Ch 13 delgado macro

B

Through the start of 2009, Social Security revenues exceeded payouts, and the excess inflow was used to buy A) Public lands. B) Treasury securities. C) Gold certificates. D) Foreign securities.

B

https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image002ch33a.png Refer to the diagram, in which Qf is the full-employment output. A contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at A) AD0. B) AD3. C) AD2. D) AD1

B

https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image003ch33b.png Refer to the graph. Assume that the economy is in a recession with a price level of P1 and output level Q1. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output? A) P1 and Q1 B) P2 and Q2 C) P2 and Q4 D) P1 and Q3

A

1998 0 0 1999 -3 0 2000 -5 -2 2001 -2 -2 2002 +2 +1 Refer to the data for a fictional economy. The changes in the budget conditions between 1998 and 1999 best reflect A) A recession. B) A contractionary fiscal policy. C) An expansionary fiscal policy. D) Demand-pull inflation.

A

To track the public debt over time and understand its significance to the economy, it is best A) Measured relative to the gross domestic product. B) Examined relative to budget surpluses. C) Calculated relative to the money supply. D) To compare it to imports, exports, and the trade deficit.

True

The so-called crowding-out effect refers to government spending crowding out private investment spending. T/F

D

The two reasons why bankruptcy is a false concern about the public debt are A) Saving and investment. B) Investment and refinancing. C) Government spending and taxation. D) Refinancing and taxation.

D

A major reason that the public debt cannot bankrupt the federal government is because A) The federal government can draw on its gold reserves. B) The public debt is mostly held by foreigners. C) The federal government has the Social Security Trust Fund. D) The public debt can be easily refinanced by issuing new bonds.

D

Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The recognition lag of fiscal policy is reflected in events A) 2 and 3 B) 4 and 5 C) 3 and 4 D) 1 and 2

C

Discretionary fiscal policy is often initiated on the advice of the A) Federal Reserve Board. B) Congressional Budget Office. C) Council of Economic Advisers. D) Joint Economic Committee.

A

An expansionary fiscal policy is shown as a A) Rightward shift in the economy's aggregate demand curve. B) Leftward shift in the economy's aggregate demand curve. C) Leftward shift in the economy's aggregate supply curve. D) Movement along an existing aggregate demand curve.

B

As of 2015, most of the U.S. federal debt was owed to A) The Chinese people. B) Americans. C) Foreign governments. D) The Japanese people.

C

Countercyclical discretionary fiscal policy calls for A) Deficits during both recessions and periods of demand-pull inflation. B) Surpluses during recessions and deficits during periods of demand-pull inflation. C) Deficits during recessions and surpluses during periods of demand-pull inflation. D) Surpluses during both recessions and periods of demand-pull inflation.

D

Discretionary fiscal policy refers to A) The changes in taxes and transfers that occur as GDP changes. B) The authority that the president has to change personal income tax rates. C) Any change in government spending or taxes that destabilizes the economy. D) Intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

C

Government Spending Tax Revenues GDP Year 1 $800 $825 $4,000 Year 2 850 850 4,200 Year 3 900 875 4,350 Year 4 950 900 4,500 Year 5 1,000 925 4,600 The table contains budget information for a hypothetical economy. All data are in billions of dollars. In which year is there a budget surplus? A) Year 4 B) Year 5 C) Year 1 D) Year 2

D

The Federal government's purposeful manipulation of taxes and spending in order to "stimulate" the economy" or "reign in inflation" is known as: A) Taxation policy B) Governmental policy C) Monetary policy D) Fiscal policy

D

One advantage of automatic fiscal policy over discretionary fiscal policy is that automatic fiscal policy A) Has a greater multiplier effect than discretionary policy. B) Makes the actual budget a better reflection of the condition of the economy than the standardized budget. C) Does not produce a cyclical deficit, as discretionary policy does. D) Is not subject to the timing problems of discretionary policy.

B

One important reason why the United States government is not likely to go bankrupt even with a large public debt is that it has A) Strong military to protect it from creditors. B The power to print money to finance the debt. C) The ability to decrease interest rates and increase investment spending. D) The capacity to pay off its outstanding debt with gold.

A

https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image011ch33a.png Refer to the figure. Suppose that the economy is currently operating at the intersection of AS and AD2 and that the full-employment level of output is Y. If the government wants to move the level of real GDP back to Y and reduce demand-pull inflation, in the presence of a ratchet effect, it should A) Enact a contractionary fiscal policy that will shift aggregate demand to the left, but not as far as AD1. B) Reduce taxes or increase government spending. C) Enact a contractionary fiscal policy that will shift aggregate demand left to AD1. D) Enact a contractionary fiscal policy that will shift aggregate demand to the left, farther left than AD1.

A

https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image021ch33a.png Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. If GDP is $400, A) The budget will be balanced. B) There will be a budget surplus. C) There will be a budget deficit. D) The macroeconomy will necessarily be in equilibrium.

D

A contractionary fiscal policy is shown as a A) Movement along an existing aggregate demand curve. B) Rightward shift in the economy's aggregate supply curve. C) Rightward shift in the economy's aggregate demand curve. D) Leftward shift in the economy's aggregate demand curve.

A

Year Deficit it as a % of GDP 1 1.5% 2 1.4 3 2.0 4 1.8 5 1.5 The accompanying table shows the cyclically adjusted budget deficit as a percentage of GDP over a five-year period. In which year was fiscal policy turning more expansionary? A) Year 3 B) Year 4 C) Year 5 D) Year 2

B

One important reason why the United States government is not likely to go bankrupt even with a large public debt is that it has A) The ability to decrease interest rates and increase investment spending. B) The power to print money to finance the debt. C) he capacity to pay off its outstanding debt with gold. D) A strong military to protect it from creditors.

D

From 2010 to 2015, the actual as well as the cyclically adjusted federal budget deficits as percentages of GDP in the U.S. have A) Risen exponentially. B) Remained roughly constant. C) Increased slowly. D) Decreased.

C

Government Spending Tax Revenues GDP Year 1 $450 $425 $2,000 Year 2 500 450 3,000 Year 3 600 500 4,000 Year 4 640 620 5,000 Year 5 680 580 4,800 Year 6 600 620 5,000 The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. The public debt declined in year A) 3 B) 5 C) 6 D) 4

C

If people expected that a fiscal policy in the form of a tax cut was temporary, then this policy's effect on the economy would tend to be A) Stronger. B) The exact opposite of what was intended. C) Weaker. D) As the multiplier effect would predict.

A

If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by A) Increasing government spending by $4 billion. B) Decreasing taxes by $4 billion. C) Increasing taxes by $4 billion. D) Increasing government spending by $40 billion.

True

If the cyclically adjusted budget deficit goes from 2 percent to 1 percent of GDP, then it indicates that fiscal policy has turned more contractionary. T/F

D

If the economy is to have significant built-in stability, then when real GDP increases, the tax revenues should A) All proportionately more than the change in GDP. B) All proportionately less than the change in GDP. C) Rise proportionately less than the change in GDP. D) Rise proportionately more than the change in GDP.

A

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by A) $20 billion B) $10 billion C) $31.25 billion D) $40.50 billion

B

Proponents of the notion of a "political business cycle" suggest that A) Cyclical swings in the economy are produced by the inherent political instability found in capitalist economies. B) A possible cause of economic fluctuations is the use of fiscal policy by policymakers for political purposes and goals. C) The standardized budget is a better indicator of the state of the economy than the actual budget, for political reasons. D) There is constant political trading among policymakers that tends to make the economic policies of state and local governments procyclical.

B

Security Amount (in Billions) Treasury Bills $220 Corporate Bonds 140 Treasury Notes 80 Corporate Stock 200 US Savings Bonds 60 Treasury Bonds 100 Other things equal, an increase of Treasury bonds from $100 billion to $120 billion in the economy would A) Not change the size of the public debt. B) Increase the public debt from $460 billion to $480 billion. C) Increase the public debt from $400 billion to $420 billion. D) Decrease the public debt by $20 billion.

A

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth? A) Reductions in federal tax rates on personal and corporate income. B) Reductions in agricultural subsidies and veterans' benefits. C) Postponement of a highway construction program. D) A congressional proposal to incur a federal surplus to be used for the retirement of public debt.

B

Suppose the government purposely changes the economy's cyclically adjusted budget from a deficit of 3 percent of real GDP to a surplus of 1 percent of real GDP. The government is engaging in a(n) A) Neutral fiscal policy. B) Contractionary fiscal policy. C) High-interest-rate policy. D) Expansionary fiscal policy.

True

Tax increases and government spending cuts by state governments during recessions often reduce the expansionary impact of fiscal policy by the federal government. T/F

A

The United States is experiencing a recession and Congress decides to adopt an expansionary fiscal policy to stimulate the economy. In this case, the crowding-out effect suggests that investment spending will A) Decrease, thus partially offsetting the fiscal policy. B) Decrease, thus partially reinforcing the fiscal policy. C) Increase, thus partially offsetting the fiscal policy. D) Increase, thus partially reinforcing the fiscal policy.

C

The crowding-out effect is A) Strongest when the economy is in a deep recession. B) Equally strong, regardless of the state of the macroeconomy. C) Strongest when the economy is at full employment. D) Weakest when there is demand-pull inflation.

A

The cyclically adjusted budget tells us A) What the size of the federal budget deficit or surplus would be if the economy was at full employment. B) The actual budget deficit or surplus realized in any given year. C) That tax revenues should vary inversely with GDP. D) That in a full-employment economy, the federal budget should be in balance.

D

The economy is in a recession. The government enacts a policy to increase spending by $2 billion. The MPS is 0.2. What would be the full increase in real GDP from the change in government spending, assuming that the aggregate supply curve is horizontal across the range of GDP being considered? A) $8 billion B) $6 billion C) $16 billion D) $10 billion

D

The goal of expansionary fiscal policy is to increase A) Unemployment. B) The price level. C) Aggregate supply. D) Real GDP.

D

The immediate primary cause of the swing from federal budget surpluses in 2000 and 2001 to a budget deficit in 2002 was A) The tax cuts of 2001. B) Spending increases relating to the wars in Afghanistan and Iraq. C) The acceleration of inflation in 2001 and 2002. D) The recession of 2001.

D

The time that elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n) A) Administrative lag. B) Budget lag. C) Operational lag. D) Recognition lag.

C

The total amount of debt owed by the Federal government is represented by the total value of the outstanding A) Stocks and bonds. B) Federal Reserve notes. C) U.S. government securities. D) Bank loans and deposits.

C

The total amount of money owed by the United States Treasury to holders of US securities is the total: A) Budget surplus B) Privately held debt C) Public debt D) GDP

A

Year Actual Budget Deficit (-) or Surplus (+) Standardized Budget Deficit (-) or Surplus (+) 1999 +1.4% +0.1% 2000 +2.5 +1.1 2001 +1.3 +1.1 2002 -1.5 -1.1 2003 -3.4 -2.7 2004 -3.5 -2.4 2005 -2.6 -1.8 2006 -1.9 -1.8 2007 -1.3 -1.4 Refer to the data in the table. In which year was the cyclical deficit the largest? A) 2004 B) 2000 C) 1999 D) 2003

A

To track the public debt over time and understand its significance to the economy, it is best A) Measured relative to the gross domestic product. B) Calculated relative to the money supply. C) Examined relative to budget surpluses. D) To compare it to imports, exports, and the trade deficit.

C

When current government expenditures equal current tax revenues and the economy is achieving full employment, A) Fiscal policy is contractionary. B) The cyclically adjusted budget may have either a deficit or a surplus. C) The cyclically adjusted budget has neither a deficit nor a surplus. D) Nominal GDP and real GDP are equal.

B

When the Federal government cuts taxes and increases spending to stimulate the economy during a period of recession, such actions are design to be A) Automatic. B) Countercyclical. C) Nondiscretionary. D) Passive.

D

Which of the following best describes the built-in stabilizers as they function in the United States? A) Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP. B) Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises. C) The size of the multiplier varies inversely with the level of GDP. D) Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

B

Which of the following fiscal policy actions is most likely to increase aggregate supply? A) An increase in transfer payments to unemployed workers B) An increase in government spending on infrastructure that increases private sector productivity C) An increase in personal income tax rates D) A reduction in interest rates that encourages consumers to purchase more durable goods

C

Which of the following fiscal policy changes would be the most contractionary? A) A $20 billion increase in taxes and a $20 billion cut in government spending B) A $40 billion increase in taxes C) $10 billion increase in taxes and a $30 billion cut in government spending D) A $30 billion increase in taxes and a $10 billion cut in government spending

D

Which of the following is the best example of public investment? A) Salaries of senators and representatives B) Government expenditures on food assistance programs C) Funding of regulatory agencies D) Construction of highways

B

Which of the following represents the most expansionary fiscal policy? A) A $10 billion tax increase B) A $10 billion increase in government spending C) A $10 billion decrease in government spending D) A $10 billion tax cut

B

Which of the following statements is correct? A) The public debt has usually declined during wartime. B) There is a tendency for the public debt to grow during recessions. C) Federal deficits were larger in the early 2000s than in the late 2000s. D) Deep tax cuts always expand tax revenues and reduce the public debt.

A

https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image004ch33b.png Refer to the graph. Automatic stability in this economy could be enhanced by A) Changing the tax system so that the tax line has a steeper slope. B) Changing the tax system so that the tax line has a flatter slope. C) Changing the tax system so that the tax line is shifted upward but parallel to its present position. D) Changing the government expenditures line so that it has a positive slope.

A

https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image006ch33a.png Refer to the diagram, in which Qf is the full-employment output. The shift in the aggregate demand curve from AD3 to AD2 could result from which of the following fiscal policy actions? A) A tax reduction accompanied by an even larger reduction in government spending B) A tax increase accompanied by an even larger increase in government spending C) An increase in government spending D) Atax reduction

B

https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image008ch33a.png Refer to the diagram, in which Qf is the full-employment output. If aggregate demand curve AD2 describes the current situation, appropriate fiscal policy would be to A) Increase taxes on businesses to shift the aggregate supply curve rightward to reduce the price level. B) Do nothing since the economy appears to be achieving full-employment real output. C) Increase taxes and reduce government spending to shift the aggregate demand curve rightward from AD2 to AD3. D) Reduce taxes and increase government spending to shift the aggregate demand curve from AD2 to AD1

D

https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image011ch33a.png Refer to the figure. Suppose that the economy is currently operating at the intersection of AS and AD2 and that the full-employment level of output is Y. Because of the ratchet effect, A) Fiscal policy will need to be more contractionary to reduce output to Y than if no ratchet effect occurred. B) Tax increases will be more effective at reducing demand-pull inflation than cuts in government spending. C) It is impossible to enact fiscal policy that will both reduce output to Y and reduce demand-pull inflation. D) Contractionary fiscal policy that shifts aggregate demand to AD1 will cause real GDP to fall below its full-employment level.