Econ quiz 9

28. To evaluate the size of the federal budget deficit or surplus over time, it would be best to look at the

budget deficit or surplus as a percentage of GDP.

26. Expansionary fiscal policy -causes complete crowding out in the short run. -can be effective in the short run. -can be effective in the long run. -is never effective because of crowding out.

can be effective in the short run.

25. The crowding out of private spending by government spending will be greater the

more sensitive consumption, investment, and net exports are to changes in interest rates.

Crowding out refers to a decline in ________ as a result of an increase in ________.

private expenditures; government purchases

8. If the Federal Reserve authorities wanted to combat inflation, the monetary policy options would be to:

sell government securities, raise reserve requirements, and raise the discount rate

10. The primary policy goals of the United States government are

sustainable economic growth, low unemployment and price stability.

9. Fiscal policy adviser Jones wants to decrease aggregate demand (aggregate expenditure) and monetary policy adviser Smith want to increase aggregate demand (aggregate expenditure). Which of the following combinations of fiscal and monetary policies would these two advisers suggest to achieve their goal?

tax increases; open market purchases of bonds by the Federal Reserve

4. In 2013 the real GDP for Afganistan in US dollars was: (2013 Nominal GDP $20.310 billion, GDP deflator 246)

8.26 billion (20.310b/246)

1. Gross national product (GNP) is the total value of

all final goods and services produced in the marketplace during a given year, by a nation's citizens and businesses.

30. The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was

at potential GDP.

15. An increase in taxes would be depicted as a movement from ________, using the static AD-AS model in the figure above. (figure in notes)

B to A

12. Which of the following would be classified as fiscal policy? -The federal government cuts taxes to stimulate the economy. -States increase taxes to fund education. -A state government cuts taxes to help the economy of the state. -The federal government passes tax cuts to encourage firms to reduce air pollution. -The Federal Reserve cuts interest rates to stimulate the economy.

The federal government cuts taxes to stimulate the economy.

21. If the tax multiplier is -1.5 and a $200 billion tax increase is implemented, what is the change in GDP, holding everything else constant? (Assume the price level stays constant.)

a $300 billion decrease in GDP

22. Suppose the government spending multiplier is 2. The federal government cuts spending by $40 billion. What is the change in GDP if the price level is not held constant?

a decrease of less than $80 billion Save

29. An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

decrease; rise; falls

11. Fiscal policy refers to changes in

federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

13. Congress and the president carry out fiscal policy through changes in

government purchases and taxes.

2. An inflation rate is a continuous increase of

the average price level over time.

5. The 2014 inflation rate for Afganistan was: (2014 Nominal GDP $20.842 billion, GDP deflator 257)

4.47

16. Suppose the economy is in a recession and expansionary fiscal policy is pursued. Using the static AD-AS model in the figure above, this would be depicted as a movement from

A to B.

17. Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium. Using the static AD-AS model in the figure above, this would be depicted as a movement from

A to B.

27. In the long run, most economists agree that a permanent increase in government spending leads to

a decrease in private spending by the same amount that government spending increased.

7. The likely source of this economic change is :

a decrease in the aggregate supply curve because both real GDP and inflation decreased.

20. Which of the following would increase the size of the government purchases multiplier?

a decrease in the amount saved by households from an increase in income

6. New Zealand is experiencing: (2007 Real GDP $121.740 billion, Inflation rate 5.19% 2008 Real GDP $119.733 billion, inflation rate 2.51%)

a recession because real GDP decreased.

3. The interest rate that the Federal Reserve charges its member banks for loans is the

discount rate.

18. The government purchases multiplier equals the change in ________ divided by the change in ________.

equilibrium real GDP; government purchases

19. The tax multiplier equals the change in ________ divided by the change in ________.

equilibrium real GDP; taxes

14. An increase in government purchases will increase aggregate demand because

government expenditures are a component of aggregate demand.

23. The use of fiscal policy to stabilize the economy is limited because

the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way.