Econ Ch 10, 13, and 15
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
