econ 9-11

Consider the​ income-expenditure and aggregate demand models. Assuming no change in the price​ level, increased government spending will shift the expenditure line​ ________ and will shift the aggregate demand line​ ________.

. ​up; to the right

the balanced budget multiplier is

1

the gvt spending multiplier is

1/(1-mpc)

the formula for calculating the multiplier is

1/1-MPC

income taxes and social insurance taxes compromise approximately what percentage of federal revenues?

85%

evidence about the behavior of prices in the economy suggest that changes in aggregate demand have a relatively small effect on prices within a few quarters so that the short run aggregate supply curve is relatively flat. thus, shifts in aggregate demand lead to large changes in output, but small changes in price.

<

___ demand is the total demand for goods and services in an entire economy

Aggregate

A simple consumption function is equal to​ ___________, where Upper C Subscript a is autonomous​ consumption, b is the​ MPC, and y is the level of income.

Ca+by

According to Keynesian​ logic, if spending and taxes are simultaneously increased by​ $25 billion,

GDP will increase by​ $25 billion.

Critics of Keynes pointed out that not all spending is really productive. If vandals break windows and you replace​ them, GDP will certainly rise.​ Yet, you are probably worse off than before because you had to use resources to repair the windows. Which of the following statements describes this​ best?

Government spending will not benefit all groups of people​ equally, but government spending can be valuable as a economic stimulus tool.

Which of the follwing statements is​ false?

If policymakers wanted to not affect the federal​ budget, government spending must increase more than taxes.

If the economy were producing at a level of output higher than the equilibrium​ level, planned expenditures would be less than total output or​ production, inventories would accumulate and firms would react by decreasing production.

If the economy were producing at a level of output lower than the equilibrium​ level, planned expenditures would be more than total​ output, inventories would deplete ​, and firms would react by increasing production.

What happens to U.S. GDP when the marginal propensity to import​ falls?

It increases because the MPC for spending on domestic goods rises.

What happens to U.S. GDP when foreign countries experience​ prosperity?

It increases because the United States will export more product to those countries.

What was the effect on the economy from the Kennedy and Johnson tax​ cuts?

Real GDP and consumption grew at rates of​ 4% each year between 1963 and 1966.

The consumption function is determined by the level of autonomous consumptionlong dashthe vertical intercept of the consumption functionlong dashand by the MPClong dashthe slope of the consumption function.

The consumption function is determined by the level of autonomous consumptionlong dashthe vertical intercept of the consumption functionlong dashand by the MPClong dashthe slope of the consumption function. A higher level of autonomous consumption but no change in MPC will cause the consumption function to shift upward and parallel to its original position. More consumption occurs at every level of income.

What was unique about the tax cuts proposed and enacted during Ronald​ Reagan's presidency in​ 1981?

They were justified on the basis of increasing economic incentives.

why are stabilization policies difficult to implement effectively

all of the above

Consumption that does not depend on income is called

autonomous consumption.

The vertical intercept of the line represents

autonomous consumption.

Planned expenditures in the most basic model are equal to

consumption and investment.

The aggregate demand curve will shift from any of these four sources

consumption spending, investment spending, government purchases, and net exports

suppose a foreign country which had allowed the us to export to it suddenly closes its market in this case aggregate demand will

decrease because exports are directly related to shifts in aggregate demand

annual government spending is not stipulated by existing laws is called

discretionary

economist arthur laffer argued what theory in tax rates

excessively high tax rates lead to lower government revenue

fiscal policy that has intention of increasing aggregate demand is known as being

expansionary

supply shocks are

external events that shift the aggregate supply curve

The long run aggregate supply curve changeswhen there are changes in

factors of production and technology

daniel patrick moynihan was president lyndown johnsons chief ecnomic adviser

false

if wages are sticky

firms/ product prices will be sticky and reduce the economys ability to bring demand and supply into balance in the short run

which of the following products is most likely to have a sticky price

heavy machinery

When the stock market rose from 2009 to​ 2015, many people near retirement found that the balances in their account had​ increased; however, in the preceding two​ years, their balances had fallen.In response to the recent increase in stock​ prices, consumers would generally

increase consumption spending due to the wealth effect.

A drop in the price level will have what effect in the aggregate demand model and the​ income-expenditure model?

increases aggregate quantity demanded and planned expenditures.

Factors that can cause autonomous consumption to increase​ are:

increases in consumer wealth and consumer confidence.

The tax multiplier is negative because

increases in taxes decrease disposable income and lead to a decrease in consumption spending.

The tax multiplier is negative because

increases in taxes decrease disposable personal income and lead to a reduction in consumption spending.

what is the difference between inside lag and outside lag

inside lag is the time it takes to formulate a policy, outside lag is the time it takes for the policy to work

the time taken by policy makers to recognize an economic problem and take appropriate actions is known as

inside lags

the tax multiplier is -mpc/(1-MPC)

is

the first administration to fully embrace the concepts of modern fiscal policy was that of

john f kennedy

Using taxes and spending to influence GDP in the short run is known as

keynesian fiscal policy

suppose that computer hackers managed to crash the internet in the us for a week and noone had compputer access this might be conisdered a negative supply shock because

less output will be able to produced at any price

The ___ run aggregate supply curve is a ____ aggregate supply curve that reflects the idea that in the ___ run, output is determined solely by the factors of production and technology.

long, vertical, long

As the price level​ falls, the planned expenditures line shifts up vertically ​, which increases the equilibrium level of output. The income expenditure model shows the combination of prices and equilibrium output. Increases in planned expenditures that are not directly caused by changes in price will cause a shift of the aggregate demand curve to the right .

m

If Japan decides to buy more goods from the United​ States, the demand line will shift up vertically by the increase in exports. This will increase equilibrium income. The increase in income will be larger than the increase in exports because of the multiplier effect.

m

which program takes up the largest portion of the federal budget currently

medicare/ medicaid

under us law it is not legal for firms to export crude oil from domestic wells assuming the us has now developed a large oil producing industry, removing thhe export restriction will lead to

more exports and higher aggregate demand

A higher MPC but no change in the level of autonomous consumption will cause the consumption function to rotate upward and counterclockwise to its original position. The consumption function line gets steeper .

o

At equilibrium​ output, planned expenditures equal the level of output or GDP. This is the level of output at which the planned expenditure line crosses the​ 45° line.

o

in the short run, higher demand will not influence the price, it will influence

output

The U.S. economy witnessed federal budget surpluses in the late 20th century under Tax cuts in 2008 under President​ Bush, the large stimulus package of 2009 under President​ Obama, and the tax cuts of 2017 under President Trump the debt to GDP ratio significantly and could limit the ability of the U.S. government to conduct expansionary fiscal policy in the near future.

president clinton, increased, significantly

if the economy experiences an expansion

price and wages will both increase over time

the short run aggregate supply curve shows the short run relationship between the

price level and the willingness of firms to supply output to the economy

the short run aggregate supply curve shows the short tun relationship between the

price level and the willingness of forms to supply output to the economy

The key facts that cause shifts in aggregate demand do not include changes in

productivity

successfully timed stabilization policies____ fluctuations in GDP, but ill-timed policies make economic fluctuations ____

reduce, larger

if an economy is below full employment or potential output, over time, the short run aggregate supply will shift

rightward as prices and wages fall

With the savings​ function,

savings will increase with the level of GDP.

if us federal government spending is higher than revenue resulting in a deficit, how could it cover the shortfall?

sell government bonds

A higher level of autonomous consumption but no change in MPC will

shift the entire consumption function upward and parallel to its original position.

the ___ run aggregate supply curve is a relatively ___ aggregate supply curve that represents the idea that prices do not change very much in the ___ run and that firms adjust production to meet demand

short, flat, short

Adjustments in wages and prices take the economy from the ____ run equilibrium to the ___ run equilibrium

short, long

The __ run in macroeconomics is the period in which prices do not change or do not change very much. In the macroeconomic __ run, both formal and informal contracts between firms mean that changes in demand will be reflected primarily in changes in ___, not ____

short, short, output, prices

the aggregate demand curve ___, indicating that the quantity of aggregate demand ___ as the price level in the economy falls

slopes downward, increases

The tax multiplier is

smaller than the government spending multiplier because an increase in taxes first reduces disposable income of households and with an MPC less than​ one, the decrease in consumer spending is less than the increase in taxes.

the aggregate demand curve shifts to the right if

state governments increase their spending

Automatic stabilizers prevent consumption from falling as much in bad times and from rising as much in good times because

tax rates lower the multiplier and make the economy less susceptible to shocks.

in the 1008 recession both firms and households had limited access to credit this could be both a negative shock to aggregate demand and a negative shock to aggregate supply because when consumers spend less,

the aggregate demand decreases; and the aggregate supply will fall as borrowing costs increase

Here is one unusual fiscal​ policy: The government would issue​ time-dated debit cards to each person that had to be spent on goods and services produced only by U.S. firms within a fixed period​ (say, three​ months) or become worthless. Suppose the government was considering whether to issue​ $400 in​ time-dated debit cards to each household or give each household​ $400 in cash instead. As far as the administration of the two programs is​ concerned,

the cash payments program is easier to administer through a tax rebate program.

Here is one unusual fiscal​ policy: The government would issue​ time-dated debit cards to each person that had to be spent on goods and services produced only by U.S. firms within a fixed period​ (say, three​ months) or become worthless. Suppose the government was considering whether to issue​ $400 in​ time-dated debit cards to each household or give each household​ $400 in cash instead. Suppose a family had large credit card​ debt, which it wished to reduce. Of the two​ plans, the family would prefer

the cash payments​ program, since cash could be used to pay off some of the credit card debt.

In the​ income-expenditure model, the equilibrium level of output is

the level of GDP at which planned expenditure equals the amount that is produced.

the aggregate demand curve shows the relationship between

the level of prices and the quantity of real GDP demanded

the aggregate demand curve shows the relationship between

the level of prices and the quantity of real gdp demanded

The slope of the line represents

the marginal propensity to consume.

during the 1930s why did politicians not believe in modern fiscal policy

they feared the consequences of budget deficits

the components of aggregate demand gross domestic product are the same: consumption, investment, government spending, and net exports

true

The aggregate demand curve is downward sloping because of the

wealth effect, the interest rate effect, and the international trade effect

based on the laffers theory why do lower tax rates increase government revenue

when workers get to keep more of their salary they will work harder thus increasing the tax bases

If​ $25 billion is spent on technology products in the​ U.S., and​ $20 billion of that is imported into the​ country, what is the real contribution to​ GDP?

​$5 billion

Here is one unusual fiscal​ policy: The government would issue​ time-dated debit cards to each person that had to be spent on goods and services produced only by U.S. firms within a fixed period​ (say, three​ months) or become worthless. Suppose the government was considering whether to issue​ $400 in​ time-dated debit cards to each household or give each household​ $400 in cash instead. Which of the following statements regarding the two plans is​ true?

​Time-dated debit cards would have greater immediate impact on consumption spending since they had to be spent within a specific period of time and the higher the value of the​ MPC, the greater the total impact on spending and income.