1.33.
The nation has its own MPC. When national income increases from $300 billion to $400 billion, national consumption increases from $300 billion to $360 billion. At Y = $400 billion, the MPC is:
ANSWER
c. 0.6.
The marginal propensity to consume is:
a. the change in income divided by the change in consumption.
b. consumption spending divided by income.
c. income divided by consumption spending.
d. the change in consumption divided by the change in income.
e. the change in consumption divided by income.
The marginal propensity to consume is:
ANSWER
d. the change in consumption divided by the change in income.
The change in consumption divided by a change in income is called the:
a. consumption function.
b. marginal propensity to consume.
c. marginal propensity to spend.
d. spending function.
e. changing propensity to consume.
The change in consumption divided by a change in income is called the:
ANSWER
b. marginal propensity to consume.
The ratio of a change in consumption to a change in income is the:
a. consumption function.
b. propensity to consume.
c. average propensity to consume.
d. extra propensity to consume.
e. marginal propensity to consume.
The ratio of a change in consumption to a change in income is the:
ANSWER
e. marginal propensity to consume.
The marginal propensity to consume measures the ratio of the:
a. average amount of our income that we spend.
b. average amount of our savings that we spend.
c. change in consumer spending to a change in money holdings.
d. change in consumer spending to a change in interest rates.
e. change in consumer spending to a change in income.
The marginal propensity to consume measures the ratio of the:
ANSWER
e. change in consumer spending to a change in income.
The marginal propensity to save (MPS) is computed as the change in:
a. savings divided by the change in saving.
b. savings divided by the change in income.
c. saving divided by the change in GDP.
d. None of the above.
The marginal propensity to save (MPS) is computed as the change in:
ANSWER
b. savings divided by the change in income.
If your income increases from $30,000 to $40,000 and your savings increases from $2,000 to $4,000, your marginal propensity to save (MPS) is:
a. 0.2.
b. 0.4.
c. 0.5.
d. 0.8.
e. 1.0.
If your income increases from $30,000 to $40,000 and your savings increases from $2,000 to $4,000, your marginal propensity to save (MPS) is:
a. 0.2.
The sum of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) always equals:
a. 1.
b. 0.
c. the interest rate.
d. the marginal propensity to invest (MPI).
The sum of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) always equals:
ANSWER
a. 1.
The marginal propensity to save is:
a. the change in saving induced by a change in consumption.
b. (change in S) / (change in Y).
c. 1 – MPC / MPC.
d. (change in Y – bY) / (change in Y).
e. 1 – MPC.
The marginal propensity to save is:
ANSWER
e. 1 – MPC.
The change in saving divided by the change in income is the:
a. propensity to save.
b. saving function.
c. average propensity to save.
d. extra propensity to save.
e. marginal propensity to save.
The change in saving divided by the change in income is the:
ANSWER
e. marginal propensity to save.
The marginal propensity to save is
a. the change in saving divided by the change in income.
b. the change in income divided by the change in saving.
c. saving divided by income.
d. income divided by saving.
e. saving divided by consumption.
The marginal propensity to save is
ANSWER
a. the change in saving divided by the change in income.
The relationship between MPC and MPS is:
a. 1 + MPC = MPS.
b. 1 – MPC = MPS.
c. 1 + MPS = MPC.
d. MPC – MPS = 1.
The relationship between MPC and MPS is:
ANSWER
b. 1 – MPC = MPS.
If the marginal propensity to consume = 0.75, then:
a. the marginal propensity to save = 0.75.
b. the marginal propensity to save = 1.33.
c. the marginal propensity to save = 0.20.
d. the marginal propensity to save = 0.25.
e. since the marginal propensity to save and the marginal propensity to consume are unrelated, we cannot determine the marginal propensity to save from the information given.
If the marginal propensity to consume = 0.75, then:
ANSWER
d. the marginal propensity to save = 0.25.
The ratio of the change in GDP to an initial change in aggregate spending is the:
a. spending multiplier.
b. permanent income rate.
c. marginal expenditure rate.
d. marginal propensity to consume.
The ratio of the change in GDP to an initial change in aggregate spending is the:
ANSWER
a. spending multiplier.
The formula to compute the spending multiplier is:
a. 1/(MPC + MPS).
b. 1/(1 - MPC).
c. 1/(1 - MPS).
d. 1/(C + I).
The formula to compute the spending multiplier is:
ANSWER:
b. 1/(1 - MPC).
The spending multiplier is:
a. 1 / (1 – MPC).
b. 1 – MPC.
c. 1 – MPC.
d. MPC.
e. MPC / (1 – MPC).
The spending multiplier is:
ANSWER
a. 1 / (1 – MPC).
When the MPC gets smaller, the spending multiplier:
a. gets larger.
b. gets smaller.
c. stays the same.
d. gets smaller at low real GDP, and larger at high real GDP.
e. gets larger at low real GDP, and smaller at high real GDP.
When the MPC gets smaller, the spending multiplier:
ANSWER
b. gets smaller.
If the MPC = .75, the spending multiplier is:
a. 4.
b. 5.
c. 1.33.
d. 1.20.
e. .25.
If the MPC = .75, the spending multiplier is:
ANSWER
a. 4.
If the MPC = 1, the spending multiplier is:
a. infinite.
b. zero.
c. 10.
d. 100.
e. 1.
If the MPC = 1, the spending multiplier is:
ANSWER
a. infinite.
An increase in government spending by $100 would, if the MPC = 0.90, result in an increase in real GDP by:
a. $1,000.
b. $9,000.
c. $900.
d. $190.
e. inadequate information is given.
An increase in government spending by $100 would, if the MPC = 0.90, result in an increase in real GDP by:
ANSWER
a. $1,000.
The equation for the spending multiplier is:
a. 1 / (1 - MPC).
b. 1 - MPC.
c. 1 - (MPC - MPS).
d. MPC/MPS.
e. none of the above.
The equation for the spending multiplier is:
ANSWER
a. 1 / (1 - MPC).
Assume that an economy's real GDP multiplier is 4. If this economy is in equilibrium at $2,000 billion, then which one of the following actions will bring it to a full-employment equilibrium of $1,500 billion?
a. $500 billion spending cut.
b. $500 billion spending increase.
c. $125 billion spending cut.
d. $125 billion spending increase.
e. $2,000 billion spending cut.
Assume that an economy's real GDP multiplier is 4. If this economy is in equilibrium at $2,000 billion, then which one of the following actions will bring it to a full-employment equilibrium of $1,500 billion?
ANSWER
c. $125 billion spending cut.
Given full-employment output = $2,800, equilibrium real GDP = $2,500, and MPS = 0.25, which of the following changes would most likely bring the economy to a full-employment level of real GDP?
a. $300 decrease in taxes.
b. $75 increase in government spending.
c. $75 decrease in taxes.
d. $300 increase in government spending.
e. $75 decrease in government spending.
Given full-employment output = $2,800, equilibrium real GDP = $2,500, and MPS = 0.25, which of the following changes would most likely bring the economy to a full-employment level of real GDP?
ANSWER
b. $75 increase in government spending.
If MPC = 0.80, how much should government spending change to increase real GDP by $500?
a. –100.
b. +80.
c. –80.
d. +500.
e. +100.
If MPC = 0.80, how much should government spending change to increase real GDP by $500?
ANSWER
e. +100.
If MPC = 0.9, equilibrium real GDP is $1,000, and full-employment real GDP is $2,000, then how much should government spending change to bring about full employment?
a. +1,000.
b. –100.
c. +900.
d. +100.
e. –0.9.
If MPC = 0.9, equilibrium real GDP is $1,000, and full-employment real GDP is $2,000, then how much should government spending change to bring about full employment?
ANSWER
d. +100.
If the marginal propensity to consume (MPC) is 0.80, and if policy makers wish to increase real GDP $200 billion, then by how much would they have to change taxes?
a. -$240 million.
b. -$200 million.
c. -$180 million.
d. -$50 million.
If the marginal propensity to consume (MPC) is 0.80, and if policy makers wish to increase real GDP $200 billion, then by how much would they have to change taxes?
ANSWER
d. -$50 million.
If the MPC is 0.80, and if the goal is to increase real GDP by $200 million, then by how much would government spending have to change to generate this increase in real GDP?
a. $240 million.
b. $200 million.
c. $180 million.
d. $40 million.
If the MPC is 0.80, and if the goal is to increase real GDP by $200 million, then by how much would government spending have to change to generate this increase in real GDP?
ANSWER
d. $40 million.
Which of the following would be an appropriate discretionary fiscal policy to use when the economy is in a recession?
a. Increased government spending.
b. Higher taxes.
c. A balanced-budget reduction in both spending and taxes.
d. An expansion in the money supply.
Which of the following would be an appropriate discretionary fiscal policy to use when the economy is in a recession?
ANSWER
a. Increased government spending.
To combat a recession, Keynesian fiscal policy recommends:
a. An increase in taxes.
b. An increase in government spending.
c. An increase in taxes and a decrease in government purchases to balance the budget.
d. A reduction in both taxes and government spending.
To combat a recession, Keynesian fiscal policy recommends:
ANSWER
b. An increase in government spending.
Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC) is 0.75, and the government follows Keynesian economics by using expansionary fiscal policy to increase aggregate demand (total spending). If an increase of $1,000 billion aggregate demand can restore full employment, the government should:
a. increase spending by $250 billion.
b. decrease spending by $750 billion.
c. increase spending by $1,000 billion.
d. increase spending by $750 billion.
Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC) is 0.75, and the government follows Keynesian economics by using expansionary fiscal policy to increase aggregate demand (total spending). If an increase of $1,000 billion aggregate demand can restore full employment, the government should:
ANSWER
a. increase spending by $250 billion.
To help close an inflationary gap, the government could:
a. run budget deficits.
b. decrease taxes.
c. increase government spending.
d. run budget surpluses.
e. do nothing.
To help close an inflationary gap, the government could:
ANSWER
d. run budget surpluses.
Mathematically, the value of the tax multiplier in terms of the marginal propensity to consume (MPC) is given by the formula:
a. MPC 1.
b. (MPC 1)/MPC.
c. 1/MPC.
d. 1-[1/(1 MPC)].
Mathematically, the value of the tax multiplier in terms of the marginal propensity to consume (MPC) is given by the formula:
ANSWER
d. 1-[1/(1 MPC)].
Assume the marginal propensity to consume (MPC) is 0.80 and the government cuts taxes by $100 billion. The aggregate demand curve will shift to the:
a. right by $80 billion.
b. left by $200 billion.
c. right by $400 billion.
d. left by $400 billion.
e. None of the above.
Assume the marginal propensity to consume (MPC) is 0.80 and the government cuts taxes by $100 billion. The aggregate demand curve will shift to the:
ANSWER
c. right by $400 billion.
Assume the marginal propensity to consume (MPC) is 0.75 and the government increases taxes by $250 billion. The aggregate demand curve will shift to the:
a. left by $1,000 billion.
b. right by $1,000 billion.
c. left by $750 billion.
d. right by $750 billion.
Assume the marginal propensity to consume (MPC) is 0.75 and the government increases taxes by $250 billion. The aggregate demand curve will shift to the:
ANSWER
c. left by $750 billion.
Assume the marginal propensity to consume (MPC) is 0.80 and the government increases taxes by $100 billion. The aggregate demand curve will shift to the:
a. left by $80 billion.
b. right by $200 billion.
c. right by $400 billion.
d. left by $400 billion.
Assume the marginal propensity to consume (MPC) is 0.80 and the government increases taxes by $100 billion. The aggregate demand curve will shift to the:
ANSWER
d. left by $400 billion.
Find the tax multiplier if the MPC is 0.75.
a. -4.
b. -3.
c. 0.33.
d. 3.
e. 4.
Find the tax multiplier if the MPC is 0.75.
ANSWER
b. -3.
A tax multiplier equal to -4.30 would imply that a $100 tax increase would lead to a:
a. $430 decline in real GDP.
b. $430 increase in real GDP.
c. 4.3 percent increase in real GDP.
d. 4.3 percent decrease in real GDP.
e. 43 percent decrease in real GDP.
A tax multiplier equal to -4.30 would imply that a $100 tax increase would lead to a:
ANSWER
a. $430 decline in real GDP.
When the government levies a $100 million tax on people's income and puts the $100 million back into the economy in the form of a spending program, such as new interstate highway construction, the:
a. tax, then, generates a $100 million decline in real GDP.
b. level of real GDP expands by $100 million.
c. effect on real GDP is uncertain.
d. tax multiplier overpowers the income multiplier, triggering a rollback in real GDP.
When the government levies a $100 million tax on people's income and puts the $100 million back into the economy in the form of a spending program, such as new interstate highway construction, the:
ANSWER
b. level of real GDP expands by $100 million.
Assume Congress enacts a $500 billion increase in spending and a $500 billion tax increase to finance the additional government spending. The result of this balanced-budget approach is a:
a. $500 billion decrease in aggregate demand.
b. $500 billion increase in aggregate demand.
c. $1,000 billion increase in aggregate demand.
d. $1,000 billion decrease in aggregate demand.
Assume Congress enacts a $500 billion increase in spending and a $500 billion tax increase to finance the additional government spending. The result of this balanced-budget approach is a:
ANSWER
b. $500 billion increase in aggregate demand.
An increase in government spending will have the greatest expansionary impact on the economy if it is combined with:
a. an increase in tax revenue equal to the increase in spending.
b. a decrease in tax revenue equal to the increase in spending.
c. unchanged tax revenue.
d. none of the above is true.
An increase in government spending will have the greatest expansionary impact on the economy if it is combined with:
ANSWER
b. a decrease in tax revenue equal to the increase in spending.
The result of the balanced-budget multiplier is that aggregate demand changes by the amount of the change in:
a. government spending.
b. tax revenue.
c. government spending plus tax revenue.
d. government spending minus tax revenue.
The result of the balanced-budget multiplier is that aggregate demand changes by the amount of the change in:
ANSWER
a. government spending.
Assume Congress enacts a $10 billion increase in spending and a $10 billion tax increase to finance the additional government spending. The result of this balanced-budget approach is a:
a. $20 billion increase in aggregate demand.
b. $10 billion increase in aggregate demand.
c. $100 billion increase in aggregate demand.
d. $10 billion decrease in aggregate demand.
Assume Congress enacts a $10 billion increase in spending and a $10 billion tax increase to finance the additional government spending. The result of this balanced-budget approach is a:
ANSWER
b. $10 billion increase in aggregate demand.
Assume Congress enacts a $10 billion decrease in spending and a $10 billion decrease in tax revenue. The result of this balanced-budget approach is a:
a. $10 billion decrease in aggregate demand.
b. $20 billion decrease in aggregate demand.
c. $100 billion decrease in aggregate demand.
d. $10 billion increase in aggregate demand.
Assume Congress enacts a $10 billion decrease in spending and a $10 billion decrease in tax revenue. The result of this balanced-budget approach is a:
ANSWER
a. $10 billion decrease in aggregate demand.
The balanced budget multiplier is always equal to:
a. 0.50.
b. 0.75.
c. 1/MPC.
d. 1.
The balanced budget multiplier is always equal to:
ANSWER
d. 1.
Automatic stabilizers tend to stabilize the level of real GDP because:
a. Congress quickly changes spending and tax revenue.
b. federal expenditures and tax revenues change as the level of real GDP changes.
c. the spending and tax multiplier are constant.
d. wages are controlled by the minimum wage law.
Automatic stabilizers tend to stabilize the level of real GDP because:
ANSWER
b. federal expenditures and tax revenues change as the level of real GDP changes.
Which of the following is an automatic stabilizer that moves the federal budget toward deficit during an economic contraction and toward surplus during an economic expansion?
a. Personal income tax revenues.
b. Corporate income tax revenues.
c. Unemployment benefits.
d. All of the above.
Which of the following is an automatic stabilizer that moves the federal budget toward deficit during an economic contraction and toward surplus during an economic expansion?
ANSWER
d. All of the above.
In the U.S. economy, the effect on federal tax revenues and spending of an increase in the unemployment rate is to:
a. cut tax revenues and raise expenditures.
b. cut expenditures and raise tax revenues.
c. raise both tax revenues and expenditures.
d. cut both expenditures and tax revenues.
In the U.S. economy, the effect on federal tax revenues and spending of an increase in the unemployment rate is to:
ANSWER
a. cut tax revenues and raise expenditures.
Which of the following is the best example of an automatic stabilizer?
a. Welfare payments.
b. Foreign aid
c. Defense spending.
d. Highway construction.
Which of the following is the best example of an automatic stabilizer?
ANSWER
a. Welfare payments.
When the economy enters a recession, automatic stabilizers create:
a. higher taxes.
b. more discretionary spending.
c. budget deficits.
d. budget surpluses.
When the economy enters a recession, automatic stabilizers create:
ANSWER
c. budget deficits.
Automatic stabilizers "lean against the prevailing wind" of the business cycle because:
a. wages are controlled by the minimum wage law.
b. federal expenditures and tax revenues change as the level of real GDP changes.
c. the spending and tax multipliers are constant.
d. they include the power of special interests.
Automatic stabilizers "lean against the prevailing wind" of the business cycle because:
ANSWER
b. federal expenditures and tax revenues change as the level of real GDP changes.
In the U.S. economy, the effect on federal tax revenues and spending of a decrease in employment is to:
a. cut tax revenues and raise expenditures.
b. cut spending and raise tax revenues.
c. raise both tax revenues and expenditures.
d. cut both spending and tax revenues.
In the U.S. economy, the effect on federal tax revenues and spending of a decrease in employment is to:
ANSWER
a. cut tax revenues and raise expenditures.
Because of the automatic stabilizers, a decline in the level of economic activity will cause:
a. a reduction in tax revenues collected.
b. an increase in government expenditures.
c. a greater budget deficit.
d. all of the above.
Because of the automatic stabilizers, a decline in the level of economic activity will cause:
ANSWER
d. all of the above.
Which of the following is not an automatic stabilizer?
a. Personal income tax revenue.
b. Corporate income tax revenue.
c. Unemployment compensation benefits.
d. Property tax revenue.
Which of the following is not an automatic stabilizer?
ANSWER
d. Property tax revenue.
Structures in the economy that tend to add to aggregate demand when the economy is in recession and subtract from aggregate demand when the economy is inflationary are known as:
a. tax transfers.
b. inventory investment.
c. accelerators.
d. depreciation.
e. automatic stabilizers.
Structures in the economy that tend to add to aggregate demand when the economy is in recession and subtract from aggregate demand when the economy is inflationary are known as:
ANSWER
e. automatic stabilizers.
Unemployment insurance payments act as automatic stabilizers by:
a. allowing for more consumer spending during prosperity.
b. making the unemployment rate worse during a recession.
c. allowing for more consumer spending during a recession.
d. changing the Phillips curve to a Laffer curve.
Unemployment insurance payments act as automatic stabilizers by:
ANSWER
b. making the unemployment rate worse during a recession.
Assume the marginal propensity to consume (MPC) is 0.80 and the government cuts taxes by $100 billion. The aggregate demand curve will shift to the:
a. right by $80 billion.
b. left by $200 billion.
c. right by $400 billion.
d. left by $400 billion.
e. None of the above.
Assume the marginal propensity to consume (MPC) is 0.80 and the government cuts taxes by $100 billion. The aggregate demand curve will shift to the:
ANSWER:
c. right by $400 billion.
Assume the marginal propensity to consume (MPC) is 0.75 and the government increases taxes by $250 billion. The aggregate demand curve will shift to the:
a. left by $1,000 billion.
b. right by $1,000 billion.
c. left by $750 billion.
d. right by $750 billion.
Assume the marginal propensity to consume (MPC) is 0.75 and the government increases taxes by $250 billion. The aggregate demand curve will shift to the:
ANSWER:
c. left by $750 billion.
Assume the marginal propensity to consume (MPC) is 0.80 and the government increases taxes by $100 billion. The aggregate demand curve will shift to the:
a. left by $80 billion.
b. right by $200 billion.
c. right by $400 billion.
d. left by $400 billion.
Assume the marginal propensity to consume (MPC) is 0.80 and the government increases taxes by $100 billion. The aggregate demand curve will shift to the:
ANSWER:
d. left by $400 billion.
Find the tax multiplier if the MPC is 0.75.
a. -4.
b. -3.
c. 0.33.
d. 3.
e. 4.
Find the tax multiplier if the MPC is 0.75.
ANSWER:
b. -3.
A tax multiplier equal to -4.30 would imply that a $100 tax increase would lead to a:
a. $430 decline in real GDP.
b. $430 increase in real GDP.
c. 4.3 percent increase in real GDP.
d. 4.3 percent decrease in real GDP.
e. 43 percent decrease in real GDP.
A tax multiplier equal to -4.30 would imply that a $100 tax increase would lead to a:
ANSWER:
a. $430 decline in real GDP.
When the government levies a $100 million tax on people's income and puts the $100 million back into the economy in the form of a spending program, such as new interstate highway construction, the:
a. tax, then, generates a $100 million decline in real GDP.
b. level of real GDP expands by $100 million.
c. effect on real GDP is uncertain.
d. tax multiplier overpowers the income multiplier, triggering a rollback in real GDP.
When the government levies a $100 million tax on people's income and puts the $100 million back into the economy in the form of a spending program, such as new interstate highway construction, the:
ANSWER:
b. level of real GDP expands by $100 million.
Equal increases in government spending and taxes will:
a. cancel each other out so that the equilibrium level of real GDP will remain unchanged.
b. lead to an equal decrease in the equilibrium level of real GDP.
c. lead to an equal increase in the equilibrium level of real GDP.
d. lead to an increase in the equilibrium level of real GDP real GDP that is larger than the initial change in government spending and taxes.
e. lead to an increase in the equilibrium level of output that is smaller than the initial change in government spending and taxes.
Equal increases in government spending and taxes will:
ANSWER:
c. lead to an equal increase in the equilibrium level of real GDP.
Assume Congress enacts a $500 billion increase in spending and a $500 billion tax increase to finance the additional government spending. The result of this balanced-budget approach is a:
a. $500 billion decrease in aggregate demand.
b. $500 billion increase in aggregate demand.
c. $1,000 billion increase in aggregate demand.
d. $1,000 billion decrease in aggregate demand.
Assume Congress enacts a $500 billion increase in spending and a $500 billion tax increase to finance the additional government spending. The result of this balanced-budget approach is a:
ANSWER:
b. $500 billion increase in aggregate demand.
An increase in government spending will have the greatest expansionary impact on the economy if it is combined with:
a. an increase in tax revenue equal to the increase in spending.
b. a decrease in tax revenue equal to the increase in spending.
c. unchanged tax revenue.
d. none of the above is true.
An increase in government spending will have the greatest expansionary impact on the economy if it is combined with:
ANSWER:
b. a decrease in tax revenue equal to the increase in spending.
The result of the balanced-budget multiplier is that aggregate demand changes by the amount of the change in:
a. government spending.
b. tax revenue.
c. government spending plus tax revenue.
d. government spending minus tax revenue.
The result of the balanced-budget multiplier is that aggregate demand changes by the amount of the change in:
ANSWER:
a. government spending.
Assume Congress enacts a $10 billion increase in spending and a $10 billion tax increase to finance the additional government spending. The result of this balanced-budget approach is a:
a. $20 billion increase in aggregate demand.
b. $10 billion increase in aggregate demand.
c. $100 billion increase in aggregate demand.
d. $10 billion decrease in aggregate demand.
Assume Congress enacts a $10 billion increase in spending and a $10 billion tax increase to finance the additional government spending. The result of this balanced-budget approach is a:
ANSWER:
b. $10 billion increase in aggregate demand.
Assume Congress enacts a $10 billion decrease in spending and a $10 billion decrease in tax revenue. The result of this balanced-budget approach is a:
a. $10 billion decrease in aggregate demand.
b. $20 billion decrease in aggregate demand.
c. $100 billion decrease in aggregate demand.
d. $10 billion increase in aggregate demand.
Assume Congress enacts a $10 billion decrease in spending and a $10 billion decrease in tax revenue. The result of this balanced-budget approach is a:
ANSWER:
a. $10 billion decrease in aggregate demand.
The balanced budget multiplier is always equal to:
a. 0.50.
b. 0.75.
c. 1/MPC.
d. 1.
The balanced budget multiplier is always equal to:
ANSWER:
d. 1.
Automatic stabilizers tend to stabilize the level of real GDP because:
a. Congress quickly changes spending and tax revenue.
b. federal expenditures and tax revenues change as the level of real GDP changes.
c. the spending and tax multiplier are constant.
d. wages are controlled by the minimum wage law.
Automatic stabilizers tend to stabilize the level of real GDP because:
ANSWER:
b. federal expenditures and tax revenues change as the level of real GDP changes.
Which of the following is an automatic stabilizer that moves the federal budget toward deficit during an economic contraction and toward surplus during an economic expansion?
a. Personal income tax revenues.
b. Corporate income tax revenues.
c. Unemployment benefits.
d. All of the above.
Which of the following is an automatic stabilizer that moves the federal budget toward deficit during an economic contraction and toward surplus during an economic expansion?
ANSWER:
d. All of the above.
A decrease in real GDP would affect the U.S. economy by:
a. cutting tax revenues and raising government expenditures.
b. cutting government expenditures and raising tax revenues.
c. raising both tax revenues and government expenditures.
d. cutting both government expenditures and tax revenues.
A decrease in real GDP would affect the U.S. economy by:
ANSWER:
a. cutting tax revenues and raising government expenditures.
In the U.S. economy, the effect on federal tax revenues and spending of an increase in the unemployment rate is to:
a. cut tax revenues and raise expenditures.
b. cut expenditures and raise tax revenues.
c. raise both tax revenues and expenditures.
d. cut both expenditures and tax revenues.
In the U.S. economy, the effect on federal tax revenues and spending of an increase in the unemployment rate is to:
ANSWER:
a. cut tax revenues and raise expenditures.
Which of the following is the best example of an automatic stabilizer?
a. Welfare payments.
b. Foreign aid
c. Defense spending.
d. Highway construction.
Which of the following is the best example of an automatic stabilizer?
ANSWER:
a. Welfare payments.
When the economy enters a recession, automatic stabilizers create:
a. higher taxes.
b. more discretionary spending.
c. budget deficits.
d. budget surpluses.
When the economy enters a recession, automatic stabilizers create:
ANSWER:
c. budget deficits.
Automatic stabilizers "lean against the prevailing wind" of the business cycle because:
a. wages are controlled by the minimum wage law.
b. federal expenditures and tax revenues change as the level of real GDP changes.
c. the spending and tax multipliers are constant.
d. they include the power of special interests.
Automatic stabilizers "lean against the prevailing wind" of the business cycle because:
ANSWER:
b. federal expenditures and tax revenues change as the level of real GDP changes.
In the U.S. economy, the effect on federal tax revenues and spending of a decrease in employment is to:
a. cut tax revenues and raise expenditures.
b. cut spending and raise tax revenues.
c. raise both tax revenues and expenditures.
d. cut both spending and tax revenues.
In the U.S. economy, the effect on federal tax revenues and spending of a decrease in employment is to:
ANSWER:
a. cut tax revenues and raise expenditures.
Because of the automatic stabilizers, a decline in the level of economic activity will cause:
a. a reduction in tax revenues collected.
b. an increase in government expenditures.
c. a greater budget deficit.
d. all of the above.
Because of the automatic stabilizers, a decline in the level of economic activity will cause:
ANSWER:
d. all of the above.
Which of the following is not an automatic stabilizer?
a. Personal income tax revenue.
b. Corporate income tax revenue.
c. Unemployment compensation benefits.
d. Property tax revenue.
Which of the following is not an automatic stabilizer?
ANSWER:
d. Property tax revenue.
Structures in the economy that tend to add to aggregate demand when the economy is in recession and subtract from aggregate demand when the economy is inflationary are known as:
a. tax transfers.
b. inventory investment.
c. accelerators.
d. depreciation.
e. automatic stabilizers.
Structures in the economy that tend to add to aggregate demand when the economy is in recession and subtract from aggregate demand when the economy is inflationary are known as:
ANSWER:
e. automatic stabilizers.
Unemployment insurance payments act as automatic stabilizers by:
a. allowing for more consumer spending during prosperity.
b. making the unemployment rate worse during a recession.
c. allowing for more consumer spending during a recession.
d. changing the Phillips curve to a Laffer curve.
Unemployment insurance payments act as automatic stabilizers by:
ANSWER:
b. making the unemployment rate worse during a recession.
The unemployment compensation program:
a. makes recessions and inflationary episodes more severe.
b. makes recessions and inflationary episodes less severe.
c. makes recessions more severe and inflationary episodes less severe.
d. makes recessions less severe and inflationary episodes more severe.
e. has no effect on the severity of recessions and inflationary episodes.
The unemployment compensation program:
ANSWER:
b. makes recessions and inflationary episodes less severe.
Personal income taxes:
a. make recessions and inflationary episodes more severe.
b. make recessions and inflationary episodes less severe.
c. make recessions more severe and inflationary episodes less severe.
d. make recessions less severe and inflationary episodes more severe.
e. have no effect on the severity of recessions and inflationary episodes.
Personal income taxes:
ANSWER:
b. make recessions and inflationary episodes less severe.
Personal income taxes:
a. make recessions and inflationary episodes more severe.
b. make recessions and inflationary episodes less severe.
c. make recessions more severe and inflationary episodes less severe.
d. make recessions less severe and inflationary episodes more severe.
e. have no effect on the severity of recessions and inflationary episodes.
Personal income taxes:
ANSWER:
a. make recessions and inflationary episodes more severe.
Unemployment compensation payments:
a. rise during a recession and thus reduce the severity of the recession.
b. rise during a recession and thus increase the severity of the recession.
c. rise during inflationary episodes and thus reduce the severity of the inflation.
d. fall during a recession and thus increase the severity of the recession.
Unemployment compensation payments:
ANSWER:
a. rise during a recession and thus reduce the severity of the recession.
Unemployment compensation payments:
a. fall during periods of prosperity and thus reduce federal budget deficits.
b. fall during periods of prosperity and thus increase federal budget deficits.
c. fall during recessions and thus increase the problem of unemployment.
d. rise during periods of prosperity and thus increase federal budget deficits.
e. rise during recessions and thus increase the problem of unemployment.
Unemployment compensation payments:
ANSWER:
a. fall during periods of prosperity and thus reduce federal budget deficits.