Economics 1A: Chapter 12 and 13

is aimed at reducing aggregate demand and thus achieving price stability

Contractionary fiscal policy is so named because it:

manipulation of government spending and taxes to stabilize domestic output, employment, and the price level.

Fiscal policy refers to the:

rightward shift of the AD curve along an upsloping AS curve

Graphically, demand-pull inflation is shown as a:

increasing government spending by $4 billion

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

increase tax rates and/or reduce government spending

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 $120 billion. To obtain price level stability under these conditions the government should:

increase in aggregate demand

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to:

aggregate supply decreases and aggregate demand increases

In which of the following sets of circumstances can we confidently expect inflation

This could cause the AD curves to shift inward. Lower incomes abroad means less foreign demand for U.S. goods, AD shifts inward at all price levels

Income falls in several countries that trade heavily with the U.S.

shift the aggregate supply curve to the right

Other things equal, an improvement in productivity will:

Reductions in Federal tax rates on personal and corporate income.

Suppose the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

expansionary fiscal policy

Suppose the government purposely changes the economy's cyclincally-adjusted budget from a deficit of 0 percent of real GDP to a deficit of 3 percent of real GDP. The government is engaging in a(n)

increase government expenditures by $50 billion

Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should:

increase government expenditures by $40 billion

Suppose the price level is fixed, the MPC is .8 the GDP gap is a negative $200 billion. To achieve full-employment output (exactly), government should:

consists of the historical accumulation of all past Federal deficits and surpluses.

Th U.S. public debt:

cannot be determined whether the government engages in expansionary of contractionary fiscal policy in 2009

The actual budget deficit of the Federal government in 2009 was about 1.4 trillion. On the basis of this information it:

downsloping because of the interest-rate, real- balances, and foreign purchases effects.

The aggregate demand curve is:

shows the various amounts of real output that businesses will produce at each price level.

The aggregate supply curve:

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

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

is vertical

The economy's long-run aggregate supply curve:

reduce prices when a decline in aggregate demand occurs.

The fear of unwanted price wars may explain why many firms are reluctant to

increase the amount of U.S. real output purchased

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will

moves the economy along a fixed aggregate demand curve.

The foreign purchases effect:

horizontal

The immediate-short-run aggregate supply curve is

both input and output prices are fixed

The immediate-short-run aggregate supply curve represents circumstances where:

why the aggregate demand curve is downsloping

The real-balances, interest rate, and foreign purchases effects all help effect

why the aggregate demand curve is downsloping.

The real-balances, interest-rate, and foreign purchases effects all help explain:

input prices are fixed, but output prices are flexible

The short-run aggregate supply curve represents circumstances where:

false

True or False: The aggregate demand curve shows a positive/direct relationship between price level and quantity of GDP demanded.

Increase government spending, reduces taxes, or combo of both

What fiscal policy should the federal government adopt to try to stimulate the economy?

75 percent

What percentage of the average U.S. firms costs are accounted for by wages and salaries?

not be possible due to the minimum wage law.

When aggregate demand declines, some firms may reduce employment rather than wages because wage reductions may:

Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

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

Politicians may cause macroeconomic instability due to the use of fiscal policy for political purposes

Which of the following best describes the idea of a political business cycle?

a $30 billion decrease in government spending

Which of the following represents the most contractionary fiscal policy?

an appreciation of the U.S. dollar

Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)

an increase in stock prices that increases consumer wealth

Which of the following would most likely shift the aggregate demand curve to the right?

an increase in the price level

Which of the following would not shift the aggregate supply curve

a change in the price level

Which one of the following would not shift the aggregate demand curve?

Tis would cause a shift in the outward AD curve. Better technology = increases expected returns on investment causing investment to increase & AD curve to shift outward

A boost in research and development by computer companies produces more powerful and efficient computers an equipment

less flexible is the economy's price level.

A decrease in aggregate demand will cause a greater decline in real output the:

This will shift the AD curve outward. Lower taxes = household spending, so, AD will increase all price levels

After a budget surplus, Congress moves to cut personal income taxes

a decrease in tax rates

An appropriate fiscal policy for a severe recession is: