macro

Suppose the natural unemployment rate is 5 percent, the actual unemployment rate is 6 percent, and potential GDP is $5,000 billion. Based on Okun's Law, real GDP is equal to ________ billion.

$4,900

If the budget deficit is $50 billion and the structural deficit is $10 billion, the cyclical deficit is

$40 billion.

Suppose the unemployment rate is 8 percent and the natural unemployment rate is 6 percent. If potential GDP is $8 trillion, using Okun's Law what does real GDP equal?

$7.68 trillion

The short-run Phillips curve is another way of looking at

aggregate supply.

***A tax cut that increases the budget deficit results in ________ in the ________ loanable funds.

an increase; demand for

The supply-side effects of a change in taxes on labor income means that ________ in taxes on labor income shifts the ________.

an increase; labor supply curve leftward

The long-run Phillips curve shows the relationship between the inflation rate and the unemployment rate when the economy is Group of answer choices

at full employment.

Fiscal policies that move the economy toward potential GDP without a change in policy are called

automatic stabilizers.

The short-run Phillips curve is

downward sloping.

Ignoring any supply-side effects, suppose the government is considering cutting taxes by $100 billion or increasing government expenditures on goods and services by $100 billion. Then

both policies would increase aggregate demand but the tax cut has a smaller effect.

The use of the federal budget to achieve macroeconomic objectives of full employment and sustainable economic growth is

called fiscal policy.

Automatic stabilizers include

changes in induced taxes and changes in needs-tested spending.

The natural rate hypothesis asserts that

changes in the unemployment rate from changes in the inflation rate are temporary.

When an economy faces an inflationary gap, an appropriate fiscal policy is to

decrease government expenditure.

An increase in income taxes ________ employment and ________ potential GDP.

decreases; decreases

Increasing the income tax rate ________ the ________.

decreases; supply of labor

If aggregate demand decreases, the

economy moves to a lower inflation rate along its short-run Phillips curve.

On the long-run Phillips curve, the unemployment rate

equals the natural unemployment rate, but the inflation rate can be any value.

The short-run Phillips curve shifts upward when

expected inflation increases.

The balanced budget multiplier is based on the point that the ________ multiplier is larger than the ________ multiplier so that an equal increase in government expenditure and taxes ________ aggregate demand.

expenditure; tax; increases

When the government's expenditures exceed its tax revenues, the budget

has a deficit and the national debt is increasing.

If an economy is at the short-run equilibrium illustrated by the figure above, a discretionary fiscal policy to adjust the economy to full employment is to

increase taxes and decrease government spending simultaneously.

Needs-tested spending

increases as unemployment increases.

If a change in the tax laws leads to a $100 billion decrease in tax revenue, then aggregate demand

increases by more than $100 billion.

If government expenditures on goods and services increases by $20 billion, then aggregate demand

increases by more than $20 billion.

The natural unemployment rate

increases when job search increases.

If a tax cut increases aggregate demand more than aggregate supply, real GDP ________ and the price level ________.

increases; rises

The short-run Phillips curve shows the relationship between the

inflation rate and the unemployment rate.

In the short run, if the economy is at full employment, then the quantity of real GDP

is equal to potential GDP, and the unemployment rate is equal to the natural unemployment rate.

The national debt

is the total amount of government debt outstanding.

In the figure above, if the actual inflation rate is 8 percent, then

it is more than the expected inflation rate.

The curve that shows the relationship between inflation and unemployment when the economy is at full employment is the

long-run Philips curve.

Moving along the short-run Phillips curve, a ________ unemployment rate can only be achieved by paying the cost of ________.

lower; a higher inflation rate

According to Okun's Law, for each 1 percentage point that the unemployment rate is above the natural unemployment rate, then

real GDP is below potential GDP by 2 percent.

The short run Phillips curve

shows the tradeoff between the inflation rate and the unemployment rate, and it shifts when the expected inflation rate changes.

The structural deficit is the deficit

that would occur at full employment.

Comparing the AS-AD model and the Phillips curve, we see that

the AS-AD model uses the price level and the Phillips curve uses the rate of inflation.

The national debt can only be reduced if

the federal budget is in surplus.

The long-run Phillips curve shows the relationship between Group of answer choices

the inflation rate and the natural unemployment rate.

When people use all the relevant data and principles of economics to forecast inflation, they are making

what is called a "rational expectation."