Ch 10

If the United States has a trade deficit, this means that

A. Exports exceed imports B. The U.S. economy produces more than it consumer C. The trade balance is negative D. Trade activity is limited to just a few goods

Today the federal government collects nearly

A. $1 billion a year in tax revenues. B. $500 billion a year in tax revenues. C. $1 trillion a year in tax revenues. D. $4 trillion a year in tax revenues.

Which of the two fiscal stimulus tools will ultimately have the same impact on aggregate spending?

A. $100 billion tax cut and $100 billion increase in government spending. B. $100 billion increase in government spending and $100 billion increase in transfer payments. C. $100 billion increase in transfer payments and $100 billion in tax cuts. D. All of the choices are correct.

If the MPC equals 0.75, $100 billion tax increase will decrease consumption in the first round by

A. $100 billion. B. $300 billion. C. $400 billion. D. $75 billion.

Assume the MPC is 0.80. The change in total spending for the economy due to a $200 billion government spending increase is

A. $160 billion. B. $200 billion. C. $800 billion. D. $1,000 billion.

If the MPC equals 0.80, a $200 billion tax decrease will increase consumption in the first round by

A. $40 billion. B. $160 billion. C. $200 billion. D. $100 billion.

If the multiplier equals 2 and the AD shortfall is $6 million, the desired fiscal stimulus is

A. $6 million. B. $12 million. C. $333,333. D. $3 million.

If the MPC is 0.80 and the government increases transfer payments by $45 billion, then the initial fiscal stimulus will equal

A. $9 billion. B. $56.25 billion. C. $36 billion. D. $225 billion.

A tax cut has a smaller impact on aggregate demand than an increase in government purchases of the same size because

A. A portion of the tax cut is invested. B. A portion of the tax cut is saved. C. Tax cuts do not increase disposable income. D. The tax cut multiplier is equal to 1.

Which of the following would cause the level of income to change by the greatest amount, ceteris paribus?

A. An increase in Social Security payments of $10 billion. B. A reduction in personal income taxes of $10 billion. C. An increase in defense spending of $10 billion. D. All of the other choices have equal impacts on the level of income.

Crowding out is caused by

A. An increase in consumer spending. B. A decline in overall spending. C. An increase in government borrowing. D. A decline in tax revenues.

Which of the following fiscal policies would cause a decrease in aggregate expenditures?

A. An increase in transfer payments and an increase in government spending. B. An increase in transfer payments and a decrease in taxes. C. A decrease in taxes and an increase in government spending. D. An increase in taxes and a decrease in government spending.

The crowding out effect refers to a decrease in

A. Consumption or investment as a result of an increase in government borrowing. B. Investment resulting from an increase in consumption and a decrease in savings. C. Government spending resulting from a decrease in taxes. D. Consumption resulting from an increase in investment.

Which of the following is a policy option to eliminate an AD shortfall?

A. Decrease government purchases. B. Reduce taxes. C. Reduce transfer payments. D. All of the choices are correct.

Assume the MPC is 0.75. To eliminate an AD shortfall of $200 billion, the government should

A. Decrease spending by $50 billion. B. Increase spending by $50 billion. C. Increase taxes by $66.7 billion. D. Increase spending by $800 billion.

When there is excess aggregate demand in the economy,

A. Desired fiscal restraint equals the AD excess divided by the multiplier. B. The GDP gap is positive. C. Full-employment output is higher than equilibrium output. D. Full-employment output is less than equilibrium output.

The U.S. government was given the power to tax income in the

A. Early 1700s. B. Early 1800s. C. Late 1800s. D. Early 1900s.

The desired fiscal restraint is equal to

A. Excess AD times the multiplier. B. Excess AD divided by the multiplier. C. Desired AD reduction. D. GDP gap divided by the multiplier.

A tax cut intended to increase aggregate demand is an example of

A. Fiscal restraint. B. Monetary restraint. C. Fiscal stimulus. D. Fiscal targeting.

The World View article in the text titled "China Sets Big Stimulus Plan in Bid to Jump-Start Growth" states that China's plan includes spending in housing, infrastructure, and agriculture, as well as a tax deduction for capital spending by companies. This is an example of

A. Fiscal stimulus. B. Aggregate demand shortfall. C. Fiscal restraint. D. Expansionary classical policy.

Which of the following is an income transfer?

A. Free medical care made available to the poor by a private physician. B. Unemployment benefits paid to a factory worker who was laid off. C. A new highway built by the federal government. D. A gift of money from a parent to a child.

Ceteris paribus, if the AD shortfall equals $600 billion, then the federal government can close it by increasing

A. Government spending by exactly $600 billion. B. Government spending by less than $600 billion. C. Taxes by more than $600 billion. D. Taxes by exactly $600 billion.

If the government purchases multiplier is 4 and a change in government spending leads to a $500 million decrease in aggregate demand, we can conclude that

A. Government spending decreased by $125 million. B. Taxes increased by $500 million. C. Taxes decreased by $100 million. D. Government spending decreased by $100 million.

A country with a comparative advantage in producing computer chips

A. Has a lower opportunity cost of producing computer chips than its trading partners B. Can produce computer chips with fewer resources than its trading partners C. Can achieve better terms of trade in selling computer ships than its trading partners D. Has greater capacity to produce computer chips, given its resources, than do its trading Partners

Assume the economy is operating below full employment. Which of the following policy actions will allow aggregate spending to increase but will not increase the size of the government in the process?

A. Increase government spending and leave tax rates unchanged. B. Decrease tax rates and leave government spending unchanged. C. Increase government spending and taxes by the same amount. D. Decrease government spending by more than an increase in taxes.

Ceteris paribus, if income was transferred from individuals with a low MPC to those with a high MPC, aggregate demand would

A. Increase. B. Decrease. C. Stay the same. D. Increase or decrease, but not because of the MPC.

A country has a comparative advantage in a good if

A. It can produce more of the good than another country B. It can produce a good at a lower opportunity cost relative to another country C. It can specialize only in two goods D. It also has an absolute advantage in the production of the good

When one country can produce a given amount of a good using fewer inputs than any other country,

A. It has an absolute advantage in producing the good B. It has a comparative advantage in producing the good C. Specialization will definitely increase worldwide consumption possibilities D. Specialization will definitely increase worldwide production possibilities

Ceteris paribus, which of the following is true about the concept of crowding out?

A. It increases the private sector's ability to raise the level of output. B. It does not affect the private sector's ability to raise the level of output. C. It reduces the private sector's ability to raise the level of output. D. It occurs when spending increases are matched with tax increases.

A limitation on fiscal policy is time. Which of the following does not impact the timeliness of fiscal policy?

A. It takes time to recognize that the economy is in trouble. B. It will take time to develop a policy strategy and for Congress to pass it. C. It will take time for the president to sign the policy measures into law. D. It will take time for the policy to be implemented and for the many steps in the multiplier process to unfold.

Which of the following is a fiscal policy tool used to stimulate the economy?

A. Lower interest rates. B. Increased imports. C. Reducing inefficient employment of resources. D. Increased government purchases.

The total change in aggregate spending generated by increased government spending depends on the

A. Marginal propensity to consume. B. Size of the recessionary GDP gap. C. AD shortfall. D. AD excess.

The use of government taxes and spending to alter economic outcomes is known as

A. Monetary policy. B. Fiscal policy. C. Income policy. D. Foreign trade policy.

Which of the following is generally considered a desirable outcome of fiscal policy?

A. More jobs. B. Higher unemployment rates. C. A higher price level. D. Greater deficits.

Disposal income refers to

A. Personal income before personal taxes. B. Personal income after personal taxes. C. The corporate tax paid from income. D. None of the choices are correct.

Fiscal restraint is defined as

A. Tax hikes or spending cuts intended to reduce aggregate demand. B. Tax hikes or spending cuts intended to increase aggregate demand. C. Tax cuts or spending hikes intended to increase aggregate demand. D. Tax cuts or spending hikes intended to reduce aggregate demand.

According to one In the News article, "Economy Is Already Feeling the Impact of Federal Government's Spending Cuts," a decrease in government spending has contributed to the sluggish economy. This would imply that

A. The aggregate demand curve has shifted to the right. B. The aggregate demand curve has shifted to the left. C. Injections into the circular flow have increased. D. The aggregate supply curve has shifted to the right.

Which of the following is true when the government attempts to move the economy to full employment by increasing spending?

A. The desired stimulus should be set by the AD shortfall multiplied by the multiplier. B. It must initially spend more than the GDP gap if the aggregate supply curve is upward-sloping. C. The total change in spending includes both the new government spending and the subsequent increases in consumer spending. D. The desired stimulus should be set by the multiplier divided by the AD shortfall.

The statement "balancing the budget on the backs of the poor" refers to

A. Transfer payment cuts in order to reduce government expenditures. B. Tax increases on the poor in order to increase government revenues. C. Government spending increases in order to increase aggregate expenditures. D. Government spending cuts on public parks in order to reduce government expenditures.

Outsourcing is the

A. Unemployment that is inevitable when jobs leave a country B. Relocation of production from domestic companies to foreign countries C. Loss of output because of an increase in unemployment D. Movement of workers to foreign countries where there are more jobs

From a Keynesian perspective, the way out of recession is to

A. Wait for the economy to fix itself. B. Use monetary restraint. C. Get consumers to spend less on goods and services. D. Get consumers to spend more on goods and services.