Econ

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As a percentage of taxable income since​ 1993, federal personal income taxes were lowest in which of the following presidential​ administrations?

Bush administration

As a percentage of GDP since​ 1993, federal transfer payments were lowest in which of the following presidential​ administrations?

Clinton adminstrations

During the third quarter of​ 1997, Japanese GDP was falling at an annual rate of over 11 percent. Many blamed the big increase in​ Japan's taxes in the spring of​ 1997, which was designed to balance the budget. How could an increase in taxes with the economy growing slowly precipitate a​ recession? When taxes​ increase, disposable income will​ _______. As disposable income​ _______, it causes consumption to​ ______ which​ _______ output/income.

fall; decreases; decline; reduces

An increase in inflationary expectations that causes firms to increase their prices shifts the AS curve to the right.

false

When taxes are cut by $1, planned expenditures

increase by less than​ $1 and the equilibrium level of income will increase by​ $1 times the tax multiplier.

The potential impact of this action could ________ the money supply by _____ millions yetis.

increase; 15

What action could the central bank take to counteract the affects of the increase in​ taxes? The central bank could​ _______ the money​ supply, which would​ _______ interest rates and​ _______ investment.

increase; decrease; stimulate

If the Fed has a strong preference for stable prices relative to​ output, then when the Fed sees a price​ increase, it responds with a large​ ________ in the interest​ rate, driving down planned investment and thus output. In this​ case, the AD curve is relatively​ ________.

increase; flat

The three traditional tools the Fed can use to control the interest rate via changing the money supply are the​ ___________.

required reserve​ ratio, changing the discount​ rate, and engaging in open market operations.

Consider that from May 2014 to March​ 2015, the price of oil dropped sharply in world markets. If the Fed held the money supply​ constant, you would expect the​ ____________.

the effect on the interest rate to be ambiguous

The balanced-budget multiplier is equal to 1 because

the government spending multiplier plus the tax multiplier will equal 1

For this graph. draw the line below the initial money demand line.

the new equilibrium should be below the initial one on the purple line (money supply)

The mild monsoon season caused aggregate output to ______ and the price level to _______.

decrease; increase

If the Fed makes an open market sale of government securities, the money supply

decreases

Suppose government spending and lump sun taxes are both reduced by 30 billion. As a result GDP will

fall by $30 billion

The balanced budget multiplier is equal to

(1-MPC)/MPS

In an economy, when net taxes decrease by 200 billion, real GDP increases by 600billion. The value of MPC in this economy is

.75

If the opportunity cost of producing one gallon of milk is 1 dozen eggs in France and the opportunity cost of producing one gallon of milk is 4 dozen eggs in​ Sweden, both countries would benefit from trading with each other if the terms of trade were one gallon of milk for​ ________ dozen eggs.

3

b. To counter the fall in​ investment, the leader of GlacialandGlacialand calls for a proposal to increase government spending. To finance the​ program, the head of the Exchequer has proposed three alternative​ options: ​(1) Keep tax revenues constant and borrow the money from the public by issuing new government bondsKeep tax revenues constant and borrow the money from the public by issuing new government bonds ​(2) Finance the expenditures with an equal increase in taxesFinance the expenditures with an equal increase in taxes ​(3) Keep taxes constant and finance the expenditures by printing new moneyKeep taxes constant and finance the expenditures by printing new money Consider the three financing options and rank them from most expansionary to least expansionary. The most expansionary policy is option​ __, followed by​ __, and option​ __ would be the least expansionary

3; 1 ;2

If the marginal propensity to consume is 0.8 and the government increases taxes by​ $1,000, the equilibrium level of output will decrease by

4000

With a consumption function of C ​= a ​+ b​(Y ​- T​), the government spending multiplier is represented as

1/(1-b)

If the marginal propensity to consume is 0.8 and the government increases spending by​ $1,000, the equilibrium level of output will increase by

5000

What effects will an increase in the money supply with the economy operating at near full capacity have on GDP and the price​ level?

A. The price level will increase significantly and GDP will increase very little.

Suppose all tax collections are fixed and independent of income and all spending and transfer programs are also fixed and do not depend on the state of the economy. In such a situation what is the relationship between the full employment deficit and actual budget​ deficit?

Actual budget deficit is the same as the full employment budget deficit

Suppose all tax collections are fixed and independent of income and all spending and transfer programs are also fixed and do not depend on the state of the economy. In such a situation what is the relationship between the full employment deficit and actual budget​ deficit?

Actual budget deficit is the same as the full employment budget deficit.

You are appointed secretary of treasury of a recently independent country called Rugaria. The currency of Rugaria is the lav. The new nation began fiscal operations this year and the budget situation is that the government will spend 99 million lavs and taxes will be 88 million lavs. The difference will be borrowed from the public by selling​ 10-year government bonds paying 44 percent interest. The interest on the outstanding bonds must be added to spending each​ year, and we assume that additional taxes are raised to cover that interest. Assume that the budget stays the same except for interest on the debt for 10 years.

After *one​ year, government expenditure is *9.04million lavs ​(enter your response rounded to two decimal​ places) and debt is 1 million lavs ​(enter your response as an ​integer). After *five​ years, government expenditure is *9.20 million lavs ​(enter your response rounded to two decimal​ places) and debt is 5 million lavs ​(enter your response as an ​integer). After *ten​ years, government expenditure is *9.40million lavs ​(enter your response rounded to two decimal​ places) and debt is 10 million lavs ​(enter your response as an ​integer).

Some empirical trade economists have noted that for many​ products, countries are both importers and exporters. For​ example, the United States both imports and exports shirts. How can this be​ explained?

Because different consumers have tastes and preferences for different types of​ shirts, the U.S. could have a comparative advantage in the production of specific kinds of shirts but not all shirts.

If one country has an absolute advantage in the production of all​ goods, it is impossible for that country to benefit from trade

False

If taxes are a function of​ income, the three multipliers​ (investment, government​ spending, and​ tax) are greater than they would be if taxes were a​ lump-sum amount.

False

In the circular flow of​ income, net taxes are a leakage and household saving is an injection.

False

Since​ 2006, the year Ben Bernanke was appointed chair of the​ Fed, the Federal Reserve has openly engaged in inflation targeting.

False

The US federal government ran a surplus in 2014

False

When a country has an absolute advantage in the production of a​ product, it means that country can produce the product at a lower opportunity cost than other countries.

False

a decrease in the Z factors to a tightening of monetary policy, shifting the AD curve to the left

False

Which policy seems to have suffered more from policy​ lags?

Fiscal policy seems to have a bigger response lag because the expansionary fiscal policy started after the expansionary monetary policy.

In Japan during the first half of​ 2000, the Bank of Japan kept interest rates at a near zero level in an attempt to stimulate demand. In​ addition, the government passed a substantial increase in government expenditure and cut taxes.​ Slowly, Japanese GDP began to grow with absolutely no sign of an increase in the price level.

For the graph draw a line directly to the right of the initial one. label the new equilibrium where your new line intersects the purple one that is constant.

From May 2014 to March​ 2015, the price of oil dropped sharply on world markets. The figure on the right shows the aggregate demand and aggregate supply curves of an economy in a​ short-run equilibrium at point A. ​1.) Using the​ three-point curved line drawing​ tool, show the impact of the sharply dropping oil prices in the world market by shifting either the AD or AS curve. Properly label your curve. ​2.) Using the point drawing​ tool, identify the new equilibrium point. Label your point​ 'B'.

For this graph you are making a new AS curve. Draw the curve to the right of the initial one. the new equilibrium should be below the initial one as well, slightly to the right.

Related to the Economics in Practice​: A Bad Monsoon Season Fuels Indian Inflation Using the line drawing​ tool, draw a line to show the effect the mild monsoon season had on the aggregate supply of rice in India. Properly label your line either AS1 or AD 1

For this graph, draw your new line to the left of your initial one

If the government were running a deficit and saving were equal to investmentthe government were running a deficit and saving were equal to investment​, what is likely to happen to the economy of​ Newt?

It would expand since the injection from the flow of income is greater than the leakage from the income flowexpand since the injection from the flow of income is greater than the leakage from the income flow.

Based on the federal funds​ rate, the Federal Reserve began expansionary policy between June 2000 - Jan 2001 and ended expansionary policy between June 2004 - Jan 2005

June 2000-jann 2001; june 2004-jan 2005

As a measure of the money​ supply, M1 differs from M2 in that

M2 includes M1 plus savings​ accounts, money market​ accounts, and other near monies.

Do you think that the theory of comparative advantage and the​ Heckscher-Ohlin theorem help to explain why your state specializes in the way that it​ does? Explain your answer. For​ example, the theory of comparative advantage and the​ Heckscher-Ohlin theorem help explain why North CarolinaNorth Carolina specializes in producing tobaccotobacco because

North Carolina can produce tobacco at lower opportunity cost than most other states and it is well endowed with the inputs needed to grow tobacco

As a percentage of GDP since​ 1993, federal government debt was the highest in which of the following presidential​ administrations?

Obama administration

If the head of the Central Bank of Brazil wanted to decreasedecrease the supply of money in Brazil in​ 2015, which of the following would do​ it?

Sell government securities in the open market

Suppose the central bank decided that the money supply should not be increased. What countermeasure could it take to prevent the Congress from expanding the money​ supply?

Sell government securities to prevent the expansion of the money supply.

​Glacialand, the largest country in central​ Antarctica, receives word of an imminent penguinpenguin attack. The news causes expectations about the future to be shaken. As a​ consequence, there is a sharp decline in investment spending plans a. What will be the effects of such an event on the economy of GlacialandGlacialand assuming no response on the part of the central bank or the​ Treasury, so that the money​ supply, taxes, and government spending all remain​ constant?

The decrease in investment will reduce aggregate expenditure causing equilibrium output/income to decrease in the goods market

What effects will a decrease in taxes and an increase in government spending supported by a cooperative Fed acting to keep output from rising have on GDP and the price​ level?

The fiscal and monetary policies have opposing effects on the AD ​curve, therefore GDP and the price level will be unchanged.

Suppose the Treasury of the United States issues bonds and sells them to the public to finance the deficit. What happens to the money supply and​ why?

The money supply remains unchanged because every dollar taken in by the Treasury goes right back into circulation through government spending.

According to the​ Heckscher-Ohlin theorem, a country has a comparative advantage in the production of a product if that country is relatively well endowed with inputs used intensively in the production of that product.

True

In a balanced-budget increase in government spending ^G=^T

True

In absolute​ value, the tax multiplier is smaller than the government spending multiplier.

True

One reason countries trade is because of product differentiation.

True

Until the​ mid-1970s, the United States generally ran a trade surplus.

True

When the AD curve is vertical and a cost shock shifts the AS curve to the​ left, there is no change in output.

True

Automatic stabilizers are mechanisms built into the economy that tend to reduce the multiplier effect. Which of the following items act as automatic​ stabilizers?

Unemployment compensation

What is the impact on the money supply of the Treasury using the fiscal surplus​ (excess tax​ receipts) to buy back bonds relative to the Fed using open market purchases to buy​ bonds?

When the Treasury buys back​ bonds, there is no change in the money supply. When the Fed buys bonds in open market​ operations, there is an increase in reserves and thus an increase in the money supply.

In an​ economy, government spending​ (G) and taxes​ (T) are independent of income. The value of MPC is known to be 0.750.75. If government spending increases by ​$2020 ​billion, the amount by which taxes must be adjusted so that income or output​ (Y) does not​ change, to curb possible inflationary​ pressure, is:

^T =26.67

In an​ economy, government spending​ (G) and taxes​ (T) are independent of income. The value of MPC is known to be 0.750 If government spending increases by ​$40 ​billion, the amount by which taxes must be adjusted so that income or output​ (Y) does not​ change, to curb possible inflationary​ pressure, is:

^T= 53.33

The impact of a sharp drop in oil prices in the world market will result in​ ____________.

a decrease in the aggregate. price level and an increase in real GDP

In country​ A, all wage contracts are indexed to inflation. That​ is, each month wages are adjusted to reflect increases in the cost of living as reflected in changes in the price level. In country​ B, there are no​ cost-of-living adjustments to​ wages, but the workforce is completely unionized. Unions negotiate​ 3-year contracts. Expansionary monetary policy is likely to have

a greater effect in country B

From the wide disparities in apparel and​ aircraft, you can tell that the United States essentially produces​ ____________.

a surplus of civilian aircraft to be traded for apparel produced in other countries

If the Fed raises the discount rate, then

aggregate demand decreases

Evaluate the following​ statement: ​"In the short​ run, if an economy experiences inflation of 10​ percent, the cause of the inflation is unimportant. Whatever the​ cause, the only important issue the government needs to be concerned with is the 10 percent increase in the price​ level." This statement implies that

all sources of inflation have the same econommic consequences.

When government spending increases by​ $1, planned expenditures increase by​ $1

and the equilibrium level of income will increase by​ $1 times the spending multiplier.

In the short​ run, an increase in AD can sometimes cause output to rise without raising prices because

at low levels of output, firms can have excess capacities which do not raise marginal costs as they begin to be utilized

Using money as a medium of exchange is more efficient than barter because

barter requires a double coincidence of wants

The nation of Pixley has an absolute advantage in everything it produces compared to the nation of Hooterville. These two nations

can still benefit by trading with each other since the basis of trade is based on comparative advantage

You can conclude that relative to its trading partners in the production of​ goods, the United States has a comparative advantage in producing​ ____________.

civilian aircraft and​ foods, feeds, and beverages.

Expansionary fiscal policy is used by the government to

create new jobs in the economy

By late summer of​ 2010, the target federal funds rate was between zero and​ 0.25%. At the same​ time, "animal​ spirits" were dormant and there was excess capacity in most industries. That​ is, businesses were in no mood to build new plant and equipment if they were not using their already existent capital. Interest rates were at or near zero and yet investment demand remained quite low. The unemployment rate was​ 9.6% in August 2010. These conditions suggest that monetary policy is likely to be a much more effective tool to promote expansion than fiscal policy. This statement is

false, because expansionary monetary policy lowers interest​ rates, but rates were already nearly zero

Banks borrow not only from the Fed but also from each other. What is the interest rate in this market​ called?

federal funds rate

When the average income tax rates increase as a result of economic​ expansion, it is known as

fiscal drag

Expansionary fiscal and expansionary monetary policy will___________ the interest rate and _________ aggregate output.

have an intermediate effect on; increase

All else​ equal, a cost shock that shifts the aggregate supply curve to the left leads to a​ ________ price level and a​ ________ level of aggregate output if the aggregate demand curve is downward sloping.

higher; lower

Demand-pull inflation corresponds to​ ________ output and​ cost-push inflation corresponds to​ ________ output.

higher; lower

In​ Mexico, a pound of cashews costs 125 pesos and a pound of walnuts costs 95 pesos. In the United​ States, a pound of cashews costs​ $7 and a pound of walnuts costs​ $5. If the exchange rate is​ $1 = 16 pesos and there are no transportation​ costs, Mexico will

import cashews and walnuts from the US

Contractionary policies are designed to slow the economy and reduce inflation by decreasing aggregate demand and aggregate output. Contractionary fiscal policy and contractionary monetary policy have opposite effects on the interest rate despite having the same goal of decreasing aggregate output because contractionary monetary policy ________ the interest​ rate, whereas contractionary fiscal policy ________ the demand for money and the interest rate.

increases; decreases

For​ example, the state of North CarolinaNorth Carolina specializes in producing tobaccotobacco because

it has favorable climate

Consider the graph at right. The economy is initially in longlong​-run equilibrium at point Upper AA and there is a cost shockthere is a cost shock. Move the cursor on the graph at right to the new​ short-run equilibrium point.

move the dot, upwards and to the left. to point D.

Evaluate the following​ statement: ​"If lower exchange rates increase a​ nation's exports, the government should do everything in its power to ensure that the exchange rate for its currency is as low as it can possibly​ be." This statement does not acknowledge that lower exchange rates

none of the above responses are acknowledged by the statement.m

Data for the simple economy of Newt show that in​ 2015, saving exceeded investment and the government is running a balanced budget. What is likely to​ happen?

output will fall

If output​ = 1,500 when planned aggregate expenditure​ = 1,200, the unplanned change in inventories will be​ ________ and output will​ ________ to adjust to the disequilibrium

positive; decrease

In country​ A, an expansionary monetary policy will raise prices without increasing output because

production costs adjust automatically to price increases;therefore the AS curve will be vertical. Whereas in country B, input prices lag behind output prices so a rightward shift in the AD curve will increase output because the AS curve will not be vertical

The economy is beginning to slip into a recession.​ Further, data indicate that inflation is low. The Fed will most likely respond to this state of the economy by

purchasing government securities to lower the interest rate.

The​ balanced-budget multiplier is the

ratio of the change in the equilibrium level of output to a change in government spending

This action will

reduce credit availability and lower the money supply

The structural deficit

remains the same at full employment

If the Fed wants to decrease the money​ supply, it could

sell treasury securities

In an​ expansion, taxes rise and government expenditures​ fall, and therefore act as automatic​ ________. Inflation is more likely to increase in an expansion than in a​ recession, and therefore acts as an automatic​ ________.

stabilizers; destabilizers

In an​ expansion, taxes rise and government expenditures​ fall, and therefore act as automatic​ ________. Inflation is more likely to increase in an expansion than in a​ recession, and therefore acts as an automatic​ ________.

stabilizers;destabilizer

The deficit that remains at full employment is called

structural deficit

The deficit that remains at full employment is called the

structural deficit

You can think of the United States as a set of 50 separate economies with no trade barriers. In such an open​ environment, each state specializes in the products that it produces best. What product or products does your state specialize​ in? For​ example, the state of North CarolinaNorth Carolina specializes in producing

tobacco

disposable income is equal to

total income minus net taxes

The budget deficit is calculated as government spending minus tax revenues

true

when the fed rule calls for a negative interest rate, the aggregate demand curve is

vertical

In the long​ run, if wages adjust fully to rising​ prices, the aggregate supply curve will be​ ________ and fiscal policy will have​ ________ on output.

vertical; no effect

Two​ countries, A and B​, both are currently in recession. The values of the MPS for A and B are 0.1 and 0.5 respectively. The governments of both countries are planning to boost income through an expansionary policy of a tax cut of​ $1 billion. The policy of tax cut

will be less effective in country B than in country A since the value of the tax multiplier is lower in country B


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