Econ 204 Test 3 Part 4
Between 1929 and 1933, the U.S. economy moved:
down the short-run aggregate supply curve.
If the current level of real GDP lies below potential GDP, then an appropriate fiscal policy would be to increase _____, which will shift the _____ curve to the _____.
government purchases; AD; right.
Consumer spending will rise if:
government transfers rise.
In the short run, a negative supply shock results in ________ prices.
higher
If the amount of debt is increasing, the debt-GDP ratio will:
increase if debt grows faster than GDP, but it will decrease if GDP grows faster than debt.
Suppose the equilibrium aggregate price level is rising and the equilibrium level of real GDP is rising. Which most likely caused these changes?
increase in aggregate demand
Stagflation may result from a(n):
increase in the price of imported oil.
Contractionary fiscal policy will _______ the size of a budget surplus or _______ the size of a budget deficit.
increase; decrease
When the unemployment rate rises, the budget deficit:
increases
A government budget surplus would be contractionary because of all EXCEPT that:
increases in government purchases are contractionary.
The budget deficit (as a percentage of GDP) ___________ when the economy goes into recession and _________ when the economy expands.
increases; decreases
In the late 1970s, the U.S. economy slid to the:
left along the aggregate demand curve.
The multiplier effect of changes in government transfers is:
less than the multiplier effect of a change in government spending.
_______taxes are taxes that don't depend on the taxpayer's income.
lump-sum
Expansionary fiscal policies:
make the budget surplus smaller
A $100 million increase in government spending increases aggregate spending by:
more than $100 million.
The federal government's largest source of tax revenue is:
personal income and corporate profit taxes.
Which would an economic policymaker rank as the most preferred type of shock?
positive supply shock
The cyclically balanced budget is what the budget balance would be if actual output was exactly equal to ______ output.
potential
There is a ________ gap when aggregate output is below potential output.
recessionary
A negative short-run supply shock:
reduces aggregate output and increases the aggregate price level.
All are sources of federal tax revenue EXCEPT: a) the corporate profits tax. b) social insurance taxes. c) sales taxes. d) the personal income tax.
sales taxes
If the economy experiences a positive demand shock, the aggregate demand curve will:
shift to the right.
An event that shifts the short-run aggregate supply curve is a supply:
shock
An event that shifts the aggregate demand curve is a demand:
shock.
In the short run, the short-run equilibrium price level and output occur at the intersection of:
short-run aggregate supply and aggregate demand.
If there is a large recessionary gap, the cyclically adjusted budget deficit is ________ the actual budget deficit.
smaller than
If tax revenues are $3 trillion, transfers are $0.5 trillion, and government spending is $2 trillion, the budget balance is a ______ of ______ trillion dollars.
surplus; 0.5
When the unemployment rate increases, the budget:
tends to move into deficit.
The multiplier is the ratio of:
the change in real GDP to the change in autonomous spending.
Suppose that SRAS = AD and that the GDP that occurs at this point is also potential GDP. We can assume that:
the economy is in long-run equilibrium.
A change in taxes or a change in government transfers affects consumption through a change in:
disposable income.
Suppose the government begins the year with $6 trillion of public debt. During the year, it collects taxes of $4 trillion and spends $7 trillion on transfers and government purchases of goods and services. The public debt at the end of the year is:
$9 trillion.
Suppose that the economy is at equilibrium at $1,000 billion, and potential output is $1,250 billion. If the MPC is 0.6, government spending must increase by ______ billion dollars to reach potential output.
10
If the MPC is 0.8 and government spending decreases by $1 trillion, real GDP will decrease by _____ trillion dollars from the initial effect of the decrease in government spending and ______ trillion dollars from the decrease in consumption.
1; 4
Suppose that the economy is at equilibrium at $1,000 billion, and potential output is $1,200 billion. If the MPC is 0.9, government spending must increase by ______ billion dollars to reach potential output.
20
Suppose that the economy is at equilibrium at $1,500 billion, and potential output is $1,200 billion. If the MPC is 0.9, government spending must decrease by ______ billion dollars to reach potential output.
30
Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. The government spending multiplier is:
5
Suppose the <i>MPC </i>= 0.8 and the government cuts taxes by $40 billion. Which will be the likely effect?
Aggregate spending will increase by $160 billion.
If the government spends an extra $5 billion on goods and services:
Aggregate spending will increase by more than $5 billion.
Which will cause a positive demand shock?
An increase in stock values occurs because of optimism in the stock market.
Suppose that the government overestimates the amount of government spending needed to close a recessionary gap. Which of these scenarios is likely to happen?
An inflationary gap occurs.
A debt is the difference between the amount a government spends and the amount it receives in taxes over a given period, while a deficit is the amount of money the government owes.
False
A negative demand shock is represented by a movement up a stationary aggregate demand curve.
False
A positive budget balance is a deficit.
False
A positive supply shock is represented by a movement up the short-run supply curve.
False
As the size of the debt grows, the amount of interest payments that the government must pay decreases.
False
Changes in the budget balance are always the result of fiscal policy.
False
During the 1970s, the U.S. economy experienced positive supply shocks due to disruptions in oil supplies.
False
Government spending to pay salaries to soldiers is a transfer payment.
False
If there is an inflationary gap, stabilization policy should shift the aggregate demand curve to the right.
False
It is impossible for a country to default on its debt.
False
Most economists believe that the federal government's budget should be balanced each fiscal year.
False
National defense and education are the largest items in government spending on goods and services:
False
The housing market crash in 2008 produced a positive demand shock.
False
The projections for future increases in Medicare and Medicaid are due to the fact that our population is becoming increasingly unhealthy.
False
In the basic equation of national income accounting, the government directly controls _____ and influences ______.
G; C and I
Which of these countries received emergency loans from the International Monetary Fund? a) Argentina b) United States c) Greece d) Japan
Greece
_________ are spending promises made by governments that are effectively a debt despite the fact that they are not included in the usual debt statistics.
Implicit liabilities
The program that covers the cost of health care for Americans age 65 and older is:
Medicare.
_____ is the government debt held by individuals and institutions outside the government.
Public debt
A negative budget balance is a deficit.
True
An increase in taxes will reduce the budget deficit.
True
Because of lags associated with stabilization policy, attempts to use monetary or fiscal policy can actually make the economy less stable.
True
Contractionary fiscal policy should be used to close an inflationary gap.
True
Historically there has been a strong relationship between the business cycle and the budget balance.
True
If tax rates increase as income increases, the size of the tax multiplier is reduced.
True
Most economists advocate running surpluses when the economy is in an expansion.
True
The Social Security trust fund is the surplus in the Social Security system that has resulted from the taxes paid in being larger than the benefits paid out.
True
The U.S. economy experienced a positive supply shock in the late 1990s when the Internet and information technology increased productivity.
True
The multiplier is the ratio of the change in real GDP to the change in autonomous spending.
True
Which of these actions(all else being equal) will increase the budget deficit?
a decrease in taxes
A decrease in aggregate demand will generate _______ in real GDP and _______ in the price level in the short run.
a decrease; a decrease
Which is NOT an example of government purchases of goods and services?
a surgeon's bill reimbursed under the Medicare program
Governments usually finance deficits by
borrowing
The _____________ is an estimate of what the budget balance would be if real GDP were exactly equal to potential GDP.
cyclically adjusted budget balance
A(n) ______ is the sum of money a government owes at a particular point in time.
debt
Suppose the economy is in an inflationary gap. To move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to:
decrease government purchases.
During a recession, taxes _______ and transfers _______.
decrease; increase
In the short run a negative supply shock results in a(n) ________ in the output level and a(n) _______ in the unemployment rate.
decrease; increase
If tax revenues are $2 trillion, transfers are $0.5 trillion, and government spending on goods and services is $3 trillion, the budget balance is a _______ of _______trillion dollars.
deficit; 1.5
The federal budget tends to move toward _____ as the economy ____.
deficit; contracts
Government _______ are payments to households for which no good or service is provided in return.
transfers
If potential output is $10 trillion and actual output is $9 trillion, there is an output gap of:
−10 percent.
