exam 2- econ202 chapter 16

What is the cyclically adjusted budget deficit or​ surplus? A. The cyclically adjusted budget deficit or surplus is the deficit or surplus in the federal​ government's budget if the economy were at potential GDP. B. The cyclically adjusted budget deficit or surplus is the deficit or surplus in the federal​ government's budget if the economy were below potential GDP. C. The cyclically adjusted budget deficit or surplus requires the federal budget to always be in​ balance, therefore avoiding a deficit or surplus. D. The cyclically adjusted budget deficit or surplus is the deficit or surplus in the federal​ government's budget if the economy were above potential GDP.

A

If Congress and the president decide an expansionary fiscal policy is​ necessary, what changes should they make in government spending or​ taxes? A. In this​ case, Congress and the president should enact policies that increase government spending and increase taxes. B. In this​ case, Congress and the president should enact policies that increase government spending and decrease taxes. C. In this​ case, Congress and the president should enact policies that decrease government spending and decrease taxes. D. In this​ case, Congress and the president should enact policies that decrease government spending and increase taxes.

B

What is meant by crowding​ out? A. Crowding out is a decline in private expenditures as a result of decreases in government purchases. B. Crowding out is a decline in private expenditures as a result of increases in government purchases. C. Crowding out is an increase in private expenditures as a result of decreases in government purchases. D. Crowding out is an increase in private expenditures as a result of increases in government purchases.

B

When is it considered​ "good policy" for the government to run a budget​ deficit? A. When borrowing is used to pay for social insurance programs. B. When borrowing is used for​ long-lived capital goods. C. When borrowing is used for current expenses. D. All of the above.

B

Which can be changed more​ quickly: monetary policy or fiscal​ policy? A. Fiscal policy can be changed more quickly than monetary policy. Monetary policy has much longer delays due to the larger number of legislators involved. B. Monetary policy can be changed more quickly than fiscal policy. Monetary policy can be changed at any of the FOMC meetings and the smaller number of individuals involved makes it easier to change policy. C. Fiscal policy can be changed more quickly than monetary policy. Fiscal policy has much shorter delays due to the smaller number of legislators involved. D. Monetary policy can be changed more quickly than fiscal policy. Fiscal policy can be changed at any of the FOMC meetings and the smaller number of individuals involved makes it easier to change policy.

B

Which of the following is an example of an expansionary fiscal​ policy? A. A decrease in government spending. B. A decrease in taxes. C. An increase in the money supply. D. An increase in investment spending.

B

If the government cuts taxes in order to increase aggregate​ demand, the action is called A.an automatic stabilizer. B. a procyclical policy. C. a discretionary fiscal policy. D. a discretionary monetary policy.

C

In the long​ run, government tax policy can affect private investment which impacts the production function and factors of production. In other​ words, aggregate supply may be impacted by different types of taxes the government can use. Which of the following is not true in terms of potential long run impacts of tax​ policies? A. The government decides to reduce the corporate income tax​ rate, thereby, increasing the returns to firms for investment which creates more investment and increases aggregate supply. B. Taxes on dividends for individuals are​ eliminated, which increases the return of investing for shareholders and thus creates more investment and an increase in aggregate supply. C. A tax rebate given one year will cause people to have more money and therefore they will spend more which will cause an increase in aggregate supply. D. A reduction in individual income tax rates will increase the incentives for starting new businesses and aggregate supply will increase. E. All of the above are true statements.

C

President Trump was assuming that in​ 2017, the economy was A. growing enough that the budget deficit would disappear. B. at full employment. C. able to create more jobs and expand without increasing the inflation rate. D. in a severe recession and needed a job boost.

C

The federal government would not want to increase its​ spending, even if the result were to increase real GDP and employment in the short​ run, if A.tax receipts are falling. B. productivity is falling. C. it would lead to a greater federal deficit and an increase in the national debt. D. it would result in deflation.

C

The federal​ government's day-to-day activities include running federal agencies like the Environmental Protection​ Agency, the​ FBI, the National Park​ Service, and the Immigration and Customs Enforcement. Spending on these types of activities make up A. about 85 percent of federal government expenditures. B. about 45 percent of federal government expenditures. C. less than 10 percent of federal government expenditures. D. less than 1 percent of federal government expenditures.

C

What changes should they make if they decide a contractionary fiscal policy is​ necessary? A. In this​ case, Congress and the president should enact policies that decrease government spending and decrease taxes. B. In this​ case, Congress and the president should enact policies that increase government spending and increase taxes. C. In this​ case, Congress and the president should enact policies that decrease government spending and increase taxes. D. In this​ case, Congress and the president should enact policies that increase government spending and decrease taxes.

C

Which of the following is an example of an expansionary fiscal​ policy? A. An increase in the money supply. B. A decrease in government spending. C. A decrease in taxes. D. An increase in investment spending.

C

Changes in taxes and spending that happen without actions by the government are called A. autonomous fiscal expenditures. B. discretionary fiscal policy changes. C. transfer payments. D. automatic stabilizers.

D

Does government spending ever reduce private​ spending? A. No, due to crowding out. B. Yes, due to reduced interest rates. C. No, they are unrelated. D. Yes, due to crowding out.

D

Suppose that the economy is currently at potential​ GDP, and the federal budget is balanced. If the economy moves into​ recession, what will happen to the federal​ budget? A. If the budget is balanced at potential GDP and the economy moves into​ recession, then the budget will remain balanced as government expenditure decreases and tax revenue decreases will exactly offset each other. B. If the budget is balanced at potential GDP and the economy moves into​ recession, then the budget will remain balanced as government expenditure increases and tax revenue decreases will exactly offset each other. C. If the budget is balanced at potential GDP and the economy moves into​ recession, then there will be a budget deficit as government expenditures decrease and tax revenues increase. D. If the budget is balanced at potential GDP and the economy moves into​ recession, then there will be a budget deficit as government expenditures increase and tax revenues decrease.

D

The largest and​ fastest-growing category of federal expenditures is A. defense spending. B. interest on the national debt. C. grants to state and local governments. D. transfer payments.

D

Which of the following are categories of federal government​ expenditures? A. interest on the national debt B. grants to state and local governments C. transfer payments D. All of the above.

D

Contractionary fiscal policy If the​ government's policy is​ successful, what is the effect of the policy on the following macroeconomic​ indicators? Actual real GDP Potential real GDP Price level Unemployment

decreases does not change decreases increases

The multiplier effect is only a consideration for increases in government purchases. True/False

false

Suppose the government increases expenditures while holding taxes the same. This will increase/decrease deficits or increase/decrease surpluses. The increase in government expenditures will increase/decrease the interest​ rate, which will cause a increase/decrease in private investment​ spending, and is referred to as BLANK

increase // decrease increase // decrease // crowding out

Expansionary fiscal policy If the federal​ government's policy is​ successful, what is the effect on the following macroeconomic​ indicators? Actual real​ GDP: Potential real​ GDP: Price​ level: ​Unemployment:

increases does not change increases decreases

contractionary fiscal policy

involves decreasing government purchases or increasing taxes

expansionary fiscal policy

involves increasing government purchases or decreasing taxes

budget deficit

occurs when the government's expenditures are greater than its tax revenue

budget surplus

occurs when the government's expenditures are less than its tax revenue

fiscal policy

refers to changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives

cyclically adjusted budget deficit or surplus

the deficit or surplus in the federal government's budget if the economy were at potential GDP

Suppose the government increases expenditures by ​$140 billion and the marginal propensity to consume is 0.50. By how will equilibrium GDP​ change?

$280 billion 1/1-.5 = 2 x 140 = 280

As a result of crowding out LOADING... in the short​ run, the effect on real GDP of an increase in government spending is often A. less than the increase in government spending. B. equal to the increase in government spending. C. unrelated to the increase in government spending. D. more than the increase in government spending.

A

If the​ short-run aggregate supply curve​ (SRAS) were a horizontal​ line, what would be the impact on the size of the government purchases and tax multipliers? A. The impact of the multiplier would not be changed if the SRAS curve is horizontal. B. The impact of the multiplier would be larger if the SRAS curve is horizontal. C. The impact of the multiplier would be impossible to determine if the SRAS curve is horizontal. D. The impact of the multiplier would be smaller if the SRAS curve is horizontal.

B

What actions can Congress and the president take to move the economy back to potential​ GDP? A. Increase the money supply. B. Increase government spending or decrease taxes. C. Decrease government spending or increase taxes. D. Both A and B.

B

What is an expansionary fiscal​ policy? A. Expansionary fiscal policy includes increasing government spending and taxes to increase aggregate demand. B. Expansionary fiscal policy includes increasing government spending and decreasing taxes to increase aggregate demand. C. Expansionary fiscal policy includes decreasing government spending and taxes to increase aggregate demand. D. Expansionary fiscal policy includes decreasing government spending and increasing taxes to increase aggregate demand.

B

Who is responsible for fiscal​ policy? A. The federal government and the Federal Reserve jointly control fiscal policy. B. The federal government controls fiscal policy. C. Fiscal policy is controlled by market forces. D. The Federal Reserve controls fiscal policy.

B

Suppose that at the same time Congress and the president pursue an expansionary fiscal​ policy, the Federal Reserve pursues an expansionary monetary policy. How might an expansionary monetary policy affect the extent of crowding out in the short​ run? A. An expansionary monetary policy would have no effect on the extent of crowding out. B. An expansionary monetary policy would only affect the extent of crowding out in the long run. C. An expansionary monetary policy would decrease interest rates and thus reduce the extent of crowding out. D. An expansionary monetary policy would increase interest rates and thus increase the extent of crowding out.

C

What is a contractionary fiscal​ policy? A. Contractionary fiscal policy includes increasing government spending and decreasing taxes to decrease aggregate demand. B. Contractionary fiscal policy includes increasing government spending and taxes to decrease aggregate demand. C. Contractionary fiscal policy includes decreasing government spending and increasing taxes to decrease aggregate demand. D. Contractionary fiscal policy includes decreasing government spending and taxes to decrease aggregate demand.

C

What is fiscal​ policy? A. Fiscal policy can be described as changes in interest rates and taxes to achieve macroeconomic policy objectives. B. Fiscal policy can be described as changes in interest rates to achieve macroeconomic policy objectives. C. Fiscal policy can be described as changes in government spending and taxes to achieve macroeconomic policy objectives. D. Fiscal policy can be described as changes in government spending and interest rates to achieve macroeconomic policy objectives.

C

When actual GDP is below potential GDP the budget deficit increases because​ of: A. a decrease in transfer payments and a decrease in tax revenues. B. an decrease in transfer payments and an increase in tax revenues. C. an increase in transfer payments and a decrease in tax revenues. D. an increase in transfer payments and an increase in tax revenues.

C

When the economy is experiencing a recession automatic stabilizers will​ cause: A. transfer payments and tax revenues to be unaffected. B. transfer payments to increase and tax revenues to increase. C. transfer payments to increase and tax revenues to decrease. D. transfer payments to decrease and tax revenues to decrease.

C

Which of the following best describes the difference between crowding out in the short run and in the long​ run? A. In the short run and the long​ run, most economists believe that an increase in government purchases will result in complete crowding out of private expenditures. B. In the long​ run, an increase in government purchases may not fully crowd out private expenditures due to the stimulative effect of an increase in government purchases on aggregate demand. In the short​ run, most economists believe that a permanent increase in government purchases will result in complete crowding out of private expenditures. C. In the short​ run, an increase in government purchases may not fully crowd out private expenditures due to the stimulative effect of an increase in government purchases on aggregate demand. In the long​ run, most economists believe that a permanent increase in government purchases will result in complete crowding out of private expenditures. D. In the short run and the long​ run, an increase in government purchases may not fully crowd out private expenditures due to the stimulative effect of an increase in government purchases on aggregate demand.

C

In the short​ run, increases in federal spending will increase real GDP and employment if A. the economy is experiencing inflation. B. the price level remains stable. C. wages and prices do not change. D. the economy is producing at less than its potential output and has some cyclical unemployment.

D

Increased government debt can lead to higher interest rates​ and, as a​ result, crowding out of private investment spending. In terms of borrowing​ (debt-spending), what will offset the effect of crowding out in the long run so that government debt poses less of a problem to the​ economy? A. Debt-spending on highways and ports. B. Debt-spending on research and development. C. Debt-spending on education. D. All of the above.

D

Which of the following is not a correct comparison between an expansionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply​ model? A. In the dynamic​ model, expansionary policy would be used when demand does not grow​ sufficiently; in the basic​ model, expansionary policy would be used when demand falls. B. The dynamic model assumes that potential GDP is constantly growing while the basic model assumes that it is static. C. If the economy is below full​ employment, expansionary fiscal policy will cause an increase in the price level in both models. D. All of the above are correct statements about the two models. E. None of the above are correct statements about the two models.

D

Why might increasing taxes as a fiscal policy be a more difficult policy than the use of monetary policy to slow down an economy experiencing​ inflation? A. The government has more concentrated power than the Fed. B. The economy may have already slowed. C. The legislative process works quickly. D. The legislative process experiences longer delays than monetary policy.

D

BLANK are spending by the government on goods, services, and factors of production BLANK represent total government spending including goods, services, grants to state and local governments, and transfer payments Since the 1950s, total government expenditures, as a percentage of GDP, have BLANK and total government purchases, as a percentage of GDP, have BLANK The major cause of these trends is A. there has been a major increase in the amount of transfer payments the government makes through programs such as Social Security and unemployment insurance. B. There has been a decrease in income tax rates for most households in the U.S. C. there has been a reduction in the nominal amount of government purchases on military as the U.S. does not engage in military conflicts. D. All of the above.

government purchases government expenditures increased // decreased A

tax wedge

the difference between the pretax and posttax return to an economic activity

automatic stabilizers

when forms of government spending and taxes automatically increase or decrease along with the business cycle