Module 6

The traditional Phillips Curve suggests that, if government uses an expansionary fiscal policy to stimulate output and employment

the natural rate of unemployment may fall. tax revenues may increase even though tax rates have been reduced. *the inflation rate will increase* unemployment may actually increase because of the crowding-out effect.

If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by

*decreasing taxes by $25 billion* increasing government spending by $25 billion. increasing government spending by $80 billion. decreasing taxes by $100 billion.

Fiscal policy refers to

*deliberate changes in government spending and taxes to promote economic growth, full employment, and price level stability* fact that equal increases in government spending and taxation will be contractionary. deliberate changes in government spending and taxes to achieve greater equality in the distribution of income. altering of the interest rate to change aggregate demand

The effect of contractionary fiscal policy is shown as a

*leftward shift in the economy's aggregate demand curve* movement along an existing aggregate demand curve. rightward shift in the economy's aggregate supply curve. rightward shift in the economy's aggregate demand curve.

The American Recovery and Reinvestment Act of 2009 was implemented primarily to

*stimulate aggregate demand and employment*. reduce inflationary pressure caused by oil price increases. bring the federal budget back into balance. curb the overspending by households that contributed to the Great Recession

The public debt is the amount of money that

*the federal government owes to holders of U.S. securities* the federal government owes to taxpayers. Americans owe to foreigners. state and local governments owe to the federal government.

In the extended analysis of aggregate supply, the short-run aggregate supply curve is

*upsloping and the long-run aggregate supply curve is vertical* vertical and the long-run aggregate supply curve is horizontal. horizontal and the long-run aggregate supply curve is vertical. horizontal and the long-run aggregate supply curve is upsloping.

Which of the following best describes the built-in stabilizers as they function in the United States?

Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP. Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises. *Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises* The size of the multiplier varies inversely with the level of GDP.

The group of three economists who provide fiscal policy recommendations to the president is the

council of economic advisors

Recessions have contributed to the public debt by

increasing national saving. increasing real interest rates. increasing the international value of the dollar. *reducing national income and therefore tax revenues*

Contractionary fiscal policy is so named because it

involves a contraction of the nation's money supply. is expressly designed to expand real GDP. *is aimed at reducing aggregate demand and thus achieving price stability* necessarily reduces the size of government.

The natural rate of unemployment

is constant over time and defines the location of the long-run aggregate supply curve. is inversely related to the price level. *can vary over time and defines the location of the long-run aggregate supply curve* varies over time in response to changes in aggregate demand.

Expansionary fiscal policy is so named because it

is designed to expand real GDP

The effect of expansionary fiscal policy is shown as a

rightward shift

If government uses fiscal policy to restrain cost-push inflation, we can expect

tax-rate declines and increases in government spending. *the inflation rate to rise* the aggregate demand curve to shift rightward. the unemployment rate to fall.

Discretionary fiscal policy refers to

the changes in taxes and transfers that occur as GDP changes. any change in government spending or taxes that destabilizes the economy. the authority that the president has to change personal income tax rates. *intentional changes in taxes and government expenditures made by Congress to stabilize the economy*

In the extended aggregate demand-aggregate supply model

the price level is the same regardless of the location of the aggregate demand curve. the long-run aggregate supply curve is horizontal. *long-run equilibrium occurs at the intersection of the aggregate demand curve, the short-run aggregate supply curve, and the long-run aggregate supply curve.* long-run equilibrium occurs wherever the aggregate demand curve intersects the short-run aggregate supply curve.