Ch 21 Adaptive Quiz

A tax multiplier equal to −2.50 would imply that a $400 tax increase would lead to a:

$1,000 decrease in real GDP.

The balanced budget multiplier is always equal to:

1

Mathematically, the tax multiplier is given by the formula:

1 - spending multiplier.

If the marginal propensity to consume (MPC) is 0.42, the value of the spending multiplier is:

1.72

in a balanced budget.

Government revenues equal government expenditures

Which of the following is true in the case of a budget surplus?

Government revenues exceed government expenditures

The shows that beyond some point as the tax rate increases, the erosion of incentives reduces national income and total tax collections.

Laffer curve

Which of the following favors government policies to stimulate an economy by creating incentives for individuals and businesses to increase their productive efforts?

Supply-side economics

Identify the main focus of supply-side fiscal policy.

The effect of tax cuts on labor supply

According to supply-side policy, which of the following is true if there is a reduction in the tax rates on wages?

The labor supply curve shifts rightward and the equilibrium wage rate decreases.

Identify the correct statement about unemployment compensation payments.

These payments increase during recession and increase the budget deficit.

Medicaid is a part of a(n)

automatic stabilizer.

If an economy enters a recession, automatic stabilizers create

budget deficits.

Automatic stabilizers will increase the:

budget surplus during an economic expansion.

Marginal propensity to consume is the:

change in consumption spending resulting from a given change in income.

Supply-side fiscal policy would cause a change in real gross domestic product through a(n):

change in resource prices.

Discretionary fiscal policy involves:

changes in government spending and taxes as a result of legislation.

According to supply-side economists:

changes in wage rates affect the incentive to work, save, and invest.

Fiscal policy is concerned with:

changing government spending and/or tax revenues.

Decreasing government spending or increasing taxes to influence aggregate demand is a part of:

contractionary fiscal policy.

Assume Congress decides to implement a $5 million decrease in spending and a $5 million decrease in tax. The result of this approach is a(n):

decrease in aggregate demand by $5 million.

In the figure given below, a shift of the aggregate supply curve from AS1 to AS2 can result from a:

decrease in resource prices and technological advances

Automatic stabilizers tend to "lean against the prevailing wind" of the business cycle because:

federal expenditures and tax revenues change as the level of real GDP changes.

According to the Laffer curve, a 100 percent tax rate leads to a:

federal tax revenue value of zero.

Automatic stabilizers are:

government expenditures and tax revenues that change on their own and thereby stabilize an economy

The full-employment level of real gross domestic product in an economy is $700 billion and its equilibrium level of real GDP is $500 billion. The marginal propensity to consume (MPC) is 0.25. The government should to reach the full-employment real GDP level.

increase its spending by $150 billion to shift the aggregate demand curve to the right

Suppose, the spending multiplier is 3 and an increase of $2,500 million in the aggregate demand can restore full employment in an economy. Following Keynesian policy prescriptions, the government of the country should: A decrease in government spending can be an appropriate policy to:

increase spending by $833.33 million.

Expansionary fiscal policy occurs when the government:

increases its spending or decreases its tax revenues.

Automatic government expenditure stabilizers are

inversely related to changes in the level of real gross domestic product.

The Laffer curve is a(n):

inverted U-shaped curve.

Assume the marginal propensity to consume (MPC) is 0.90 and the government increases taxes by $100 billion. The aggregate demand curve will shift to the:

left by $900 billion.

Assume the marginal propensity to consume (MPC) is 0.90. A $150,000 decrease in government spending, other things being equal, would result in a:

leftward shift of the aggregate demand curve and a $1,500,000 decrease in real GDP.

The appropriate discretionary policy to use in an economy which is on the classical range of the aggregate supply curve and experiencing inflation is to

raise taxes.

The spending multiplier is the:

ratio of the change in aggregate demand to an initial change in aggregate spending.

Keynesian economists recommends fiscal policy to fight

recession.

According to supply-side economists, a higher corporate profit tax will:

reduce investment and the real gross domestic product.

A decrease in government spending can be an appropriate policy to:

reduce the consumer price index in an economy.

During a recession, supply-side economics would advocate a:

reduction in government regulations on businesses.

The supply-side effect of a tax cut is a:

reduction in unemployment and inflation, while the Keynesian demand-side effect is a reduction in unemployment but an increase in inflation.

It has been observed that income tax collections:

rise during an economic expansion and, ceteris paribus, reduce budget deficits.

Supply-side fiscal policies emphasize government policies that:

stimulate aggregate supply to achieve long-run growth in output.

Government subsidies are an example of:

supply side policy

Lower resource prices and decreased government regulation are the policy recommendations of:

supply-side economics.

The concept of the Laffer curve in central to

supply-side economics.

The Laffer curve shows the relationship between:

tax rates and total tax revenues.

Unemployment compensation is a nondiscretionary fiscal policy because:

when an economy expands, unemployment falls, and government spending on unemployment compensation decreases.

The federal tax rate affects the in the Laffer Curve.

willingness to work

If the marginal propensity to consume (MPC) is 0.80, the tax multiplier will be

− 4

If the marginal propensity to consume (MPC) is 0.60, and if the government wishes to increase real GDP by $100 billion, the change in taxes should be:

−$66.6 billion.

is an example of an automatic stabilizer.

A transfer payment