Econ Ch 10, 13, and 15

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Expenditure on college tuition​ ______ short-run aggregate supply and ​ ______ potential GDP.

increases; increases

Expenditure on alternative energy and the​ nation's infrastructure​ ______ short-run aggregate supply and​ ______ potential GDP.

increases; increases;

If the price level rises and the money wage rate remains​ constant, the quantity of real GDP supplied​ ______ and there is a movement up along the​ ______ aggregate supply curve.

increases; short-run

The classical view assumes:

money wage rates adjust quickly.

The aggregate demand curve slopes downward because​ _______.

of the wealth effect and the substitution effect

Generational imbalance is​ ______ .

the division of the fiscal imbalance between the current and future​ generations, assuming that the current generation will enjoy the existing levels of taxes and benefits

Tax cuts will not pay for themselves if​ ______.

the economy lies to the left of the maximum point on the Laffer curve

According to the graph, an increase in the quantity of money is best described by:

the shift in the AD curve

Which of the following statements illustrate monetary policy​?

The Fed has raised the federal funds rate by 0.3 percent.

Suppose the United States goes from a​ free-trade policy to a​ no-trade policy with other countries. Which of the following is a result of this new​ policy?

The U.S. no longer consumes outside its production possibilities frontier

Which of the following statements illustrate fiscal policy​?

The US government has proposed a hike in the corporate tax rate.

Which of the following statements illustrates fiscal policy​?

The US government has proposed a hike in the corporate tax rate.

Which of these factors will cause the long-run aggregate supply curve to shift to the right?

The accumulation of more machinery and equipment

When the Fed takes action to move the economy back toward full​ employment, aggregate demand increases and the AD curve shifts rightward.

The equilibrium quantity of real GDP increases and the price level rises.

If firms reduce investment spending and the economy enters a recession, which of these contributes to the adjustment that causes the economy to return to its long-run equilibrium?

The eventual agreement by workers to accept lower wages

If tax revenues are​ $3,500 billion and the​ government's budget balance is a​ $720 billion​ deficit, calculate the​ government's outlays.

$4,220 ($3,500 +​ $720) billion​ = $4,220 billion

Choose the statement that is incorrect.

A tariff creates a social loss because the domestic government loses revenue.

The relationship between the tax rate and the amount of tax revenue collected is called the​ ______ curve. This curve shows that​ ______.

Laffer; tax cuts can increase tax revenue

Which of these shifts the aggregate demand curve to the right?

Lower interest rates

The source of the fiscal imbalance is​ ______.

Social Security pensions and Medicare benefits

A macroeconomic equilibrium in which real GDP is less than potential GDP is​ _____ equilibrium. And one in which real GDP equals potential GDP is​ _____ equilibrium.

a below full-employment; a full-employment

A higher exchange rate will result in:

a decrease in net exports and a decrease in aggregate demand

Examples of monetary policy that decrease aggregate demand include​ ______.

a decrease in the quantity of money and an increase in interest rates

A fiscal policy action that might increase investment and speed economic growth is​ ______ , which works by​ ______ the real interest rate paid by borrowers and​ ______ the real interest rate earned by savers and suppliers of loanable funds.

a decrease in the tax on interest​ income; lowering; raising

Dumping occurs when​ ______.

a foreign firm sells its exports at a lower price than its cost of production

Economic growth results from​ ______.

a growing supply of labor and increasing labor​ productivity, which increase​ long-run aggregate supply

When the government imposes a tax on labor​ income, ______ the production function occurs and potential GDP​ ______.

a leftward movement along; decreases

A rise in the money wage rate with no change in potential GDP creates​ ______.

a leftward shift of the SAS curve and no change in the LAS curve

Inflation results from​ ______.

a persistent increase in aggregate demand at a faster pace than that of the increase in​ long-run aggregate supply

Choose the statement that is incorrect. A present value is​ ______ . The ______ the interest​ rate, the greater is the present value of a given future amount.

a tool used to​ calculate, with​ certainty, how much the government will need to invest today to pay the future pensions and medical benefits of older Americans . lower

Examples of fiscal policy that increase aggregate demand include​ ______.

an increase in government​ expenditure, a decrease in​ taxes, and an increase in transfer payments

The budget deficit is​ ______. Automatic fiscal policy is​ ______ the output gap.

at least partly composed of a cyclical​ deficit; decreasing

Offshore outsourcing occurs when a firm in the United States​ _______.

buys finished​ goods, components, or services from other firms in other countries

The tools that a country can use to restrict international trade include all of the following except​ _______.

changes in the foreign exchange rate

Choose the statement that is incorrect. When a country exports cheap clothing to the United​ States, _______.

consumers from the exporting country gain

When a good is​ imported, _______.

consumers gain because they pay a lower price and increase the quantity they consume

When a good is​ exported, _______.

consumers lose because they pay a higher price and decrease the quantity they consume

When the United States places a tariff on a​ good, the U.S.​ ______ and the U.S.​ ______ from the tariff.

consumers of the good​ lose; producers of the good gain

The government is considering raising the tax rate on labor income. Explain the​ supply-side effects of such an action and use appropriate graphs to show the directions of​ change, not exact magnitudes. The supply of labor will​ ______ and the demand for labor will​ ______.

decrease because the tax weakens the incentive to​ work; not change because labor productivity​ doesn't change

Tax revenues​ ______ during a recession. ​Needs-tested spending​ ______ during an expansion.

decrease; decreases

A tax on labor income​ ______. The equilibrium quantity of labor​ ______. At the new equilibrium quantity of​ labor, the​ before-tax wage rate ____ and the​ after-tax wage rate _____.

decreases the supply of labor; decreases rises; falls

Ending the Bush tax cuts​ ______ short-run aggregate supply and​ ______ potential GDP.

decreases; decreases

Increasing taxes on business and investment​ ______ short-run aggregate supply and​ ______ potential GDP.

decreases; decreases

Aggregate demand​ _______ when a decrease in foreign income occurs. Aggregate demand​ _______ when an increase in expected profits occurs.

decreases; increases

The​ "average overall increase across the​ board" wage increase​ _______.

decreases​ short-run aggregate supply because it increases​ firms' costs

If the price level and the money wage rate rise by the same​ percentage, the quantity of real GDP supplied​ ______ and there is a movement up along the​ ______ aggregate supply curve.

does not change; long-run

Protection​ _______.

does not save jobs and the environment and does not prevent workers in developing countries from being exploited

Because the tax​ ______ , the equilibrium level of employment will​ ______ , the​ before-tax wage rate will​ ______, and the​ after-tax wage rate will​ ______.

drives a wedge between the​ take-home wage and the cost of​ labor; decrease;​ rise; fall

When a firm implements offshore​ outsourcing, consumers in the United States and workers in the foreign country in the industry that is being outsourced​ _______, and workers in the United States in the industry that is being outsourced​ _______.

gain; lose

The​ infant-industry and the dumping arguments for protection are​ _______.

incorrect because free trade promotes prosperity for all countries and protection is inefficient.

An economy is experiencing a recessionary gap. The government can​ ______.

increase expenditure or cut taxes to increase aggregate demand

An increase in expected future profits​ _______.

increases aggregate demand today

An increase in expected future income​ _______. An increase in the expected future inflation rate​ _______.

increases aggregate demand today; increases aggregate demand today

Starting from a​ full-employment equilibrium, an increase in aggregate demand​ ______, and creates​ ______ gap.

increases real GDP above potential​ GDP; an inflationary

Fiscal stimulus that increases an existing government budget deficit​ ______ loanable​ funds, which​ ______ investment.

increases the demand​ for; increases the real interest rate and decreases

Product quality​ ______ a valid argument against free trade. The​ product-quality argument against free trade​ ______.

is​ not; can be used by domestic pharmaceutical producers to create unnecessary fear among U.S. consumers and increase demand for domestically produced pharmaceuticals

The​ infant-industry argument for protection is that​ ______.

it is necessary to protect a new industry to enable it to grow into a mature industry that can compete in world markets

In times of​ recession, the Fed​ _______ the interest rate and​ __________ the quantity of money.

lowers; increases

An international substitution effect arises because when the U.S. price level​ rises, _______.

people spend less on the more expensive​ U.S.-made items and they spend more on the less expensive​ foreign-made items

Keynesian macroeconomists recommend​ ______.

policies that actively offset changes in aggregate demand that bring recession

Monetarist macroeconomists recommend​ ______.

policies that keep taxes low to avoid disincentive effects that decrease potential GDP

Classical macroeconomists recommend​ ______.

policies that minimize the disincentive effects of taxes on​ employment, investment, and technological change

The net gain from international trade is​ _______.

positive. Consumers gain more than producers lose with​ imports, and producers gain more than consumers lose with exports.

Fiscal imbalance is the ______ value of the​ government's commitments to pay benefits minus the ______ value of its tax revenues.

present; present

The use of trade barriers to shield domestic companies from foreign competition is called __________.

protectionism

A numerical limit on the quantity of a good that can be imported is known as a(n):

quota

The defining feature of the Keynesian view of macroeconomics is that the economy is​ ______.

rarely at full employment

The cost of saving jobs through trade barriers like tariffs and quotas is:

relatively high

A tax cut pays for itself if the economy lies to the​ ______ of the maximum point on the Laffer curve. This statement implies that the absolute value of the tax multiplier is​ ______.

right; greater than 1

At the new equilibrium quantity of​ labor, the​ before-tax wage rate ______ and the​ after-tax wage rate ______.

rises; falls

The long-run aggregate supply curve:

shifts to the right as technological change occurs

When a tax is applied to labor​ income, the result is a​ ______ full-employment quantity of labor and a​ ______ potential GDP.

smaller; lower

A budget deficit that needs government action to remove it is a​ ______ deficit. A​ ______ deficit will disappear when the economy moves back to full employment.

structural; cyclical

The main reasons for imposing a tariff are​ _______.

tariff revenue and rent seeking

The Laffer curve is the relationship between the​ ______ and the​ ______ . It is unlikely that the United States is on the​ "wrong" side of this curve​ because, if it​ were, a decrease in the tax rate would​ ______ .

tax​ rate; amount of tax revenue collected increase tax revenue

When the price​ level, the money wage​ rate, and other factor prices rise by the same​ percentage, there is a movement along​ ______. Potential GDP​ ______.

the LAS curve; does not change

When the price level rises but the money wage rate and other factor prices remain the​ same, there is a movement along​ ______. The quantity of real GDP supplied​ ______.

the SAS curve; increases

An automatic fiscal policy is a fiscal policy action that is triggered by​ _____. A discretionary fiscal policy is a fiscal policy action that is initiated by​ _____.

the state of the economy; an act of Congress

This infrastructure spending is fiscal stimulus. Such spending is​ _______ fiscal policy.

true discretionary

The tax wedge is the gap between the​ before-tax and​ after-tax ______.

wage rates

Potential GDP will​ ______ because​ ______ .

​decrease; employment decreases

Taxes and​ needs-tested spending work as automatic fiscal policy to dampen the business cycle because taxes​ ______ during an​ expansion, and​ needs-tested spending​ ______ during a recession.

​increase; increases

Starting from a​ full-employment equilibrium, a decrease in​ short-run aggregate supply​ ______ the price level and​ ______ potential GDP.

​increases; decreases real GDP below

If a discretionary increase in government expenditure​ occurs, the structural deficit​ ______ or the structural surplus​ ______.

​increases; decreases

Increasing payroll taxes​ ______ government receipts and raising the retirement age to 70​ ______ government​ outlays, which would reduce the shortfall.

​increases; decreases

When potential GDP​ increases, ______.

​long-run aggregate supply and​ short-run aggregate supply increase. The LAS and the SAS curve shift rightward

In the long​ run, the money wage rate​ ______, short-run aggregate supply​ ______, and the economy returns to a​ full-employment equilibrium.

​rises; decreases

The defining feature of the classical view of macroeconomics is that the economy is​ ______.

​self-regulating and always at full employment

The defining feature of the monetarist view of macroeconomics is that the economy​ is______.

​self-regulating and that it will normally operate at full​ employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady


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