Homework 5

sales taxes.

All of the following are sources of federal tax revenue EXCEPT: Question options: the personal income tax. sales taxes. social insurance taxes. the corporate profits tax.

government transfers rise.

Consumer spending will rise if: Question options: government transfers rise. the government raises tax rates. government transfers fall. the government raises tax rates or government transfers fall.

using government spending or tax policy to affect aggregate demand.

Discretionary fiscal policy involves: Question options: changing the money supply to influence interest rates and investment spending. using government spending or tax policy to affect aggregate demand. lifting trade barriers on imports. policy to raise the natural rate of unemployment.

Increase government spending by $20 billion.

Assume that marginal propensity to consume is 0.8 and potential output is $800 billion. If the actual real GDP is $700 billion, which of the following policies would bring the economy to potential output? Question options: Increase government spending by $25 billion. Increase government spending by $100 billion. Increase government spending by $20 billion. Decrease government spending by $100 billion.

5.

Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. The government spending multiplier is: Question options: 0.8. 1.25. 5. 4.

decrease government purchases; left.

If the current level of real GDP lies above potential GDP, then an appropriate fiscal policy would be to _____, which will shift the AD curve to the _____. Question options: decrease government purchases; right. increase government purchases; left. decrease government purchases; left. raise tax rates; right.

higher inflation rates.

If the economy is at full employment, expansionary fiscal policy is most likely to lead to: Question options: lower inflation rates. higher inflation rates. increases in unemployment. decreases in interest rates.

shift aggregate demand to the right.

If there is a recessionary gap in the economy, discretionary fiscal policy would likely involve action to: Question options: shift aggregate demand to the right. shift aggregate demand to the left. leave aggregate demand alone and shift aggregate supply to the left. shift aggregate demand to the right and shift aggregate supply to the left.

it has time lags and sometimes it may end up destabilizing the economy as a result of these lags.

One of the shortcomings of fiscal policy is that: Question options: it has significant time lags which make it more effective. it takes effect immediately, thus it is the best policy to use at crunch time. it affects aggregate demand indirectly through the interest rate. it has time lags and sometimes it may end up destabilizing the economy as a result of these lags.

a rise in government transfers as more people receive unemployment insurance benefits.

Question options: a rise in tax receipts. a fall in government purchases. a discretionary decrease in government purchases. a rise in government transfers as more people receive unemployment insurance benefits.

government programs intended to protect families against economic hardships.

Social insurance programs are: Question options: government programs intended to protect families against economic hardships. private insurance policies to protect families from hardships caused by government actions. private insurance policies that cover gaps in government-provided health care. programs to help unemployed people have a social life.

Real GDP will increase by $160 billion.

Suppose the MPC = 0.8 and the government cuts taxes by $40 billion. Which of the following will be the likely effect? Question options: Real GDP will increase by $200 billion. Real GDP will decrease by $200 billion. Real GDP will increase by $160 billion. Real GDP will decrease by $160 billion.

decrease taxes.

Suppose the economy is in a recessionary gap. To move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to: Question options: decrease government purchases. decrease taxes. decrease government transfers. increase real interest rates.

Decrease spending by $100 billion

Suppose the economy is operating at an output level of $5,400 billion. Assume furthermore that potential output is $5,000. Which of the following would be necessary to close this inflationary gap if the marginal propensity to consume is 0.75? Question options: raise taxes by $400 billion increase spending by $400 billion Decrease spending by $100 billion increase spending by $100 billion

The economy could move into a recession.

Suppose the government increases taxes by more than is necessary to close an inflationary gap. Which of the following would most likely result? Question options: Equilibrium real GDP will be more than anticipated. The economy could move into a recession. The economy will generate a larger inflationary gap than anticipated. This will not have any adverse effects on the economy, since inflation has been abated.

T - G - TR.

The budget balance is calculated as: Question options: T - G - TR. T + G - TR. T - G + TR. T + G + TR.

grows when the government runs a deficit.

The national debt: Question options: is the sum of all past federal surpluses. grows when the government runs a deficit. grows when the government runs a surplus. did not exist until 1998.

decreases the size of the multiplier.

The presence of an automatic stabilizer in government tax revenue that occurs when GDP rises: Question options: has no impact on the size of the multiplier. increases the size of the multiplier. decreases the size of the multiplier. may either increase or decrease the size of the multiplier.

borrow funds

What can the federal government do to finance a deficit? Question options: cut taxes increase spending reduce interest rates borrow funds

an increase in unemployment benefits

Which of the following is an expansionary fiscal policy? Question options: an increase in the money supply that decreases interest rates an increase in taxes that reduces the budget deficit and decreases consumption a decrease in government spending on the space program an increase in unemployment benefits