Macro Economics Final

The public debt is the:

Accumulation of all past deficits minus all past surpluses

The following are important problems associated with the public debt, except:

Government borrowing to finance the debt may lead to too much private investment

A budget surplus means that:

Government revenues are greater than expenditures in a given year

Automatic stabilizers smooth fluctuations in the economy because they produce changes in the government's budget that:

Help offset changes in GDP

Due to automatic stabilizers, when the nation's total income rises, government transfer spending:

Decreases and tax revenues increase

A decrease in taxes is one way to pursue a contractionary fiscal policy because it will make government revenues contract.

False

Demand-pull inflation can be restrained by increasing government spending and reducing taxes.

False

The goal of expansionary fiscal policy is to rein in inflation.

False

A tax reduction of a specific amount will be more expansionary the:

larger is the economy's MPC.

Which of the following represents the most expansionary fiscal policy?

A $10 billion increase in government spending.

Which of the following fiscal policy changes would be the most contractionary?

A $10 billion increase in taxes and a $30 billion cut in government spending

Which of the following fiscal policy changes would be the most expansionary?

A $40 billion increase in government spending

How is the public debt calculated?

By cumulating the annual difference between tax revenues and government spending over the years

Crowding out is a decrease in private investment caused by

Increased borrowing by the government

Crowding out is a decrease in private investment caused by:

Increased borrowing by the government

The crowding-out effect suggests that:

Increases in government spending may reduce private investment

Fiscal policy is enacted through changes in:

Taxation and government spending

Which of the following serves as an automatic stabilizer in the economy?

The progressive income tax

A contractionary fiscal policy shifts the aggregate demand curve leftward.

True

Built-in stability is exemplified by the fact that with a progressive tax system, net tax revenues decrease when GDP decreases.

True

Expansionary fiscal policy during a recession means cutting taxes, increasing government spending, or taking both actions.

True

If the MPC in the economy is .75, government could shift the aggregate demand curve rightward by $30 billion by cutting taxes by $10 billion.

True

A specific reduction in government spending will dampen demand-pull inflation by a greater amount the:

smaller is the economy's MPS.