Fiscal Policy

Front 1

Ricardian equivalence predicts:

Back 1

That if Government Cuts taxes but not spending, people will not change their behavior

If people perceive current tax cuts to mean higher tax payments in the future, the cuts will have a little expansionary affect.

The consumer need to feel as though they will not have to pay future for current spending to make current tax cuts effective expansionary policy

All of these are true

Front 2

The American Recovery and reinvestment act of 2009

Back 2

Is more commonly known as the stimulus plan

Cost nearly $800 billion

Included tax cuts and increased government spending

All of these are true

Front 3

One reason the government enact fiscal policy instead of waiting for the economy to correct itself is:

Back 3

The automatic adjustment can take a very long time.

Front 4

If the MPC is 0.9, the government cut spending by $200b, the overall effect on GDP will be:

Back 4

A increase of $2,000b

Front 5

If the marginal propensity to consume is 0.8, the government spending multiplier must be:

Back 5

5

Front 6

The taxation multiplier is calculated as:

Back 6

-MPC/(1-MPC)

Front 7

The taxation multiplier tells us:

Back 7

The amount that GDP decreases when taxes increase by $1

Front 8

If the government increased its spending by $100, and the GDP increased $400 as a result, the MPC must be:

Back 8

0.75

Front 9

If the government were to reduce its spending, it would enact:

Back 9

Contractionary fiscal policy

Front 10

The idea that if Government Cuts taxes but not spending, people will not change their behavior, and expansionary policy will have little expansionary​ effects is known as:

Back 10

Ricardian equivalence

Front 11

We use the term expansionary fiscal policy when the overall effect of decisions about Taxation and spending is to:

Back 11

Increase aggregate demand

Front 12

In 2008, consumers were mailed a stimulus check in response to the recession. The results showed that Ricardian equivalence:

Back 12

Failed to hold, as most people spent the substantial share of the money

Front 13

Increase government spending on unemployment insurance during a recession is an example of:

Back 13

An automatic stabilizer

Front 14

The amount of time it takes for fiscal policy to have an impact on the economy creates:

Back 14

An implementation lag

Front 15

For any MPC, the taxation multiplier is:

Back 15

Smaller in absolute value than the government spending multiplier.

Front 16

If the government wishes to increase GDP by $1,200 b, and the MPC is 0.75, it should:

Back 16

Increases spending by $300b

Front 17

Assuming the economy is represented by the graph shown, the government were to enact expansionary​ fiscal policy, it would be most likely to move from:

Back 17

Move the equilibrium A to B

Front 18

During times of economic boom, the spending on unemployment insurance:

Back 18

Likely Falls , since more people are working

Front 19

Lags and policy making process come from:

Back 19

Lack of understanding the current state of the economy

The process of deciding on the passing legislation

The time it takes for policy to have an impact on the economy

All of these are true

Front 20

If the government wishes to increase GDP by $2,100b, and MPC is 0.6, it should:

Back 20

Increase taxes by $1,400b

Front 21

An indirect cost of government debt is:

Back 21

It can distort the credit market and slow economic growth

Front 22

When an economy is an economic boom, discretionary fiscal policy would call for ______, and the automatic stabilizer would ________.

Back 22

Increasing tax rates; increase taxes revenue

Front 23

Payments for government accounts to individuals for programs that do not involve a purchase of goods or services are called:

Back 23

Transfer payments

Front 24

One of the main difficulties with implementing fiscal policy is:

Back 24

The time lag between the time the policy is chosen and the time it gets enacted.

Deciding on a policy without all the relevant information.

The danger in overshooting or undershooting the goal of full employment.

All of these are true

Front 25

With the economy booming, the government starts to worry about the increasing rate of inflation, and decides to cut it's spending on highway maintenance and defer it to someone in the future. This is an:

Back 25

Discretionary fiscal policy

Front 26

If the MPC is 0.6 and the government increases taxes by $300b, the overall effect on GPD will be:

Back 26

A decrease of $450b

Front 27

When output deviates from potential GDP, automatic stabilizers work to push the economy

Back 27

In the same direction that correctly times and formulated discretionary policy would

Front 28

A direct cost of public debt is

Back 28

The interest the government has to pay to the people it has borrowed from