CHAPTER 13 FINAL PRACTICE

A recessionary gap can be closed with: A) contractionary monetary policy. B) an increase in taxes. C) a decrease in government purchases. D) expansionary fiscal policy.

D

Public debt is: A) the total debt owed by the government to individuals and institutions outside of government B) the total amount that the government owes during a given fiscal year. C) likely to increase when the government uses contractionary fiscal policy. D) the amount that the government owes itself.

A

Social insurance programs are: A) government programs intended to protect families against economic hardships. B) private insurance policies to protect families from hardships caused by government actions. C) private insurance policies that cover gaps in government-provided health care. D) programs to help unemployed people have a social life.

A

Suppose the MPC = 0.8. If the government were to cut taxes by $100 billion, then real GDP would increase by $400. A) True B) False

A

During a recessionary gap: A) holding everything else constant, the budget deficit would increase. B) contractionary fiscal policy would help correct this problem. C) an increase in taxes or a decrease in government purchases would shift the AD curve to the right. D) unemployment would most likely be falling.

A

Government borrowing will not crowd out private investment spending if: A) unemployment is high and the fiscal expansion causes an increase in incomes and saving at each interest rate. B) unemployment is high and the fiscal expansion causes an increase in incomes and a decrease in saving at each interest rate. C) unemployment is low and the fiscal expansion causes an increase in incomes and a decrease in saving at each interest rate. D) unemployment is low and the fiscal expansion causes a decrease in incomes and a decrease in saving at each interest rate.

A

The length of unemployment benefits is increased. Is this an example of an expansionary or contractionary fiscal policy? A. expansionary B. contractionary

A

The multiplier effect of government purchases of goods and services: A) has a more direct and bigger impact than an equal amount of tax changes. B) has a less direct and smaller impact than an equal amount of tax changes. C) is a type of automatic stabilizer. D) is useful for recessions but not for inflations.

A

Which of the following three policies would generate the largest shift in aggregate demand? A. An increase of $500 million in government purchases of goods and services. B. A $500 million decrease in taxes. C. A $500 million increase in government transfers.

A

. States that are required by their constitution to have annually balanced budgets are likely to: A) have less severe business cycles than those not required to balance their budget. B) have more severe business cycles than those not required to balance their budget. C) grow faster than those not required to balance their budget. D) have a better quality of life than those not required to balance their budget.

B

A federal tax on gas is increased. Is this an example of an expansionary or contractionary fiscal policy? A. expansionary B. contractionary

B

Medicaid, Medicare, and Social Security are examples of: A) unilateral payments. B) transfer payments. C) monetary policy. D) taxes.

B

Several military bases around the country, which together employ tens of thousands of people, are closed. Is this an example of an expansionary or contractionary fiscal policy? A. expansionary B. contractionary

B

The federal government's largest source of tax revenue is: A) property taxes. B) personal income and corporate profit taxes. C) sales taxes. D) social insurance taxes.

B

Which of the following is an automatic stabilizer? A) military spending on the war in Iraq B) unemployment compensation payments to unemployed autoworkers C) disability payments to war veterans D) Medicare payments to the elderly

B

Assume that marginal propensity to consume is 0.8 and potential output is $800 billion. If the actual real GDP is $850 billion, which of the following policies would bring the economy to potential output? A) Increase taxes by $50 billion. B) Increase taxes by $10 billion. C) Increase taxes by $12.5 billion. D) Increase transfers by $12.5 billion.

C

Suppose that real GDP is $500 billion, potential output is $600 billion and the MPC is 0.8. By how much must taxes decrease to close the gap? A. $100 billion B. $48 billion C. $25 billion D. $20 billion

C

Suppose the economy is operating at an output level of $4,000 billion. Assume furthermore that potential output is $5,000 billion and the marginal propensity to consume is 0.75. Which of the following would be required to close this recessionary gap? A) a $25 billion increase in government spending B) a $25 billion increase in taxes C) a $250 billion increase in government spending D) a $1,000 billion increase in government spending

C

Time lags in the implementation of fiscal policy: A) make it easier for policy makers to effectively use fiscal policy. B) render such policies useless in combating recessions. C) must be considered by policy makers in the implementation of fiscal policy. D) are less problematic than those facing monetary policy.

C

Which one of the following represents the government budget balance most accurately? A) T + G + TR B) T + G - TR C) T - G - TR D) T + TR - G

C

If the current level of real GDP lies below potential GDP, then an appropriate fiscal policy would be to _____, which will shift the _____ curve to the _____. A) increase government purchases; AD; left. B) increase transfer payments; AS; right. C) increase tax rates; AD; right. D) increase government purchases; AD; right

D

Suppose that real GDP is $500 billion, potential output is $600 billion and the MPC is 0.8. By how much must government spending change to close the gap? A. $100 billion B. $48 billion C. $25 billion D. $20 billion

D