Ch 17

In the basic equation of national income accounting, the government directly controls _____ and influences ______. A) G; C and I B) T; G and C C) C; X and M D) I; G and T

A) G; C and I

Contractionary fiscal policy includes: A) increasing taxes. B) decreasing the money supply. C) increasing the money supply. D) increasing government expenditures.

A) increasing taxes.

If the economy is at full employment, expansionary fiscal policy is most likely to lead to: A) lower inflation rates. B) higher inflation rates. C) increases in unemployment. D) decreases in interest rates.

B) higher inflation rates.

The government has a budget deficit if: A) its total revenues are equal to its total expenditures. B) its total revenues are less than its total expenditures. C) its total revenues are greater than its total expenditures. D) the money supply is less than total expenditures.

B) its total revenues are less than its total expenditures.

A $100 million increase in government spending increases equilibrium GDP by: A) $100 million. B) more than $100 million. C) less than $100 million. D) zero.

B) more than $100 million.

If government tax policy requires Peter to pay $15,000 in tax on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is: A) proportional B) progressive C) optimal D) regressive

B) progressive

All of the following are sources of federal tax revenue EXCEPT: A) the personal income tax. B) sales taxes. C) the corporate profits tax. D) payroll taxes.

B) sales taxes.

An example of an automatic stabilizer that works when the economy contracts is: A) a rise in tax receipts. B) a fall in government purchases. C) a discretionary decrease in government purchases. D) a rise in government transfers as more people receive unemployment insurance benefits.

D) a rise in government transfers as more people receive unemployment insurance benefits.

An inflationary gap occurs when: A) we need to increase prices. B) real output is too low. C) potential output exceeds actual output. D) actual output exceeds potential output.

D) actual output exceeds potential output.

Suppose an economy is producing real GDP of $300 billion. The potential output is equal to $400 billion, and the MPC is equal to 0.80. Then the government should follow a policy of: A) raising taxes by $25 billion to bring the economy to potential output. B) cutting taxes by $33.33 billion to bring the economy to potential output. C) raising taxes by $33.33 billion to bring the economy to potential output. D) cutting taxes by $25 billion to bring the economy to potential output.

D) cutting taxes by $25 billion to bring the economy to potential output.

The current national debt to GDP ratio for the United States is: A) less than 30% B) between 30% and 60% C) between 60% and 90% D) more than 90%

D) more than 90%

An expansionary fiscal policy either _______ government spending or _______ taxes. A) increases; increases B) decreases; increases C) increases; decreases D) decreases; decreases

C) increases; decreases

Discretionary fiscal policy may fail to stabilize the economy or may even make the economy less stable because of: A) its ineffectiveness. B) government waste. C) lags in deciding on and implementing a policy change. D) the business cycle.

C) lags in deciding on and implementing a policy change.

A __________________________ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes. A) proportional tax B) excise tax C) progressive tax D) regressive tax

C) progressive tax

The fact that tax receipts fall during a recession: A) makes the multiplier stronger. B) has no impact on the multiplier. C) reduces the adverse effect of the initial fall in aggregate demand. D) acts as an automatic contractionary fiscal policy.

C) reduces the adverse effect of the initial fall in aggregate demand.

When the share of individual income tax collected by the government from people with higher incomes is smaller than the share of tax collected from people with lower incomes, then the tax is ____________________. A) proportional B) optional C) regressive D) progressive

C) regressive

Which of the following terms is used to describe the set of policies that relate to government spending, taxation, and borrowing? A) financial policies B) bugetary rules C) monetary policies D) fiscal policies

D) fiscal policies

During a recession, if a government uses an expansionary fiscal policy to increase GDP, the: A) AS curve will shift to the left B) AS curve will shift to the right C) AD curve will shift to the right D) AD curve will shift to the left

C) AD curve will shift to the right

Suppose the MPC = 0.8 and the government cuts taxes by $40 billion. Which of the following will be the likely effect? A) Real GDP will increase by $200 billion. B) Real GDP will decrease by $200 billion. C) Real GDP will increase by $160 billion. D) Real GDP will decrease by $160 billion.

C) Real GDP will increase by $160 billion.

Discretionary fiscal policy refers to: A) any change in interest rates. B) any change in money supply. C) changes in government spending or taxes to close a recessionary or inflationary gap. D) changes in taxes to account for externalities and control pollution.

C) changes in government spending or taxes to close a recessionary or inflationary gap.

Fiscal policy that decreases aggregate demand is: A) balanced. B) supplemental. C) contractionary. D) expansionary.

C) contractionary.

A reduction in government transfers ________, therefore shifting the aggregate demand curve to the ________. A) increases labor costs to companies, increasing investment; left B) decreases government purchases of goods and services, decreasing consumption; right C) increases the marginal propensity to save, decreasing consumption; right D) decreases disposable income and consumption; left

D) decreases disposable income and consumption; left

Assume that laws have been passed that require the federal government to run a balanced budget. During a recession, the government will want to implement _____________________, but may be unable to do so because such a policy would ____________________________. A) contractionary fiscal policy; lead to a budget deficit B) expansionary fiscal policy; lead to a budget surplus C) contractionary fiscal policy; lead to a budget surplus D) expansionary fiscal policy; lead to a budget deficit

D) expansionary fiscal policy; lead to a budget deficit