CH 12

If the MPC is 0.5, then the taxation multiplier must be:

-1

If the MPC = 0.75, then the taxation multiplier must be:

-3

If the marginal propensity to consume is 0.8, the taxation multiplier must be:

-4

If the MPC is 0.5, then the government spending multiplier must be:

2

If the marginal propensity to consumer is 0.8, the government spending multiplier must be:

5

The existing tax rates on income in the United States:

A. act as an automatic stabilizer. B. curtail spending slightly when incomes rise because people have to pay more in taxes when incomes are high. C. encourage spending slightly when incomes fall because people pay less in taxes when incomes are low. D. All of these are true.

Transfer payments:

A. are payments from government accounts to individuals for programs that do not involve a purchase of goods or services. B. involve programs such as Social Security and welfare. C. do not show up in GDP. D. All of these are true.

The model of aggregate demand and aggregate supply can be used to:

A. discuss the pros and cons of income tax cuts. B. evaluate a tax cut's effect on short run economic fluctuations. C. assess a tax cut's effect on longer run issues such as the national debt. D. All of these are true.

An example of fiscal policy would be government:

A. increasing the amount of available educational grants. B. decreasing the income tax. C. increasing corporate income taxes. D. All of these are examples of fiscal policy.

The marginal propensity to consume:

A. is the amount by which consumption increases when after-tax income increases by $1. B. is closely linked to the multiplier effect of government spending. C. is a value between 0 and 1. D. All of these are true.

If the government enacts contractionary fiscal policy, it:

A. must want to slow economic activity. B. could increase taxes. C. expects aggregate demand to decrease. D. All of these are true.

Keynesian policy:

A. refers to policies that actively shift aggregate demand in an effort to reach full employment. B. refers to fiscal policy. C. promotes spending more and taxing less to boost economic activity to potential GDP. D. All of these are true.

A difficulty with effective fiscal policy is:

A. the reality of time lags. B. the guess as to what potential GDP is. C. the lack of relevant information needed to decide the magnitude of change. D. All of these are true..

One of the main difficulties with implementing fiscal policy is:

A. the time lag between the time the policy is chosen and the time it gets enacted. B. deciding on a policy without all the relevant information. C. the danger in overshooting or undershooting the goal of full employment. D. All of these are true.

Disposableincomeis:

A. total income minus taxes. B. what consumers base their buying decisions on. C. the amount consumers have to spend on goods and services. D. All of these are true.

If the government increases the income tax rate, they assume:

C will decrease, shifting aggregate demand to the left.

If the government decreases the income tax rate, then:

C. aggregate demand will shift right.

If the MPC is 0.75, and the government cuts spending by $100b, the overall effect on GDP will be:

a decrease of $400b.

If the government were to decrease its spending, it would expect:

aggregate demand to fall, and thus GDP to fall

If the government decreases the income tax rate, then:

aggregate demand will shift right.

Increased government spending on unemployment insurance during a recession is an example of:

an automatic stabilizer.

If the MPC is 0.9, and the government cuts taxes by $400b, the overall effect on GDP will be:

an increase of $3,600b.

If the MPC is 0.5, and the government cuts taxes by $400b, the overall effect on GDP will be:

an increase of $400b.

Johnny has been working a lot of overtime during the most current economic boom. As a result, his income is high enough for him to move from the 10 percent tax bracket to the 15 percent tax bracket. So, Johnny pays a higher percentage of a higher income to the government this year. The increased amount paid to the government is an example of:

automatic stabilizers slowing the economy.

In a booming economy, discretionary fiscal policy:

can be added to the automatic contractionary effects of policies already in place.

In a booming economy, fiscal policy automatically becomes:

contractionary as tax rates rise and welfare payments fall.

If the government were to increase taxes, it would be enacting:

contractionary fiscal policy.

If the MPC were to increase from 0.75 to 0.8, then the taxation multiplier would:

decrease from -3 to -4.

If the government wished to shift aggregate demand to the left, it might:

decrease military spending.

If the government wishes to increase GDP by $1,200b, and the MPC is 0.75, it should:

decrease taxes by $400b.

One way fiscal policy affects aggregate demand is:

directly through government spending.

During a severe recession, the government decides to lower its tax rates to give consumers relief, and allow them to pay less in taxes. This is an example of:

discretionary fiscal policy.

In 2008, consumers were mailed a stimulus check in response to the recession. The result showed thatRicardian equivalence:

failed to hold, as most people spent a substantial share of the money.

A major distinction to be made is that deficits count government spending shortfalls ___________, and public debt counts _______________.

in a year; the total amount owed from all years

We use the term expansionary fiscal policy when the overall effect of decisions about taxation and spending is to:

increase aggregate demand..

If the government wishes to increase GDP by $1,200b, and the MPC is 0.8, it should:

increase its spending by $240b.

If the government wishes to decrease GDP by $2,100b, and the MPC is 0.6, it should:

increase taxes by $1,400b.

During times of economic boom, the spending on unemployment insurance:

likely falls, since more people are working.

When an economy is in a recession, discretionary fiscal policy would call for ________, and the automatic stabilizers would ____________.

lowering tax rates; lower tax revenues

Contractionary fiscal policy is enacted when the overall effect of decisions about taxation and spending is to:

reduce aggregate demand.

According to this book, The American Recovery and Reinvestment Act of 2009:

remains hotly debated whether it was successful or not.

The government-spending multiplier tells us:

the amount by which GDP increases when government spending increases by $1.

A budget surplus is:

the amount of net revenue a government brings in beyond what it spends.