Unit-9 Quiz

Answer the question using the following budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. Refer to the data. The budget deficit in year 3 is:

$100 billion.

An economy is experiencing a high rate of inflation. The government wants to reduce GDP (income) by $36 billion to reduce inflationary pressure. The MPC is 0.75. By how much should the government raise taxes to achieve its objective?

$12 billion

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by:

$20 billion

Answer the question using the following budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. Refer to the data. If year 1 is the first year of this nation's existence and year 6 is the present year, this nation's public debt is:

$275 billion.

Average Tax Rate %. Tax Revenue ($B). [20] [250] [40] [300] [60] [250] [80] [200] If graphed, the relationship shown would depict this economy's:

Laffer Curve.

Which of the following fiscal policy changes would be the most contractionary?

A $10 billion increase in taxes and a $30 billion cut in government spending

Which of the following represents the most contractionary fiscal policy?

A $30 billion decrease in government spending.

Refer to the diagram, in which Qf is the full-employment output. An expansionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at:

AD0.

Refer to the diagram, in which Qf is the full-employment output. A contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at:

AD3.

The crowding-out effect suggests that:

government borrowing to finance the public debt increases the real interest rate and reduces private investment.

Refer to the diagram, in which Qf is the full-employment output. If the economy's present aggregate demand curve is AD2:

government should undertake neither an expansionary nor a contractionary fiscal policy.

The public debt is the accumulation of all deficits and surpluses that have occurred through time.

True

An appropriate fiscal policy for a severe recession is:

a decrease in tax rates.

Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward:

an excess of government expenditures over tax receipts.

Suppose the federal government had budget surpluses of $80 billion in year 1 and $120 billion in year 2 but had budget deficits of $10 billion in year 3 and $40 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the federal government's public debt would have:

decreased by $150 billion.

Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it would be appropriate for the government to:

increase government expenditures or reduce taxes.

Suppose the federal government had budget deficits of $40 billion in year 1 and $50 billion in year 2 but had budget surpluses of $20 billion in year 3 and $50 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the federal government's public debt would have:

increased by $20 billion.

An economist who favored expanded government would recommend:

increases in government spending during recession and tax increases during inflation.

The crowding-out effect of expansionary fiscal policy suggests that:

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by:

increasing government spending by $4 billion.

If the MPC in an economy is .75, government could shift the aggregate demand curve leftward by $60 billion by:

increasing taxes by $20 billion.

Average Tax Rate %. Tax Revenue ($B). [20] [250] [40] [300] [60] [250] [80] [200] Refer to the table. If the current tax rate is 60 percent, supply-side economists would advocate:

lowering tax rates to 40 percent.

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions, the government should:

reduce tax rates and/or increase government spending.

The public debt is the amount of money that:

the federal government owes to holders of U.S. securities.