Macro Final Study Guide

Suppose a government finances its expansionary fiscal policy by borrowing from the public. Joseph is concerned that this will increase the demand for loanable funds, drive up interest rates, and leave less loanable money available for consumers and businesses. Joseph is concerned about the: a. crowding-out effect. b. opposite expansionary effect. c. ricochet effect. d. boomerang effect.

crowding-out effect.

Suppose in 2009, country X had tax revenues of $550 billion and government expenditures of $700 billion. In addition, at the end of 2008, its national debt was $6.5 trillion. In 2009, country X had a _____ and at the end of 2008, a public debt of _____. a. deficit of $150 billion; $6.35 trillion b. surplus of $150 billion; $6.35 trillion c. deficit of $150 billion; $6.65 trillion d. surplus of $150 billion; $6.65 trillion

deficit of $150 billion; $6.65 trillion

According to public choice economists, the federal government has expanded because: a. taxpayers pay the full cost of current government operations. b. the federal government is efficient in its spending. c. the public likes to pay higher taxes to finance more programs. d. deficit spending has reduced the perceived cost of current government operations.

deficit spending has reduced the perceived cost of current government operations.

When a firm can _____ its capital equipment over a shorter period, its taxes are cut _____. a. depreciate; later b. appreciate; later c. depreciate; now d. appreciate; now

depreciate; now

One strength of the use of discretionary fiscal policy is the timing lags. a. True b. False

false

Which of the following policies do supply-side economists believe is the best for increasing the standard of living? a. increasing the supply of labor b. raising taxes to support government public work projects c. increasing investment in capital that boosts worker productivity d. redistributing income from the wealthy to the poor

increasing investment in capital that boosts worker productivity

Under a cyclically balanced budget, a government should _____ when the economy is growing and _____ when GDP is declining. a. raise taxes; raise spending b. reduce taxes; reduce spending c. raise taxes; reduce spending d. reduce taxes; raise spending

raise taxes; raise spending

The _____ lag is the time it takes for policymakers to confirm that the economy is trending in or out of a recession. a. recognition b. information c. implementation d. decision

recognition

The crowding-out effect can drive up interest rates, which _____ consumer spending on durable goods and _____ business investment. a. reduces; reduces b. increases; increases c. increases; reduces d. reduces; increases

reduces; reduces

If interest rates rise, the burden of a nation's public debt will _____ and it will be _____ difficult to service its debt. a. fall; less b. fall; more c. rise; more d. rise; less

rise; more

Automatic stabilizers are designed so that as income falls: a. government spending falls so that the budget is always balanced. b. spending rises to a degree that a recession automatically ends. c. spending does not fall as much as income. d. the rate of a decrease in spending accelerates.

spending does not fall as much as income.

Which of the following is NOT a form of U.S. public debt? a. stocks b. Treasury bills c. Treasury notes d. savings bonds

stocks

expansionary fiscal policy that leads to full employment.

(Figure: Determining Fiscal Policy) The best discretionary fiscal policy option is: a. only fiscal policies that lead to a lower price level. b. expansionary fiscal policy that leads to full employment. c. contractionary fiscal policy that leads to full employment. d. a combination of expansionary and contractionary fiscal policies to achieve full employment and stable prices.

AD0; AD1; Q0; Qf

(Figure: Effects of Policy Shifts) If government spending increases, shifting aggregate demand from _____ to _____, aggregate output will increase from _____ to _____. a. AD0; AD1; Qf; Q0 b. AD0; AD1; Q0; Qf c. AD1; AD0; Qf; Q0 d. AD1; AD0; Q0; Qf

d

(Figure: Laffer Curve 3) A supply-side economist is advocating reducing income tax rates. She is probably assuming that the economy is at point _____ in the graph. c d a b

supply-side fiscal policies.

(Figure: Understanding SRAS and LRAS Shifts) This graph shows: a. None of the answers is correct. b. supply-side fiscal policies. c. a combination of supply-side and demand-side fiscal policies. d. demand-side fiscal policies.

If, for country A, the present value of all projected future revenues is $400 million and the present value of all projected future spending is $412 million, then country A's fiscal policy is sustainable. a. False b. True

False

If an expansionary policy pushes output beyond the full employment level of GDP: a. the natural rate of unemployment will fall. b. production costs will decrease. c. the economy will undergo deflation. d. the short-run aggregate supply curve will shift to the left.

the short-run aggregate supply curve will shift to the left.

Public choice economists think deficit spending reduces the perceived cost of current government operations and then shifts additional costs to the next generation. a. False b. True

true

Which of the following statements regarding discretionary and mandatory spending is correct? a. Discretionary spending is authorized by permanent laws. b. Discretionary spending has steadily grown as a percentage of the federal budget since the 1960s. c. Mandatory spending may act as an automatic stabilizing force in the macro economy. d. Mandatory spending programs include national defense, income security, and education.

Mandatory spending may act as an automatic stabilizing force in the macro economy.