Macroeconomics chapter 13 Fiscal Policy practice part 3

Government spending to pay salaries to soldiers is:

classified as government purchases of goods and services.

People with higher incomes usually have _____ marginal propensities to consume compared to people with lower incomes.

lower

Because of _____, an increase in government spending results in a larger increase in real GDP.

the multiplier

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

increase by $800. (Using the marginal propensity to consume, one can derive and solve for the changes in real GDP resulting from fiscal policy actions.

_____ refer(s) to government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economy contracts and automatically contractionary when the economy expands.

Automatic stabilizers

If the government spending multiplier is 4 and government spending increases by $100 billion, then of the total change in real GDP, $_____ billion is the initial effect of the increase in government spending, and $_____ billion is the result of an increase in consumer spending.

100; 300

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

11

Suppose the government spends $500 billion during the fiscal year 2014 on goods and services. In addition, the government collects tax revenues of $480 billion and makes transfer payments equal to $150 billion. Assume the economy is producing at the potential output level. The budget balance for this economy is equal to _____ and the government is running a _____.

-$170 billion; deficit (Hint Taking into account what comes into and what goes out of government coffers allows one to calculate a budget deficit or surplus amount. The budget balance is tax revenues minus transfers and government spending.)

If disposable income is $20 trillion, taxes are $6 trillion, and transfers are $4 trillion, then income is $_____ trillion.

18, so income plus transfer minus tax I believe, 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 income is $25 trillion, disposable income is $22 trillion, and taxes are $6 trillion, then transfers are $_____ trillion.

3

If the marginal propensity to consume is 0.75 and government spending increases by $100 billion, then real GDP will increase by $_____ billion.

400

If income is $10 trillion, taxes are $3 trillion, and transfers are $2 trillion, then disposable income is $_____ trillion.

9

If income is $8 trillion, taxes are $1 trillion, and transfers are $2 trillion, then disposable income is $_____ trillion.

9

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

Medicare.

Which is an example of an automatic stabilizer?

a progressive income tax

Revenue for the operation of state and local governments comes primarily from:

a mix of sales taxes, property taxes, income taxes, and fees of various kinds.

All else equal, a(n) _____ will increase the budget deficit.

decrease in taxes

Expansionary fiscal policy tends to:

decrease the size of a budget surplus.

During a recession, taxes tend to _____, and government transfers tend to _____.

decrease; increase

Expansionary fiscal policy shifts the aggregate:

demand curve to the right.

Tax cuts for the wealthiest 2% of U.S. adults are an example of:

discretionary fiscal policy.

If the economy is experiencing a recessionary gap, then _____ can close the gap.

expansionary fiscal policy

The aggregate demand curve will shift to the left if the government:

increases the amount of taxes it collects from households.

Changes in the budget balance are _____ the result of fiscal policy.

often (Budget balances are, typically, greatly impacted by changes in fiscal policy.)

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

The _____ is a cause of lags in fiscal policy.

time it takes to collect and analyze macroeconomic data