HW AND DSM chapters 10, 13,15
The figure shows the labor market when an income tax is imposed. The tax wedge is ______.
$15/hour (35-20)
If tax revenues are $3,500 billion and the government's budget balance is a $720 billion deficit, calculate the government's outlays.
$4220
According to the graph, what is the reduction in U.S. lumber consumption as a result of the tariff?
100,000 board ft
According to the graph, how many board feet of lumber will be imported if imports are allowed into the United States?
500,000
According to the graph, what quantity of domestic lumber will be supplied after a tariff of $0.50 per board foot is imposed?
900,000 board feet
Which of the following statements illustrates fiscal policy?
US gov has proposed a hike in corporate tax rate
A higher exchange rate will result in:
a decrease in net exports and a decrease in aggregate demand
Examples of fiscal policy that increase aggregate demand include ______.
an increase in government expenditure, a decrease in taxes, and an increase in transfer payments
Taxes and transfer payments that stabilize GDP without requiring explicit actions by policymakers are called __________.
automatic fiscal
In 2008, spending on Social Security, Medicare and Medicaid was less than 10% of the GDP. By 2030 this amount is expected to be around 17% of GDP. One government option to solve this problem is to:
decrease benefits
Tax revenues ______ during a recession. Needs-tested spending ______ during an expansion.
decrease; decrease
How do an increase in interest rates and an increase in expected inflation change aggregate demand? Part 2 Aggregate demand _______ when an increase in interest rates occurs. Aggregate demand _______ when an increase in expected inflation occurs. The graph shows an aggregate demand curve. Suppose there is an increase in interest rates. Draw a new curve to show the effect of this change on aggregate demand. Label the new curve C1. Now suppose that there is an increase in expected inflation. Draw a new curve to show the effect of this change on the original AD curve. Label the new curve C2.
decreases; increases AD sloped diagonally C1 shifted downward left C2 shifted up right
How can government policies shift the aggregate demand curve to the right?
increase gov purchases
Starting from a full-employment equilibrium, an increase in aggregate demand ______, and creates ______ gap. In the long run, the money wage rate ______, short-run aggregate supply ______, and the economy returns to a full-employment equilibrium. Starting from a full-employment equilibrium, a decrease in short-run aggregate supply ______ the price level and ______ potential GDP.
increases real GDP above potential GDP; an inflationary rise; decreases increases; decreases real gdp below
Fiscal stimulus that increases an existing government budget deficit ______ loanable funds, which ______ investment.
increases the demand for; increases the real interest rate and decreases
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
According to Keynesian theory, fiscal policymakers can combat the impact of recessions by:
increasing gov spending
Draw a curve that shows the relationship between the tax rate and the amount of tax revenue collected. The relationship between the tax rate and the amount of tax revenue collected is called the ______ curve. This curve shows that ______.
laffer ; tax cutes can increase tax revenue start at 0 and arc up and then sharp decrease
Supply-side economists point to the Laffer curve as evidence that higher taxes:
lead to lower overall gov revenues
Which of these policies affects the economy through intended changes in the quantity of money and interest rates?
monetary
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 ______. Tax cuts will not pay for themselves if ______.
right; greater than 1 econ lies to left of max point on laffer curve
The price of tomatoes in the United States ______. U.S. consumers buy ______ tomatoes. The United States ______ tomatoes. ______ gain from international trade in tomatoes. ______ lose from international trade in tomatoes the US _____ tomatoes
rises; fewer tomatoes and U.S. firms produce more; exports US producers ; US consumers exports
The defining feature of the classical view of macroeconomics is that the economy is ______. Classical macroeconomists recommend ______.
self-regulating and always at full employment policies that minimize the disincentive effects of taxes on employment, investment, and technological change
According to the graph, an increase in the quantity of money is best described by:
shift in AD curve
the Long run AS curve
shifts to right as tech change
AD and AS model explains
shirt run fluctuations in real gdp and price level
When a tax is applied to labor income, the result is a ______ full-employment quantity of labor and a ______ potential GDP.
smaller; lower
Which of these is an example of an automatic fiscal policy?
unemployment benefit program
The tax wedge is the gap between the before-tax and after-tax ______.
wage rates
The defining feature of the monetarist view of macroeconomics is that the economy is______. Monetarist macroeconomists recommend ______.
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 policies that keep taxes low to avoid disincentive effects that decrease potential GDP
Draw an aggregate demand curve. Label it AD. Draw an arrow on the AD curve that shows the international substitution effect when the price level falls. Label it 1. Draw an arrow on the AD curve that shows the international substitution effect when the price level rises. Label it 2. An international substitution effect arises because when the U.S. price level rises, _______.
AD curve arrow 1 drawn downward on curve arrow 2 drawn upward on curve people spend less on the more expensive U.S.-made items and they spend more on the less expensive foreign-made items
The graph shows an aggregate demand curve. Draw a curve that shows the effect on aggregate demand of an increase in expected future profits. Label it. An increase in expected future income _______. An increase in the expected future inflation rate _______. An increase in expected future profits _______.
ADo slopped downward AD1 moved to the right increases aggregate demand today; increases aggregate demand today increases aggregate demand today
__________ advocates active government intervention via fiscal policy when the economy is in recession.
Keynesian
When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along ______. Potential GDP ______. 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 ______
LAS curve; doesnt change SAS curve; increases
The graph shows the demand for labor curve and supply of labor curve for an economy. Draw a point at the equilibrium real wage rate and equilibrium quantity of labor. Label it 1. Now the government imposes a tax on labor income. Draw a curve that shows the effect of this tax. Label it. Draw points at the new equilibrium quantity of labor to show: 1) the before-tax wage rate. Label it 2. 2) the after-tax wage rate. Label it 3. When the government imposes a tax on labor income, ______ the production function occurs and potential GDP ______.
LD and LS intersect at 250,30 and LD and LS+TAX intersect at 200,35 after tax wage rate equilibrium at 200,20 a leftward movement along; decreases
The graph shows the wholesale market for roses in the United States. The demand curve is the wholesalers' demand curve and the supply curve is the U.S. rose growers' supply curve. Wholesalers can buy roses at auction in Aalsmeer, Holland, for $125 per container. Draw a point at the equilibrium in the market with no international trade. Label it 1. Draw a horizontal line at the world price. Label it. Draw a point at the quantity bought in the United States with free trade. Label it 2. Draw a point at the quantity produced in the United States with free trade. Label it 3. Draw a horizontal arrow that shows the quantity of roses imported into the United States and the price with free trade.
S and D curve intersect at 6,175 WP at 125 point 2 at 12,125 point 3 at 2,125 arrow to points 2 and 3
The graph shows Mexico's demand for and supply of mangoes. Draw the world price line when the world price of mangoes is $1.00 a pound. Label it World price. Suppose that the government of Mexico imposes a tariff of $0.50 a pound on mangoes imported into Mexico. Draw a line to show the price of mangoes in Mexico. Label it World price + tariff. Draw a point at the quantity of mangoes demanded by Mexican consumers 1) at the world price. Label it 1. 2) at the price in Mexico following the tariff. Label it 2. Draw a point at the quantity of mangoes supplied by Mexican producers 3) at the world price. Label it 3. 4) at the price in Mexico following the tariff. Label it 4.
Sm and Dm intersect at (1,2) WP at 1 WP + Tariff at 1.5 point 1 at 1.5,1 point 2 at 1.3,1.5 point 3 at 0.5,1 point 4 at 0.8,1.5
The graph shows Spain's demand for oranges and the supply of oranges by growers in Spain. The world price of oranges is €1.00 a pound. Draw and label the world price line. Suppose there is free international trade. Draw a point to show the quantity of oranges bought by Spanish consumers and the price they pay. Label it 1. Draw a point to show the quantity of oranges supplied by Spanish producers and the price at which these oranges are sold. Label it 2. With free international trade, Spain produces ______oranges than in the situation with no international trade and ______ some at the lower world price.
Sspain and Dspain intersect at 1,2 point 1 at 1.5,1 point 2 at 0.5,1 WP at 1 fewer; imports
Larry Summers, the outgoing director of the White House National Economic Council, said the United States must ramp up spending on domestic infrastructure to drive the economic recovery. He said that a combination of low borrowing costs, cheap building costs, and high unemployment in the construction industry make this the ideal time to rebuild roads, bridges, and airports. This infrastructure spending is fiscal stimulus. Such spending is _______ fiscal policy.
TRUE DISCRETIONARY
Which of the following statements illustrate monetary policy?
The Fed has raised the federal funds rate by 0.3 percent.
Which of the following statements illustrate fiscal policy?
The US government has proposed a hike in the corporate tax rate.
The graph shows the U.S. demand for and U.S. supply of raspberries. Draw the world price line when the world price of raspberries is $3.00 a pound. Label it World price. Now the U.S. government imposes a tariff of $0.50 a pound on raspberries imported into the United States. With the tariff imposed: 1. Draw a line to show the price of raspberries in the United States. Label it World price+tariff. 2. Draw a point at the quantity of raspberries demanded by U.S. consumers. Label it 1. 3. Draw a point at the quantity of raspberries supplied by U.S. producers. Label it 2. 4. Draw a shape that represents the tariff revenue.
WP at 3 WP + TARIFF at 3.5 point 1 at 1.3,3.5 point 2 at 0.8,3.5 rectangle shape that connects the two
Examples of monetary policy that decrease aggregate demand include ______.
a decrease in the quantity of money and an increase in interest rates
If the money wage rate rises and potential GDP remains the same, does the LAS curve or the SAS curve shift or is there a movement along the LAS curve or the SAS curve? 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
The ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources is known as:
absolute advantage
Which of these factors will cause the long-run aggregate supply curve to shift to the right?
accumulation of more machinery and equipment
According to the theory of comparative advantage, specialization and free trade will benefit:
all trading partners who specialize in goods where they have comparative adv
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. The graph shows an economy's long-run aggregate supply curve. The economy is at an above full-employment equilibrium. Draw an aggregate demand curve and a short-run aggregate supply curve. Label them. Draw a point at the short-run equilibrium.
below; full employment AD slope with equilibrium at 19 SAS slopped upward LAS vertical at 18 trillions in real gdp
Every time the federal government runs a budget deficit, the government must:
borrow, adds to gov debt
What happens when government spending is greater than government tax revenues?
borrowing by gov and gov debt rises
Trade between a rich and a poor country benefits
both countries
A government that spends more than it collects in taxes experiences a:
budget deficit
A government that collects more in taxes than it spends experiences a:
budget surplus
If the federal government's expenditures are less than its revenue, there is a __________.
budget surplus
Which of these factors will cause the aggregate demand curve to shift?
change in expectations of households and firms
Countries gain from specializing in producing goods in which they have a(n) __________ advantage and trading for goods in which other countries have a(n) __________ advantage.
comparative ; comparative
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. Choose the statement that is incorrect.
consumers of the good lose; producers of the good gain A tariff creates a social loss because the domestic government loses revenue.
The decline in private expenditures that results from an increase in government borrowing is known as:
crowding out
What will happen to the supply of labor and the demand for labor and why? The supply of labor will ______ and the demand for labor will ______. The graph shows the U.S. production function. Draw a point that indicates potential GDP when the equilibrium quantity of labor is 250 billion hours. Show the effect of a tax on labor income. Draw either an arrow along the PF showing the direction of change, or a new production function. Draw only the one of these objects that correctly shows the effect of the tax.
decrease because the tax weakens the incentive to work; not change because labor productivity doesn't change PF curve slops up with equilibrium at 250,13.1 and arrow pointing downward along curve
How does a tax on labor income influence the equilibrium quantity of employment? A tax on labor income ______. The equilibrium quantity of labor ______. At the new equilibrium quantity of labor, the before-tax wage rate ____- and after tax wage rate _____
decrease the supply of labor; decrease rise; falls
Paychecks in Kansas are growing, according to the U.S. Department of Labor. Jacqueline Midkiff, with the department's office in Kansas City, says the average overall increase across the board through the Midwest, is 1.9 percent over this time last year, while inflation grew at 1.4 percent for the same time period. 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
In a telephone poll of over 1,000 adult Americans, 75 percent said they believe the nation is now in a recession. Of those who think the economy is in a recession, 27 percent said they believe we are in a serious recession. Americans are less confident in the future of the economy than they were in March. The poll showed that 23 percent believe the downturn will last more than two years, up from 19 percent in March. The graph shows the economy when consumers experience a decrease in consumer confidence. Draw a curve that shows how the economy returns to a full-employment equilibrium with no intervention by the government or central bank. Label it. Draw a point at the new long-run macroeconomic equilibrium. The economy returns to a full-employment equilibrium as _____
equilibrium at (12,115) LAS at 12 SASo slopes upward SAS1 shift down right ADo downward curve AD1 shifted down left AD1 and SAS1 intersect at 12,95 SASo and AD1 intersect at 11,105 the money wage rate falls
Draw an aggregate demand curve in an economy with an above full-employment equilibrium. Label it AD. Draw a point at the above full-employment equilibrium. Draw a horizontal arrow at the equilibrium price level that shows the output gap. he output gap in the graph is ______ because ______.
equilibrium at (19,120) with arrows point out to the left LAS at 18 an inflationary gap; potential GDP is less than real GDP
The Bureau of Economic Analysis reported that real GDP during the second quarter of 2007 was $11.5 trillion and the GDP deflator was 120. The Congressional Budget Office estimated potential GDP to be $11.6 trillion in 2007. For the year 2007, draw: 1) the long-run aggregate supply curve 2) the aggregate demand curve 3) the short-run aggregate supply curve. Make the curves consistent with the numbers above and label them. Draw a point at the short-run equilibrium.
equilibrium at 11.5,120 SAS slopes upward AD slopes downward LAS ar 11.6
Draw an aggregate demand curve in an economy with a below full-employment equilibrium. Label it AD. Draw a point at the below full-employment equilibrium. Draw a horizontal arrow at the equilibrium price level that shows the output gap. The output gap in the graph is ______ because ______.
equilibrium at 17,100 with arrows pointing out to the right LAS at 18 a recessionary gap; potential GDP exceeds real GDP
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?
eventual agreement by workers to accept lower wage
Goods and services produced domestically but sold to other countries are called __________.
exports
Government policies that increase aggregate demand are called __________.
fiscal stimulus
One of the primary goals of most governments with regard to the economy is:
full employment
Which type of fiscal policy would cause the move of the AD curve represented in this graph?
higher gov spending
A product produced in a foreign country and purchased by residents of the home country is called:
import
An economy is experiencing a recessionary gap. The government can ______.
increase expenditure or cut taxes to increase aggregate demand
When the economy is in a recession, the government can:
increase government purchases or decrease taxes in order to increase aggregate demand.
Which of these fiscal policy actions will increase real GDP in the short run?
increase in gov expenditures
Budget deficits automatically __________ during recessions and __________ during expansions.
increase, decrease
According to the graph, an increase in government spending, all else equal, will shift the AD curve from the initial AD curve to the curve labeled:
increased AD
If potential GDP increases, what happens to aggregate supply? When potential GDP increases, _ The graph gives a long-run aggregate supply curve and a short-run aggregate supply curve. Potential GDP increases and the full-employment price level remains constant. Draw the new long-run aggregate supply curve and the new short-run aggregate supply curve. Label the curves. Draw a point that shows the new value of potential GDP at the full-employment price level.
long-run aggregate supply and short-run aggregate supply increase. The LAS and the SAS curve shift rightward LASo vertical at 18 , SASo diagonal with equilibrium at 110, SAS1 diagonal with equilibrium at 18.5, 110
Which of these shifts the aggregate demand curve to the right?
lower int rates
If a country has a comparative advantage in the production of a good, then that country:
lower opp cost in production of the good
Greg Mankiw wrote in 2007 on the eve of the Global Financial Crisis, "Congress made its most important contribution to taming the business cycle back in 1913, when it created the Federal Reserve System. Today, the Fed remains the first line of defense against recession." In times of recession, the Fed _______ the interest rate and __________ the quantity of money. The graph shows the U.S. economy in a below full-employment equilibrium in 2007. Draw a curve to show the result of actions taken by the Fed to move the economy back toward a full employment equilibrium. Draw a point to show the new short-run macroeconomic equilibrium.
lowers ; raises LAS at 14 SAS and ADo intersect ar 13,110 SAS and AD1 intersect at 13.5, 115
the classical view assumes
money wage rates adjust quickly.
The aggregate demand curve slopes downward because _______.
of the wealth effect and the substitution effect
The economy is in long-run equilibrium when the short-run aggregate supply and the aggregate demand curve intersect at a point:
on the long run AS curve
When nations specialize in their comparative advantage and engage in trade:
overall standard of living increase
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 ____ of the government's commitments to pay benefits minus _____ value of its tax generational imbalance is _____
present ; present 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
The aggregate demand curve shows the relationship between:
price level and Qreal gdpD
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 ______. Keynesian macroeconomists recommend ______.
rarely at full policies that actively offset changes in aggregate demand that bring recession
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 _____.
state of econ act of congress
A tax imposed by a government on imported products is called a:
tariff
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
The graph shows a business cycle. Draw a vertical arrow that shows: 1) a recessionary gap. Label it 1. 2) an inflationary gap. Label it 2. Draw a point that shows the economy at full employment. At arrow 1 in the graph, the economy is in ______ full- employment equilibrium and the intersection of the AD and SAS curves is to the ______ of the LAS curve. At arrow 2, the economy is in ______ full-employment equilibrium and the intersection of the AD and SAS curves is to the ______ of the LAS curve.
vertical arrow from potential gdp (18) downward vertical arrow upward for actual real gdp equilibrium at (2,18) a below; left an above; right
The wealth effect refers to the fact that
when the price level falls, the real value of household wealth rises, and so will consumption