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28 Cards in this Set
- Front
- Back
Ricardian equivalence predicts: |
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 |
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The American Recovery and reinvestment act of 2009 |
Is more commonly known as the stimulus plan Cost nearly $800 billion Included tax cuts and increased government spending All of these are true |
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One reason the government enact fiscal policy instead of waiting for the economy to correct itself is: |
The automatic adjustment can take a very long time. |
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If the MPC is 0.9, the government cut spending by $200b, the overall effect on GDP will be: |
A increase of $2,000b |
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If the marginal propensity to consume is 0.8, the government spending multiplier must be: |
5 |
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The taxation multiplier is calculated as: |
-MPC/(1-MPC) |
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The taxation multiplier tells us: |
The amount that GDP decreases when taxes increase by $1 |
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If the government increased its spending by $100, and the GDP increased $400 as a result, the MPC must be: |
0.75 |
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If the government were to reduce its spending, it would enact: |
Contractionary fiscal policy |
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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: |
Ricardian equivalence |
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We use the term expansionary fiscal policy when the overall effect of decisions about Taxation and spending is to: |
Increase aggregate demand |
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In 2008, consumers were mailed a stimulus check in response to the recession. The results showed that Ricardian equivalence: |
Failed to hold, as most people spent the substantial share of the money |
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Increase government spending on unemployment insurance during a recession is an example of: |
An automatic stabilizer |
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The amount of time it takes for fiscal policy to have an impact on the economy creates: |
An implementation lag |
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For any MPC, the taxation multiplier is: |
Smaller in absolute value than the government spending multiplier. |
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If the government wishes to increase GDP by $1,200 b, and the MPC is 0.75, it should: |
Increases spending by $300b |
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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: |
Move the equilibrium A to B |
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During times of economic boom, the spending on unemployment insurance: |
Likely Falls , since more people are working |
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Lags and policy making process come from: |
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 |
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If the government wishes to increase GDP by $2,100b, and MPC is 0.6, it should: |
Increase taxes by $1,400b |
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An indirect cost of government debt is: |
It can distort the credit market and slow economic growth |
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When an economy is an economic boom, discretionary fiscal policy would call for ______, and the automatic stabilizer would ________. |
Increasing tax rates; increase taxes revenue |
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Payments for government accounts to individuals for programs that do not involve a purchase of goods or services are called: |
Transfer payments |
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One of the main difficulties with implementing fiscal policy is: |
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 |
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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: |
Discretionary fiscal policy |
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If the MPC is 0.6 and the government increases taxes by $300b, the overall effect on GPD will be: |
A decrease of $450b |
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When output deviates from potential GDP, automatic stabilizers work to push the economy |
In the same direction that correctly times and formulated discretionary policy would |
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A direct cost of public debt is |
The interest the government has to pay to the people it has borrowed from |