Chap 13 macro hw

How is the public debt calculated?

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

A decrease in government spending and a cut in taxes would be a pair of fiscal policies that reinforce each other.

False

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

False

Refer to the figure above. The economy is at equilibrium at point B. What would expansionary fiscal policy do?

Move the economy from point B towards point A

Refer to the graph above. 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?

P2 and Q2

The goal of expansionary fiscal policy is to increase:

Real GDP

The two reasons why bankruptcy is a false concern about the public debt are:

Refinancing and taxation

Refer to the figure above. The economy is at equilibrium at point A. What fiscal policy would be most appropriate to control demand-pull inflation?

Shift aggregate demand by increasing taxes

Refer to the figure above. The economy is at equilibrium at point C which is below potential output. What fiscal policy would increase real GDP?

Shift aggregate demand by increasing transfer payments

Refer to the figure above. The economy is at equilibrium at point C which is below potential output. What fiscal policy would increase real GDP?.

Shift aggregate demand by increasing transfer payments

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

The progressive income tax

A major reason that the public debt cannot bankrupt the Federal government is because:

The public debt can be easily refinanced by issuing new bonds

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 government wants to reduce unemployment using fiscal policy, it may do so by increasing government spending.

True

Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD3, it would be appropriate for the government to:

reduce government expenditures or increase taxes.

Refer to the diagram, in which Qf is the full-employment output. If aggregate demand curve AD1 describes the current situation, appropriate fiscal policy would be to:

reduce taxes and increase government spending to shift the aggregate demand curve from AD1 to AD2.

A major advantage of the built-in or automatic stabilizers is that they:

require no legislative action by Congress to be made effective.

The public debt is the:

Accumulation of all past deficits minus all past surpluses

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

larger is the economy's MPC.

A contractionary fiscal policy is shown as a:

leftward shift in the economy's aggregate demand curve.

An economy is experiencing a high rate of inflation. The government wants to reduce consumption by $36 billion to reduce inflationary pressure. The MPC is 0.75. By how much should the government raise taxes to achieve its objective?

$12 billion

Refer to the diagram, where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the actual budget deficit is:

$40 billion

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

A $40 billion increase in taxes A $10 billion increase in taxes and a $30 billion cut in government spending A $20 billion increase in taxes and a $20 billion cut in government spending A $30 billion increase in taxes and a $10 billion cut in government spending

The intent of contractionary fiscal policy is to:

Decrease aggregate demand

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

Decreases and tax revenues increase

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

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

If the government wishes to increase the level of real GDP, it might reduce:

Taxes

Refer to the diagram, in which Qf is the full-employment output. The shift of the aggregate demand curve from AD1 to AD2 is consistent with:

an expansionary fiscal policy.

Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit:

at any level of GDP below $400

Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it would be appropriate for the government to:

increase government expenditures or reduce taxes.

Refer to the diagram, in which Qf is the full-employment output. If aggregate demand curve AD3 describes the current situation, appropriate fiscal policy would be to:

increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD3 to AD2, assuming downward price flexibility.