Econ
As a percentage of taxable income since 1993, federal personal income taxes were lowest in which of the following presidential administrations?
Bush administration
As a percentage of GDP since 1993, federal transfer payments were lowest in which of the following presidential administrations?
Clinton adminstrations
During the third quarter of 1997, Japanese GDP was falling at an annual rate of over 11 percent. Many blamed the big increase in Japan's taxes in the spring of 1997, which was designed to balance the budget. How could an increase in taxes with the economy growing slowly precipitate a recession? When taxes increase, disposable income will _______. As disposable income _______, it causes consumption to ______ which _______ output/income.
fall; decreases; decline; reduces
An increase in inflationary expectations that causes firms to increase their prices shifts the AS curve to the right.
false
When taxes are cut by $1, planned expenditures
increase by less than $1 and the equilibrium level of income will increase by $1 times the tax multiplier.
The potential impact of this action could ________ the money supply by _____ millions yetis.
increase; 15
What action could the central bank take to counteract the affects of the increase in taxes? The central bank could _______ the money supply, which would _______ interest rates and _______ investment.
increase; decrease; stimulate
If the Fed has a strong preference for stable prices relative to output, then when the Fed sees a price increase, it responds with a large ________ in the interest rate, driving down planned investment and thus output. In this case, the AD curve is relatively ________.
increase; flat
The three traditional tools the Fed can use to control the interest rate via changing the money supply are the ___________.
required reserve ratio, changing the discount rate, and engaging in open market operations.
Consider that from May 2014 to March 2015, the price of oil dropped sharply in world markets. If the Fed held the money supply constant, you would expect the ____________.
the effect on the interest rate to be ambiguous
The balanced-budget multiplier is equal to 1 because
the government spending multiplier plus the tax multiplier will equal 1
For this graph. draw the line below the initial money demand line.
the new equilibrium should be below the initial one on the purple line (money supply)
The mild monsoon season caused aggregate output to ______ and the price level to _______.
decrease; increase
If the Fed makes an open market sale of government securities, the money supply
decreases
Suppose government spending and lump sun taxes are both reduced by 30 billion. As a result GDP will
fall by $30 billion
The balanced budget multiplier is equal to
(1-MPC)/MPS
In an economy, when net taxes decrease by 200 billion, real GDP increases by 600billion. The value of MPC in this economy is
.75
If the opportunity cost of producing one gallon of milk is 1 dozen eggs in France and the opportunity cost of producing one gallon of milk is 4 dozen eggs in Sweden, both countries would benefit from trading with each other if the terms of trade were one gallon of milk for ________ dozen eggs.
3
b. To counter the fall in investment, the leader of GlacialandGlacialand calls for a proposal to increase government spending. To finance the program, the head of the Exchequer has proposed three alternative options: (1) Keep tax revenues constant and borrow the money from the public by issuing new government bondsKeep tax revenues constant and borrow the money from the public by issuing new government bonds (2) Finance the expenditures with an equal increase in taxesFinance the expenditures with an equal increase in taxes (3) Keep taxes constant and finance the expenditures by printing new moneyKeep taxes constant and finance the expenditures by printing new money Consider the three financing options and rank them from most expansionary to least expansionary. The most expansionary policy is option __, followed by __, and option __ would be the least expansionary
3; 1 ;2
If the marginal propensity to consume is 0.8 and the government increases taxes by $1,000, the equilibrium level of output will decrease by
4000
With a consumption function of C = a + b(Y - T), the government spending multiplier is represented as
1/(1-b)
If the marginal propensity to consume is 0.8 and the government increases spending by $1,000, the equilibrium level of output will increase by
5000
What effects will an increase in the money supply with the economy operating at near full capacity have on GDP and the price level?
A. The price level will increase significantly and GDP will increase very little.
Suppose all tax collections are fixed and independent of income and all spending and transfer programs are also fixed and do not depend on the state of the economy. In such a situation what is the relationship between the full employment deficit and actual budget deficit?
Actual budget deficit is the same as the full employment budget deficit
Suppose all tax collections are fixed and independent of income and all spending and transfer programs are also fixed and do not depend on the state of the economy. In such a situation what is the relationship between the full employment deficit and actual budget deficit?
Actual budget deficit is the same as the full employment budget deficit.
You are appointed secretary of treasury of a recently independent country called Rugaria. The currency of Rugaria is the lav. The new nation began fiscal operations this year and the budget situation is that the government will spend 99 million lavs and taxes will be 88 million lavs. The difference will be borrowed from the public by selling 10-year government bonds paying 44 percent interest. The interest on the outstanding bonds must be added to spending each year, and we assume that additional taxes are raised to cover that interest. Assume that the budget stays the same except for interest on the debt for 10 years.
After *one year, government expenditure is *9.04million lavs (enter your response rounded to two decimal places) and debt is 1 million lavs (enter your response as an integer). After *five years, government expenditure is *9.20 million lavs (enter your response rounded to two decimal places) and debt is 5 million lavs (enter your response as an integer). After *ten years, government expenditure is *9.40million lavs (enter your response rounded to two decimal places) and debt is 10 million lavs (enter your response as an integer).
Some empirical trade economists have noted that for many products, countries are both importers and exporters. For example, the United States both imports and exports shirts. How can this be explained?
Because different consumers have tastes and preferences for different types of shirts, the U.S. could have a comparative advantage in the production of specific kinds of shirts but not all shirts.
If one country has an absolute advantage in the production of all goods, it is impossible for that country to benefit from trade
False
If taxes are a function of income, the three multipliers (investment, government spending, and tax) are greater than they would be if taxes were a lump-sum amount.
False
In the circular flow of income, net taxes are a leakage and household saving is an injection.
False
Since 2006, the year Ben Bernanke was appointed chair of the Fed, the Federal Reserve has openly engaged in inflation targeting.
False
The US federal government ran a surplus in 2014
False
When a country has an absolute advantage in the production of a product, it means that country can produce the product at a lower opportunity cost than other countries.
False
a decrease in the Z factors to a tightening of monetary policy, shifting the AD curve to the left
False
Which policy seems to have suffered more from policy lags?
Fiscal policy seems to have a bigger response lag because the expansionary fiscal policy started after the expansionary monetary policy.
In Japan during the first half of 2000, the Bank of Japan kept interest rates at a near zero level in an attempt to stimulate demand. In addition, the government passed a substantial increase in government expenditure and cut taxes. Slowly, Japanese GDP began to grow with absolutely no sign of an increase in the price level.
For the graph draw a line directly to the right of the initial one. label the new equilibrium where your new line intersects the purple one that is constant.
From May 2014 to March 2015, the price of oil dropped sharply on world markets. The figure on the right shows the aggregate demand and aggregate supply curves of an economy in a short-run equilibrium at point A. 1.) Using the three-point curved line drawing tool, show the impact of the sharply dropping oil prices in the world market by shifting either the AD or AS curve. Properly label your curve. 2.) Using the point drawing tool, identify the new equilibrium point. Label your point 'B'.
For this graph you are making a new AS curve. Draw the curve to the right of the initial one. the new equilibrium should be below the initial one as well, slightly to the right.
Related to the Economics in Practice: A Bad Monsoon Season Fuels Indian Inflation Using the line drawing tool, draw a line to show the effect the mild monsoon season had on the aggregate supply of rice in India. Properly label your line either AS1 or AD 1
For this graph, draw your new line to the left of your initial one
If the government were running a deficit and saving were equal to investmentthe government were running a deficit and saving were equal to investment, what is likely to happen to the economy of Newt?
It would expand since the injection from the flow of income is greater than the leakage from the income flowexpand since the injection from the flow of income is greater than the leakage from the income flow.
Based on the federal funds rate, the Federal Reserve began expansionary policy between June 2000 - Jan 2001 and ended expansionary policy between June 2004 - Jan 2005
June 2000-jann 2001; june 2004-jan 2005
As a measure of the money supply, M1 differs from M2 in that
M2 includes M1 plus savings accounts, money market accounts, and other near monies.
Do you think that the theory of comparative advantage and the Heckscher-Ohlin theorem help to explain why your state specializes in the way that it does? Explain your answer. For example, the theory of comparative advantage and the Heckscher-Ohlin theorem help explain why North CarolinaNorth Carolina specializes in producing tobaccotobacco because
North Carolina can produce tobacco at lower opportunity cost than most other states and it is well endowed with the inputs needed to grow tobacco
As a percentage of GDP since 1993, federal government debt was the highest in which of the following presidential administrations?
Obama administration
If the head of the Central Bank of Brazil wanted to decreasedecrease the supply of money in Brazil in 2015, which of the following would do it?
Sell government securities in the open market
Suppose the central bank decided that the money supply should not be increased. What countermeasure could it take to prevent the Congress from expanding the money supply?
Sell government securities to prevent the expansion of the money supply.
Glacialand, the largest country in central Antarctica, receives word of an imminent penguinpenguin attack. The news causes expectations about the future to be shaken. As a consequence, there is a sharp decline in investment spending plans a. What will be the effects of such an event on the economy of GlacialandGlacialand assuming no response on the part of the central bank or the Treasury, so that the money supply, taxes, and government spending all remain constant?
The decrease in investment will reduce aggregate expenditure causing equilibrium output/income to decrease in the goods market
What effects will a decrease in taxes and an increase in government spending supported by a cooperative Fed acting to keep output from rising have on GDP and the price level?
The fiscal and monetary policies have opposing effects on the AD curve, therefore GDP and the price level will be unchanged.
Suppose the Treasury of the United States issues bonds and sells them to the public to finance the deficit. What happens to the money supply and why?
The money supply remains unchanged because every dollar taken in by the Treasury goes right back into circulation through government spending.
According to the Heckscher-Ohlin theorem, a country has a comparative advantage in the production of a product if that country is relatively well endowed with inputs used intensively in the production of that product.
True
In a balanced-budget increase in government spending ^G=^T
True
In absolute value, the tax multiplier is smaller than the government spending multiplier.
True
One reason countries trade is because of product differentiation.
True
Until the mid-1970s, the United States generally ran a trade surplus.
True
When the AD curve is vertical and a cost shock shifts the AS curve to the left, there is no change in output.
True
Automatic stabilizers are mechanisms built into the economy that tend to reduce the multiplier effect. Which of the following items act as automatic stabilizers?
Unemployment compensation
What is the impact on the money supply of the Treasury using the fiscal surplus (excess tax receipts) to buy back bonds relative to the Fed using open market purchases to buy bonds?
When the Treasury buys back bonds, there is no change in the money supply. When the Fed buys bonds in open market operations, there is an increase in reserves and thus an increase in the money supply.
In an economy, government spending (G) and taxes (T) are independent of income. The value of MPC is known to be 0.750.75. If government spending increases by $2020 billion, the amount by which taxes must be adjusted so that income or output (Y) does not change, to curb possible inflationary pressure, is:
^T =26.67
In an economy, government spending (G) and taxes (T) are independent of income. The value of MPC is known to be 0.750 If government spending increases by $40 billion, the amount by which taxes must be adjusted so that income or output (Y) does not change, to curb possible inflationary pressure, is:
^T= 53.33
The impact of a sharp drop in oil prices in the world market will result in ____________.
a decrease in the aggregate. price level and an increase in real GDP
In country A, all wage contracts are indexed to inflation. That is, each month wages are adjusted to reflect increases in the cost of living as reflected in changes in the price level. In country B, there are no cost-of-living adjustments to wages, but the workforce is completely unionized. Unions negotiate 3-year contracts. Expansionary monetary policy is likely to have
a greater effect in country B
From the wide disparities in apparel and aircraft, you can tell that the United States essentially produces ____________.
a surplus of civilian aircraft to be traded for apparel produced in other countries
If the Fed raises the discount rate, then
aggregate demand decreases
Evaluate the following statement: "In the short run, if an economy experiences inflation of 10 percent, the cause of the inflation is unimportant. Whatever the cause, the only important issue the government needs to be concerned with is the 10 percent increase in the price level." This statement implies that
all sources of inflation have the same econommic consequences.
When government spending increases by $1, planned expenditures increase by $1
and the equilibrium level of income will increase by $1 times the spending multiplier.
In the short run, an increase in AD can sometimes cause output to rise without raising prices because
at low levels of output, firms can have excess capacities which do not raise marginal costs as they begin to be utilized
Using money as a medium of exchange is more efficient than barter because
barter requires a double coincidence of wants
The nation of Pixley has an absolute advantage in everything it produces compared to the nation of Hooterville. These two nations
can still benefit by trading with each other since the basis of trade is based on comparative advantage
You can conclude that relative to its trading partners in the production of goods, the United States has a comparative advantage in producing ____________.
civilian aircraft and foods, feeds, and beverages.
Expansionary fiscal policy is used by the government to
create new jobs in the economy
By late summer of 2010, the target federal funds rate was between zero and 0.25%. At the same time, "animal spirits" were dormant and there was excess capacity in most industries. That is, businesses were in no mood to build new plant and equipment if they were not using their already existent capital. Interest rates were at or near zero and yet investment demand remained quite low. The unemployment rate was 9.6% in August 2010. These conditions suggest that monetary policy is likely to be a much more effective tool to promote expansion than fiscal policy. This statement is
false, because expansionary monetary policy lowers interest rates, but rates were already nearly zero
Banks borrow not only from the Fed but also from each other. What is the interest rate in this market called?
federal funds rate
When the average income tax rates increase as a result of economic expansion, it is known as
fiscal drag
Expansionary fiscal and expansionary monetary policy will___________ the interest rate and _________ aggregate output.
have an intermediate effect on; increase
All else equal, a cost shock that shifts the aggregate supply curve to the left leads to a ________ price level and a ________ level of aggregate output if the aggregate demand curve is downward sloping.
higher; lower
Demand-pull inflation corresponds to ________ output and cost-push inflation corresponds to ________ output.
higher; lower
In Mexico, a pound of cashews costs 125 pesos and a pound of walnuts costs 95 pesos. In the United States, a pound of cashews costs $7 and a pound of walnuts costs $5. If the exchange rate is $1 = 16 pesos and there are no transportation costs, Mexico will
import cashews and walnuts from the US
Contractionary policies are designed to slow the economy and reduce inflation by decreasing aggregate demand and aggregate output. Contractionary fiscal policy and contractionary monetary policy have opposite effects on the interest rate despite having the same goal of decreasing aggregate output because contractionary monetary policy ________ the interest rate, whereas contractionary fiscal policy ________ the demand for money and the interest rate.
increases; decreases
For example, the state of North CarolinaNorth Carolina specializes in producing tobaccotobacco because
it has favorable climate
Consider the graph at right. The economy is initially in longlong-run equilibrium at point Upper AA and there is a cost shockthere is a cost shock. Move the cursor on the graph at right to the new short-run equilibrium point.
move the dot, upwards and to the left. to point D.
Evaluate the following statement: "If lower exchange rates increase a nation's exports, the government should do everything in its power to ensure that the exchange rate for its currency is as low as it can possibly be." This statement does not acknowledge that lower exchange rates
none of the above responses are acknowledged by the statement.m
Data for the simple economy of Newt show that in 2015, saving exceeded investment and the government is running a balanced budget. What is likely to happen?
output will fall
If output = 1,500 when planned aggregate expenditure = 1,200, the unplanned change in inventories will be ________ and output will ________ to adjust to the disequilibrium
positive; decrease
In country A, an expansionary monetary policy will raise prices without increasing output because
production costs adjust automatically to price increases;therefore the AS curve will be vertical. Whereas in country B, input prices lag behind output prices so a rightward shift in the AD curve will increase output because the AS curve will not be vertical
The economy is beginning to slip into a recession. Further, data indicate that inflation is low. The Fed will most likely respond to this state of the economy by
purchasing government securities to lower the interest rate.
The balanced-budget multiplier is the
ratio of the change in the equilibrium level of output to a change in government spending
This action will
reduce credit availability and lower the money supply
The structural deficit
remains the same at full employment
If the Fed wants to decrease the money supply, it could
sell treasury securities
In an expansion, taxes rise and government expenditures fall, and therefore act as automatic ________. Inflation is more likely to increase in an expansion than in a recession, and therefore acts as an automatic ________.
stabilizers; destabilizers
In an expansion, taxes rise and government expenditures fall, and therefore act as automatic ________. Inflation is more likely to increase in an expansion than in a recession, and therefore acts as an automatic ________.
stabilizers;destabilizer
The deficit that remains at full employment is called
structural deficit
The deficit that remains at full employment is called the
structural deficit
You can think of the United States as a set of 50 separate economies with no trade barriers. In such an open environment, each state specializes in the products that it produces best. What product or products does your state specialize in? For example, the state of North CarolinaNorth Carolina specializes in producing
tobacco
disposable income is equal to
total income minus net taxes
The budget deficit is calculated as government spending minus tax revenues
true
when the fed rule calls for a negative interest rate, the aggregate demand curve is
vertical
In the long run, if wages adjust fully to rising prices, the aggregate supply curve will be ________ and fiscal policy will have ________ on output.
vertical; no effect
Two countries, A and B, both are currently in recession. The values of the MPS for A and B are 0.1 and 0.5 respectively. The governments of both countries are planning to boost income through an expansionary policy of a tax cut of $1 billion. The policy of tax cut
will be less effective in country B than in country A since the value of the tax multiplier is lower in country B
