Ch 11 Quiz
The general formula for computing the desired stimulus is
AD shortfall ÷ the multiplier.
Jack has an MPC of 0.82 and Jill has an MPC of 0.78. Ceteris paribus, if the government transfers income from people who behave like Jack to people who behave like Jill,
Aggregate demand will decrease.
The balanced budget multiplier says that
An increase in government spending paid for by a tax cut of equal size shifts aggregate demand rightward.
The crowding out effect refers to a decrease in
Consumption or investment as a result of an increase in government borrowing.
The use of government taxes and spending to alter economic outcomes is known as
Fiscal policy.
A tax cut intended to increase aggregate demand is an example of
Fiscal stimulus.
In a diagram of aggregate demand and supply curves, the GDP gap is measured as the
Horizontal distance between the equilibrium output and the full-employment output.
Payments to individuals for which no current goods or services are exchanged are known as
Income transfers.
Nearly half of the federal government's tax revenues come from
Individual income taxes.
A limitation on fiscal policy is time. Which of the following does not impact the timeliness of fiscal policy?
It will take time for the president to sign the policy measures into law.
Fiscal policy works primarily through
Shifts of the AD curve.
Fiscal restraint is defined as
Tax hikes or spending cuts intended to reduce aggregate demand.
Which of the following explains why the government should not increase spending by the entire amount of the AD shortfall to move the economy to full employment?
The multiplier process will contribute to an additional increase in aggregate demand that will cause an inflationary gap.
Which of the following formulas is used to find the cumulative increase in AD from a particular fiscal stimulus?
The multiplier × fiscal stimulus.
A tax cut has a smaller impact on aggregate demand than an increase in government purchases of the same size because
A portion of the tax cut is saved.