Macroeconomics chapter 13 Fiscal Policy practice part 2

If income is $15 trillion, disposable income is $12 trillion, and taxes are $4 trillion, then transfers are $_____ trillion.

1 (Disposable income, the total income households have available to spend, is equal to the total income they receive from wages, dividends, interest, and rent, minus taxes, plus government transfers.)

If disposable income is $10 trillion, taxes are $3 trillion, and transfers are $4 trillion, then income is $_____ trillion.

11 I think it is income plus transfer minus tax (I thought it was Disposable income, the total income households have available to spend, is equal to the total income they receive from wages, dividends, interest, and rent, minus taxes, plus government transfers.) I think it is income plus transfer minus tax

If the marginal propensity to save (MPS) = 0.4, then the government spending multiplier is:

2.5 how to solve: the multiplier is calculated as 1 / (1 - MPC) The MPC is 0.6 because the MPS is 0.4 and the mps and mpc add up to be 1

Suppose that the economy is at equilibrium at $1,000 billion, and potential output is $1,200 billion. If the marginal propensity to consume (MPC) is 0.9, then government spending must increase by $_____ billion to reach potential output.

20 (The multiplier can be solved for from the marginal propensity to consume in order to find the change in real GDP resulting from a change in government spending.)

If the marginal propensity to consume is 0.75, then the government spending multiplier is:

4 I think

_____ refer(s) to fiscal policy that is caused by the deliberate action by policy makers rather than rules.

Discretionary fiscal policy

_____taxes do NOT depend on the taxpayer's income.

Lump-sum

The program that covers the cost of health care for U.S. adults older than the age of 65 is:

Medicare.

_____ is a government transfer program that provides guaranteed income to older and disabled U.S. adults, and surviving spouses and dependent children of deceased beneficiaries.

Social Security

Government spending and tax revenue in the United States are _____ in Canada, Japan, and most European countries.

a smaller percentage of GDP than

Which would be considered expansionary fiscal policy?

an extension of unemployment insurance benefits

If the budget was required to be balanced each fiscal year, then the role of automatic stabilizers would:

be greatly diminished.

If the marginal propensity to consume (MPC) is 0.8, and transfers decrease by $200 billion, then GDP will:

decrease by less than $1,000 billion. (A specific value for the MPC can be used to derive the spending multiplier value in order to solve corresponding changes in GDP. A decrease in transfers will decrease GDP.)

If tax revenues are $2 trillion, transfers are $0.5 trillion, and government spending on goods and services is $3 trillion, then the budget balance is a _____ trillion.

deficit of $1.5 (Use the budget balance equation to solve for the budget balance. The budget balance is tax revenues minus transfers minus government spending on goods and services.)

According to the text, most economists believe that:

deficits should be run when the economy is doing poorly.

The aggregate demand (AD) curve is:

downsloping from the left to the right. (Aggregate demand reflects a negative relationship between the aggregate price level and the level of real GDP demanded.)

The cyclically adjusted budget deficit fluctuates _____ the actual budget deficit, because large budget deficits tend to occur when the economy has a large _____ gap.

less than; recessionary

An example of a discretionary fiscal policy would be:

lowering payroll tax rates during a recession.

The largest source of tax revenue in the United States is from _____ taxes.

personal income

If tax revenues are $3 trillion, transfers are $0.5 trillion, and government spending is $2 trillion, then the budget balance is a _____ trillion.

surplus of $0.5

If tax revenues are $6 trillion, transfers are $2 trillion, and government spending on goods and services is $3 trillion, then the budget balance is a

surplus of $1 trillion.

If tax revenues are $6 trillion, transfers are $2 trillion, and government spending on goods and services is $3 trillion, then the budget balance is a:

surplus of $1 trillion. (The budget balance is tax revenues minus transfers minus government spending.)

The budget balance is:

tax revenue minus transfers minus government spending on goods and services.

Whenever the Long-run Aggregate Supply (LRAS) curve shifts,

the SRAS curve shifts with it in the same direction. (Changes in long-run aggregate supply conditions changes the set of new short-run conditions as well. The LRAS and SRAS curves are related so that when long-run factors impact the economy, this impacts the new short-run conditions.)