EC 402 Advanced Macroeconomics Final Exam

C​ = $40 million​ + 0.6(1 minus ​0.2)Y I​ = $35 million G​ = $31 million NX​ = minus​$6 million Based on the above​ data, the value of the expenditure multiplier is A. 1.14. B. 1.92. C. 2.08. D. 8.33.

C. 2.08.

Suppose the economy is in a recession and the government decides it needs to reduce the budget deficit. Other things​ equal, this would tend to A. keep output from declining​ further, but increase the real interest rate and the inflation rate. B. decrease the output gap and make the recession worse. C. increase the output gap and make the recession worse. D. help to eliminate the​ recession, but at the cost of a much higher inflation rate.

C. increase the output gap and make the recession worse.

Assume the economy is initially in equilibrium with real GDP equal to potential GDP. Other things​ equal, if the economy enters a recession and there are no automatic​ stabilizers, the IS curve would shift to the​ ________, and the shift would be equal to​ ________. A. ​right; decline in investment spending times the multiplier B. left; decline in investment spending C. left; decline in investment spending times the multiplier D. ​right; decline in investment spending

C. left; decline in investment spending times the multiplier

If the MPC is 0.9 and the tax rate is​ 15%, a​ $100 increase in autonomous investment will increase equilibrium income by A. ​$131. B. $426. C. ​$599. D. $850.

C. ​$599.

Three policy lags limit the effectiveness of monetary​ policy: recognition​ lags, implementation​ lags, and impact lags. Of these three policy​ lags, fiscal policy is impacted by A. only implementation and impact lags. B. only recognition and implementation lags. C. only recognition and impact lags. D. all three policy lags.

D. all three policy lags.

Under a fixed exchange rate​ system, an expansionary fiscal policy is A. equally effective in an open economy and in a closed economy. B. marginally effective in an open economy and completely ineffective in a closed economy. C. less effective in an open economy than in a closed economy. D. more effective in an open economy than in a closed economy.

D. more effective in an open economy than in a closed economy.

Suppose the economy is in a recession and the government decides it needs to reduce the budget deficit. Other things​ equal, this would tend to A. shift the MP curve up. B. shift the IS curve to the right. C. shift the MP curve further down. D. shift the IS curve further to the left.

D. shift the IS curve further to the left.

The increase in the federal deficit due to the 2009 stimulus package may have had a smaller impact on the economy due to forwardminuslooking households and firms A. purchasing more treasury securities to finance the stimulus package and purchasing fewer goods and services. B. waiting for the real interest rate to fall before borrowing to make long-term investments. C. reducing consumption and investment expenditures in anticipation of future tax increases. D. taking advantage of the strong U.S. dollar to purchase more imported goods.

D. taking advantage of the strong U.S. dollar to purchase more imported goods.

The federal government debt refers to A. government spending plus transfer payments minus tax revenues. B. the accumulation of past budget deficits. C. the total value of U.S. Treasury bonds outstanding. D. tax revenues minus government spending and transfer payments

D. tax revenues minus government spending and transfer payments

C​ = $5 million​ + 0.9(1 minus ​0.1)Y I​ = $7 million G​ = $6 million NX​ = $1 million Based on the above​ data, the equilibrium level of GDP is A. $20.9 million. B. $23.5 million. C. $100 million. D. ​$111.8 million.

D. ​$111.8 million.

The estimates of the magnitude of government spending increase needed to have ended the 2007minus2009 recession in the United States​ vary, based on the actual size of the expenditure​ multiplier, and range from A. $250 million to​ $1 billion. B. $50 billion to​ $250 billion. C. $400 billion to​ $2.5 trillion. D. ​$5 trillion to​ $15 trillion.

D. ​$5 trillion to​ $15 trillion.

Which equation best represents the long-term interest rate?

The long-term real interest rate = the short-term nominal interest rate + the term structure effect + the default-risk premium - the expected rate of inflation.

Consumption = $1.0+0.8Y Investment = $1.5 Gov't purchases = $2.2 Net exports = -$0.1 Taxes = $0 Gov't transfer payments = $0 taxes increase by $1.0 and transfers increase by $1.5. If potential GDP equals $30, by how much would government purchases have to change for equilibrium GDP to equal potential GDP? a. $1 billion b. $1.25 billion c. $1.5 billion d. $5 billion

a. $1 billion

Given that an economy is initially in equilibrium, how does a shift up of the MP curve change real GDP and the real interest rate? a. Real GDP decreases and the real interest rate increases. b. Real GDP increases and the real interest rate increases c. Real GDP increases and the real interest rate decreases d. Real GDP does not change and the real interest rate increases.

a. Real GDP decreases and the real interest rate increases

In 1913, Congress created 12 Federal Reserve districts spread over the country. Why did Congress divide the country into districts? Congress divided the districts in this way to attempt to a. adequately represent the interests and needs of the country at the time b. concentrate power in the west c. concentrate power in the hands of officials running the central bank in Washington, DC. d. give all the power to the large cities and no power to those living in rural areas.

a. adequately represent the interests and needs of the country at the time.

A negative supply shock will cause: a. an upward shift of the output gap Phillips curve. b. a downward shift of the output gap Phillips curve. c. movement up along the Phillips curve. d. movement down along the Phillips curve.

a. an upward shift of the output gap Phillips curve.

Other things equal, by decreasing the interest rate paid on the banks' required reserve deposits, the Fed can (BLANK) the level of reserves banks are willing to hold, which would result in a(n) (BLANK) in the money supply a. decrease; increase b. increase; increase c. increase; decrease d. decrease; decrease

a. decrease; increase

Expansionary monetary policy causes a (BLANK) the MP curve and a (BLANK) the aggregate demand curve. a. downward shift of; shift to the right of b. movement to the right along; shift to the right of c. movement to the left along; movement down along d. upward shift of; shift to the right of

a. downward shift of; shift to the right of

To increase the money supply, the Federal Reserve could a. engage in an open market purchase. b. raise the discount rate. c. increase reserve requirements. d. decrease income tax rates.

a. engage in an open market purchase.

Fiscal policy refers to changes in a. federal​ taxes, purchases, and transfer payments that are intended to achieve macroeconomic policy objectives. b. state and local taxes and purchases that are intended to achieve state and local policy objectives. c. federal​ taxes, purchases, and transfer payments that are intended to achieve environmental and national defense policy objectives. d. the money supply and interest rates that are intended to achieve macroeconomic policy objectives.

a. federal​ taxes, purchases, and transfer payments that are intended to achieve macroeconomic policy objectives.

Other things equal, if planned investment spending is greater than actual investment spending, then aggregate expenditure will be (BLANK) real GDP and inventories will be (BLANK). a. greater than; fall b. less than; rise c. greater than; rise d. less than; fall

a. greater than; fall

A decrease in the real interest rate outside of the United States will (BLANK) the demand for the dollar and (BLANK) the demand for foreign financial assets. a. increase; decrease b. decrease; decrease c. increase; increase d. decrease; increase

a. increase; decrease

Assume the economy is initially in equilibrium where potential GDP equals real GDP. If the economy experiences a (BLANK) demanded shock and the Fed does not change its target short-term nominal interest rate, the IS curve shifts to the left and real GDP will be (BLANK) potential GDP. a. negative; less than b. positive; greater than c. positive; less than d. negative; greater than

a. negative; less than

Over which interest rate does the central bank have the most control? a. short-term nominal interest rates b. long-term real interest rates c. long-term nominal interest rates d. short-term real interest rates

a. short-term nominal interest rates.

If the MPC=0.8, the tax multiplier is... a. -2 b. -4 c. -5 d. -8

b. -4

Assume that the term structure effect and the default-risk premium remain unchanged and that households and firms have adaptive expectations. At the beginning of 2013, a bank is offering car loans at a nominal interest rate of 7% and the expected rate of inflation is 2%, and at the beginning of 2014, the bank decreases the nominal interest rate to 5%. The real interest rate at the beginning of 2014 is a. 2% b. 3% c. 5% d. This cannot be determined without being given the expected inflation rate for 2012.

b. 3%

If the long-term real interest rate is 5.1%, the term structure effect is 2.0%, the default-risk premium is 1.7%, and the expected rate of inflation is 3.3%, the short-term nominal interest rate will be... a. -1.9% b. 4.7% c. 5.5% d. 12.1%

b. 4.7%

What causes a movement along the Phillips curve with the output gap on the horizontal axis? a. Supply shocks b. Demand shocks c. Changes in expected inflation d. Both A and B are correct.

b. Demand shocks.

The financial market shock which occurred during the recession of 2007-2009 increased the default-risk premium, and the housing shock which occurred during the recession of 2007-2009 reduced wealth and residential construction. These two events would result in a. an upward shift of the Phillips curve. b. a movement down along the Phillips curve. c. a downward shift of the Phillips curve. d. a movement up along the Phillips curve.

b. a movement down along the Phillips curve.

The Phillips curve will shift up with (BLANK) or (BLANK). a. a negative supply shock; a decrease in expected inflation b. a negative supply shock; an increase in expected inflation c. a positive supply shock; a decrease in expected inflation d. a positive supply shock; an increase in expected inflation

b. a negative supply shock; an increase in expected inflation

The oil shock of 2007-2008 saw the price of oil rising from less than $60 a barrel in March 2007 to over $145 a barrel in July 2008, and decreasing again to just over $30 a barrel in December 2008. Assume the economy was at potential GDP prior to the oil shock, the increase in the price of oil, such as what occurred between March 2007 and July 2008, acts as a negative supply shock, resulting in a. a movement down along the Phillips curve. b. an upward shift of the Phillips curve. c. a movement up along the Phillips curve. d. a downward shift of the Phillips curve.

b. an upward shift of the Phillips curve.

Monetary policy affects aggregate expenditure by changing a. inflation expectations and, consequently, the spending plans of households and firms b. borrowing costs for households and firms c. the quantity of money balances held by households and firms d. the balance sheets of households and firms

b. borrowing costs for households and firms

Among the countries that use the euro, the real exchange rate (BLANK) and the nominal exchange rate (BLANK). a. can change; can change b. can change; is fixed c. is fixed; can change d. is fixed; is fixed

b. can change; is fixed

Under a fixed exchange rate system, if the government decides to increase the fixed exchange rate, net exports will (BLANK) and the IS curve will shift to the (BLANK) a. decrease; right b. decrease; left c. increase; left d. increase; right

b. decrease; left

The deliberate change in​ taxes, transfer​ payments, or government expenditures to achieve macroeconomic policy objectives is known as A. contractionary fiscal policy. B. discretionary fiscal policy. C. automatic stabilizers. D. expansionary fiscal policy.

b. discretionary fiscal policy.

An increase in the real interest rate outside of the United States will cause net capital outflows to (BLANK) and cause the dollar to (BLANK) relative to other currencies. a. increase; appreciate b. increase; depreciate c. decrease; appreciate d. decrease; depreciate

b. increase; depreciate

The goals of monetary policy tend to be interrelated. For example, when the Fed pursues the goal of (BLANK), this helps to achieve the goal of (BLANK). a. rapid economic growth; low inflation b. interest rate stability; financial market stability c. high employment; price stability d. interest rate stability; a balanced budget

b. interest rate stability; financial market stability

Which of the following would not be considered an automatic​ stabilizer? A. increasing food stamp payments due to more people becoming unemployed during a recession. B. legislation increasing funding for job retraining passed during a recession. C. rising corporate income tax revenues due to an expanding economy. D. decreasing unemployment insurance payments due to increased employment during an expansion.

b. legislation increasing funding for job retraining passed during a recession.

Capital flows can cause problems for exchange rate stability. Most countries allow the free movement of capital because whatever costs they may impose are deemed to be: a. of an inconsequential magnitude b. less than the economic benefits they confer c. borne only by the less affluent members of society d. easily passed on to trading partners

b. less than the economic benefits they confer

An increase in the price level causes a (BLANK) the IS curve and a (BLANK) the aggregate demand curve. a. shift to the left of; movement up along b. movement down along; movement down along c. movement up along; movement down along d. shift to the right of; movement down along

b. movement down along; movement down along

By engaging in quantitative easing, the Fed is attempting to reduce the (BLANK), causing the MP curve to (BLANK). a. unemployment rate and the inflation rate; shift down b. term premium and the real interest rate; shift down c. federal funds rate; shift up d. short-term nominal and real interest rates; shift up

b. term premium and the real interest rate; shift down

A reason that the inflation rate did not increase substantially following the recession of 2007-2009 is that a. the increase in the monetary base was accompanied by larger-than expected increases in the money supply. b. the recovery was slow and the unemployment rate remained high through 2012. c. even though the recovery was slow, the U.S. economy benefitted from a small output gap. d. the Federal Reserve quickly implemented contractionary policy to prevent an increase in the inflation rate.

b. the recovery was slow and the unemployment rate remained high through 2012.

The Federal Open Market Committee consists of a. 12 members, each of which the president of one of the 12 regional Federal Reserve banks. b. the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and 4 other Federal Reserve Bank presidents c. the seven members of the Board of Governors, the Chairman of the Fed, the U.S. Treasury Secretary, and the president of the Federal Reserve Bank of New York. d. the chairman of the Fed, the chairman of the president's council of economic advisors, the U.S. Treasury Secretary, and 4 of the 12 Federal Reserve Bank presidents who serve on a rotating basis.

b. the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and 4 other Federal Reserve Bank presidents.

The goods market is in equilibrium if: a. aggregate expenditure equals nominal GDP per capita b. there are no unexpected changes in inventories c. the value of goods and services demanded is less than the value of goods and services produced. d. aggregate expenditure exceeds real GDP

b. there are no unexpected changes in inventories

If the MPC = 0.8, an increase in investment spending from $35 billion to $38 billion will increase the GDP by... a. $3 billion b. $3.75 billion c. $15 billion d. $24 billion

c. $15 billion.

What are the components of aggregate expenditure? a. AE = C+I+NX b. AE = C+I+G+MPC c. AE = C+I+G+NX d. AE = C+I+G

c. AE = C+I+G+NX

With its goal of price stability, the Fed attempts to a. keep the inflation rate from falling below 5% and rising above 10% b. maintain an inflation rate of zero. c. achieve a low, stable inflation rate. d. counteract periods of inflation with periods of deflation.

c. achieve a low, stable inflation rate.

The IS curve is downward sloping because a lower interest rate causes (BLANK) in aggregate expenditure and a (BLANK) equilibrium level of real GDP. a. a decrease; lower b. a decrease; higher c. an increase; higher d. an increase; lower

c. an increase; higher

Under a fixed exchange rate system, central banks (BLANK) meet the demand for their domestic currency and (BLANK) meet the demand for foreign currencies. a. are limited in their ability to; are limited in their ability to b. are limited in their ability to; can never c. can always; are limited in their ability to d. can always; can always

c. can always; are limited in their ability to

Through open market operations, the Fed a. controls the demand for reserves, but not the supply of reserves, in the banking system b. controls the supply of reserves and the demand for reserves in the banking system c. controls the supply of reserves, but not the demand for reserves, in the banking system d. has influence over, but cannot directly control, the supply of reserves and the demand for reserves in the banking system.

c. controls the supply of reserves, but not the demand for reserves, in the banking system.

An increase in the real interest rate in the United States will cause net capital outflows to (BLANK) and cause the dollar to (BLANK) relative to the other currencies. a. increase; appreciate b. decrease; depreciate c. decrease; appreciate d. increase; depreciate

c. decrease; appreciate

If the real interest rate in the United States decreases, foreign investors will (BLANK) their demand for U.S. dollars because they desire to (BLANK) fewer U.S. financial assets. a. decrease; sell b. increase; buy c. decrease; buy d. increase; sell

c. decrease; buy

Suppose the economy is in equilibrium with an output gap equal to zero and the actual inflation rate equals the expected inflation rate. If the economy experiences a negative demand shock, the output gap will (BLANK) and the inflation rate will (BLANK). a. decrease; increase b. increase; increase c. decrease; decrease d. increase; decrease

c. decrease; decrease

The oil shock of 2007-2008 saw the price of oil rising from less than $60 a barrel in March 2007 to over $145 a barrel in July 2008, and decreasing again to just over $30 a barrel in December 2008. Assume the economy was at potential GDP prior to the oil shock, the increase in the price of oil, such as what occurred between March 2007 and July 2008, acts as a negative supply shock, causing the inflation rate to (BLANK) and the output gap to (BLANK). a. decrease; grow b. increase; grow c. decrease; shrink d. increase; shrink

c. decrease; shrink

If exchange rates are floating, the Fed increasing its target inflation rate will cause the dollar to (BLANK) relative to other currencies and cause net capital outflows to (BLANK) a. depreciate; decrease b. appreciate; increase c. depreciate; increase b. appreciate; decrease

c. depreciate; increase

Positive demand shocks have a tendency to (BLANK) real GDP relative to potential GDP and (BLANK) the inflation rate. a. decrease; increase b. increase; decrease c. increase; increase d. decrease; decrease

c. increase; increase

A decrease in the unemployment rate which is accompanied by an increase in the inflation rate is represented by a (BLANK) the Phillips curve. a. movement down b. downward shift of c. movement up d. upward shift of

c. movement up

When the Fed makes an open market (BLANK), the target short-term nominal interest rate will increase, which will (BLANK) GDP. a. sale; increase b. purchase; decrease c. sale; decrease d. purchase; increase

c. sale; decrease

Describe the relationship between central bank independence and inflation rates. a. a low inflation rate permits a central bank to act more independently b. the greater the degree of central bank independence, the higher the inflation rate. c. the greater the degree of central bank independence, the lower the inflation rate d. there is no discernable relationship between central bank independence and the inflation rate.

c. the greater the degree of central bank independence, the lower the inflation rate.

Consumption = $1.0+0.8Y Investment = $1.5 Gov't purchases = $2.2 Net Exports = -$0.1 Taxes = $0 Gov't transfer payments = $0 The value of the gov't purchases multiplier in this economy is... a. 0.2 b. 0.8 c. 4 d. 5

d. 5

A column published in the New York Times 2012 observes that "Greece suffers from a crippling competitiveness gap and is locked into the euro." What is a "competitiveness gap"? a. A divergence between rates of change in productivity among trading partners. b. A divergence between production costs among trading partners. c. A divergence between the inflation rates among trading partners. d. All of the above are accurate to describe a competitiveness gap. e. A and B are correct.

d. All fo the above are accurate ways to describe a competitiveness gap.

Why would increased housing demand have multiplier effects? a. One might say that a house becomes a home as it fills with the many accoutrements that give its occupants pleasure. b. When one acquires shelter, a series of ancillary purchases normally follows. c. Putting a roof over one's head is just the beginning of a train of purchases, many of which are recurrent like utilities or routine maintenance. d. All of the above.

d. All of the above.

Assume the economy is initially in equilibrium where potential GDP equals real GDP. If the economy experiences a positive demand shock, increasing optimism, and the Fed does not change its target short-term nominal interest rate, the (BLANK) shifts to the right and the output gap will be (BLANK). a. MP curve; positive b. MP curve; negative c. IS curve; negative d. IS curve; positive

d. IS curve; positive

If the inflation rate in 2013 was 2.5 percent, and because of that people expected the inflation rate in 2014 will also be 2.5%, these people are said to have a. rational expectations. b. expectations of stagflation. c. expectations of supply shocks. d. adaptive expectations.

d. adaptive expectations.

Reasons for this relationship include the a. resistance independent central banks can muster against external pressure b. ability of independent central banks to focus on the long-term c. emphasis politicians tend to place on short term results d. all of the above

d. all of the above

The Fed can use monetary policy to fight a recession by a. increasing bank reserves and the money supply b. conducting open market purchases of government bonds c. lowering its target for the federal funds rate d. all of the above e. A and B but not C

d. all of the above

In April 2012, Federal Reserve Chair Ben Bernanke stated in a press conference that inflation expectations of households and firms were "well anchored." The reference to inflation expectations as "well anchored" means that they a. take recent history into account b. incorporate an analysis of policymaker decisions and intentions. c. recognize economic fundamentals such as underlying conditions in resource markets. d. all of the above. e. A and C but no B.

d. all of the above.

To increase the money supply, the Federal Reserve could a. engage in an open market sale b. lower the discount rate c. decrease income tax rates d. decrease reserve requirements

d. decrease reserve requirements

Other things equal, when the real interest rate rises, C, I, and NX (BLANK) and real GDP will (BLANK) relative to potential GDP. a. decrease; increase b. increase; increase c. increase; decrease d. decrease; decrease

d. decrease; decrease

Which of the goals pursued by the policymakers in an open economy is desirable because it can help reduce the volatility of economic activity? a. exchange-rate stability b. appreciation of the domestic currency c. monetary policy indepdence d. free capital flows

d. free capital flows

With adaptive expectations, the expected inflation rate for the current year (BLANK) the actual inflation rate for the previous year. a. is greater than b. is less than c. is unrelated to d. is equal to

d. is equal to

An expansionary monetary policy in an open economy with fixed exchange rates: a. increase both output and the real interest rate b. is incapable of stimulating the economy c. unambiguously increases output and decreases the real interest rate d. may or may not increase output and may or may not decrease the real interest rate

d. may or may not increase output and may or may not decrease the real interest rate

Under a fixed exchange rate system, if the real interest rate is at its lower bound and the central bank implements expansionary policy, real GDP will (BLANK) and the output gap will (BLANK). a. increase; increase b. decrease; decrease c. increase; decrease d. not change; not change

d. not change; not change

When the Phillips curve was viewed as a structural relationship, it was believed that the Fed could a. permanently reduce the inflation rate as it permanently reduced the unemployment rate. b. permanently reduce the inflation rate if it were willing to decrease the real interest rate. c. permanently reduce the unemployment rate if it were willing to increase the real interest rate. d. permanently reduce the unemployment rate if it were willing to accept an increase in the inflation rate.

d. permanently reduce the unemployment rate if it were willing to accept an increase in the inflation rate.

Under a fixed exchange rate system, at low domestic real interest rates net capital outflows are (BLANK), so the central bank (BLANK) foreign-exchange reserves. a. negative; loses b. positive; acquires c. negative; acquires d. positive; loses

d. positive; loses

Some economists and policymakers criticized the Fed for taking too much time understanding and identifying the problems in financial markets which led to the financial crisis of 2007-2009. This criticism best describes the (BLANK) as a limitation of monetary policy a. asymmetry lag b. implementation lag c. impact lag d. recognition lag

d. recognition lag

The Federal Reserve was established in 1913 to a. prevent bad loans by requiring banks to hold reserves. b. stimulate the economy by increasing bank reserves. c. prevent inflation by decreasing the money supply. d. stop bank panics by acting as lender of las resort.

d. stop bank panics by acting as lender of last resort.

Explain how the IS curve represents equilibrium in the goods market. The IS curve shows the combination of: a. the nominal interest rate and investment that represents when the goods market is in equilibrium b. investment and nominal GDP that represents when the goods market is in equilibrium c. the real interest rate and consumer spending that represents when the goods market is in equilibrium d. the real interest rate and real GDP that represents when the goods market is in equilibrium

d. the real interest rate and real GDP that represents when the goods market is in equilibrium

Other things​ equal, an increase in transfer payments will​ ________ consumption​ expenditures, which leads to​ ________ in output and employment. A. decrease; an increase B. decrease; a decrease C. ​increase; a decrease D. increase; an increase

d. ​increase; an increase

"Increased housing demand definitely has multiplier effects throughout the economy." By "multiplier effects" the professor means that... a. a change in housing demand will generate a series of induced changes in consumption that results in an output change for the economy that is several times larger than the initial change in housing demand. b. a change in the demand for housing has ripple effects in related markets that cumulatively raise aggregate output and income by more than the initial change in housing demand. c. unlike other purchases, housing is unique in the spillover effects it generates upon other segments of the economy. d. All of the above. e. A and B are correct

e. A and B are correct.

An example of how a poorly timed monetary policy can negatively affect the economy would be the implementation of a. an expansionary monetary policy in the midst of a positive demand shock. b. a contractionary monetary policy in the midst of a negative demand shock. c. a contractionary monetary policy in the midst of a positive supply shock. d. all of the above e. A and B only

e. A and B only

Timing is important when conducting monetary policy because a. the factors determining real GDP can change quickly b. shocks by their nature are unpredictable c. policy changes do not have instantaneous effects d. all of the above e. A and C only

e. A and C only

What causes the Phillips curve to shift? a. Changes in expected inflation. b. Supply shocks. c. Changes in the relationship between the output gap and cyclical unemployment. d. All of the above. e. Both A and B are correct.

e. Both A and B are correct.

If the government is running a cyclically adjusted budget​ deficit, ________ fiscal policy is​ ________ because aggregate expenditure is increasing. A. expansionary; ineffective B. ​discretionary; expansionary C. discretionary; contractionary D. contractionary; appropriate

​b. discretionary; expansionary

Other things​ equal, a decrease in the personal income tax rate will​ ________ disposable​ income, which leads to​ ________ in output and employment. A. increase; a decrease B. decrease; a decrease C. increase; an increase D. ​decrease; an increase

​c. increase; an increase

A recession tends to cause the federal budget deficit to​ ________ because tax revenues​ ________ and government spending on transfer payments​ ________. A. decrease; fall; rises B. ​decrease; rise; falls C. increase; rise; falls D. increase; fall; rises

​d. increase; fall; rises