competition #6

The 2009 U.S. stimulus was a(n) _________ fiscal policy that ________ aggregate demand.

expansionary;increased

A reduction in government transfers ________, therefore shifting the aggregate demand curve to the ________.

d decreases disposable income and consumption; left

A recessionary gap can be closed with

d expansionary fiscal policy

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 _____.

d government purchases; AD; right

One of the shortcomings of fiscal policy is that it

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

The government has a budget deficit if:

b its total revenues are less than its total expenditures

Which fiscal policy would make a budget surplus larger or a budget deficit smaller

b lower government transfers

The government budget balance equals taxes

b minus government purchases minus government transfers

If the government's total revenues are greater than its total expenditures, then it has a budget:

b surplus

When the unemployment rate increases, the budget

b tends to move into a deficit

Government tax revenue rises and falls with the business cycle as

d an automatic stabilizer

Which is NOT a method of fiscal policy

d changes in the money supply

Refer to the information in the table Monetary Aggregates. The value of M1 is:

b. 895 billion

Which statement is TRUE?

a An increase in government purchases of goods and services is an example of an autonomous increase in the aggregate spending

The budget balance is calculated as

a T-G-TR

(Figure: Short- and Long-Run Equilibrium) According to the figure Short- and LongRun Equilibrium, if the economy is at equilibrium at E1, the government should use __________ fiscal policy to shift the aggregate demand curve to the ________.

a expansionary; right

Currency in circulation includes cash

a. I ONLY

According to the figure Fiscal Policy I, suppose that this economy is in equilibrium at E2. If there is a decrease in government purchases, then:

b AD2 will shift to the left causing a decrease in the price level and a decrease in the real GDP

Which statement is TRUE

b Other things equal, an expansionary fiscal policy will reduce the budget balance for that year.

An economy that lacks a medium of exchange must use

b barter system

Which combination of assets is considered to be money

b currency in circulation, checkable bank deposits, and travelers checks

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:

b decrease government purchases

States that are required by their constitution to have annually balanced budgets are likely to

b have more severe business cycles than those not required to balance their budget

Suppose the economy is in a recessionary gap. Which fiscal policy option is likely to increase real GDP by the largest amount?

b increase in government purchases

A cut in taxes ________, therefore shifting the aggregate demand curve to the ________.

b increases disposable income and consumption; right

Refer to the information in the table Monetary Aggregates. M2 is

c 3.355 billion

If the currency in circulation is $100 million, checkable bank deposits are $500, savings deposits are $300 million, and traveler's checks are $10 million, then the M1 money supply is

c 610 billion

According to the figure Fiscal Policy I, suppose that this economy is in equilibrium at E1. If there is an increase in government purchases, then:

c AD1 will shift to the right, causing an increase in the price level and an increase in real GDP

A government would be able to pay off its debt if:

c. GDP grows faster than the government's debt

The double coincidence of wants problem can be solved b

c. money

Suppose the government increases spending to fund tuition assistance for qualified college students. Which is likely to result?

d Automatic stabilizers will decrease the expansionary impact of the increase in aggregate demand

Assume that marginal propensity to consume is 0.8 and potential output is $800 billion. If the actual real GDP is $700 billion, which policy would bring the economy to potential output?

increase government spending by 20 billion

A government budget surplus would be contractionary because of all EXCEPT that

a increase in government purchases are contractionary

If legislation were introduced to require the budget to be balanced at all times

a fiscal policy could not operate as an automatic stabilizer of the business cycle

(Figure: Short- and Long-Run Equilibrium) According to the figure Short- and LongRun Equilibrium, if the economy is at equilibrium at E1, the appropriate policy to return the economy to potential output would be a(n):

a increase in transfer payments

. If the marginal propensity to consume is 0.75, the multiplier for taxes and transfer payments is

a less than 4

If the economy is at equilibrium below potential output, there is a(n):

a recessionary gap and expansionary fiscal policy is appropriate

All are sources of state and local tax revenue EXCEPT?

a social insurance taxes

. Consider an economy that already has a sizable budget deficit. If the economy is facing a major downturn, the government should:

a stimulate the economy by raising expenditure as long as the debt GDP ratio is declining

Suppose the government increases spending more than is necessary to close a recessionary gap. Which is likely to result?

a the economy will experience inflation

Government payments to households for which no good or service is provided in return are called

a transfer payments

All of the following are roles of money EXCEPT a

a. MEASURE OF WEALTH

The difference between a budget deficit and government debt is that

a. a deficit is the amount by which government spending exceeds tax revenues whereas debt is the amount the government owes

A share of stock is considered

a. an asset for the owner of the stock

Money that some authority, generally a government, has ordered to be accepted as a medium of exchange is called _______ money.

a. fiat

The U.S. dollar is defined as:

a. fiat money, because it was created by an act of law

A law requiring the federal budget to be balanced each year would likely

a. make business cycles more severe

Because money holds its purchasing power over time, we say that it is:

a. store of value

When a person makes price comparisons among products, money is being used as a(n)

a. unit of account

The basic equation of national income accounting is GDP = C + I + G + X - IM. When the government uses fiscal policy to make changes to taxes and transfers, this policy primarily affects

c C

Fiscal policy that decreases aggregate demand is

c CONTRACTIONARY

The U.S. government fiscal year runs from _____ to _____ of the following calendar year

c October1; September 30

Which is a government transfer

c Social Security payments to retired auto workers

Each is an expansionary fiscal policy EXCEPT

c an increase in tax rates

Government spending and taxation rules that serve to automatically dampen swings of the business cycle are known as:

c automatic stabilizers

Changes in taxes and government transfers shift the aggregate demand curve ______ government purchases

c by less than

Discretionary fiscal policy refers to:

c changes in government spending or taxes to close a recessionary or inflationary gap.

The presence of an automatic stabilizer in government tax revenue that occurs when GDP rises:

c decrease the size of the multiplier

A change in taxes or a change in government transfers affects consumption through a change in

c disposable income

Public debt is:

c government debt held by individuals and institutions outside the government

The multiplier effect of changes in government transfers is

c less than the multiplier effect of a change in government spending

Suppose the MPC = 0.8 and the government cuts taxes by $40 billion. Which will be the likely effect?

c real GDP will increase by 160 billion

All else equal, when the unemployment rate decreases, the budget:

c surplus gets larger or the budget deficit gets smaller

When countries replaced gold and silver coins with paper money exchangeable for certain amounts of precious metals, the monetary system evolved from using:

c. commodity money to using commodity backed money

The medium-of-exchange function means that money is used:

c. to pay for goods and services

Fiscal policy that increases aggregate demand is:

d EXPANSIONARY

The primary difference between M1 and M2 is that

d M2 includes savings deposits and time deposits , but M1 doesnt

Suppose that marginal propensity to consume is equal to 0.9 and the government increases its spending by $200 billion. This new increase in spending is financed by a fresh increase in taxes equal to $200 billion. As a result of this, GDP will:

d increase by 200 billion

Which is NOT an example of government transfers?

d reimbursement of personal income tax withheld from wages

The cyclically adjusted budget balance is an estimate of

d what the budget balance would be if real GDP were exactly equal to potential output

Suppose that U.S. debt is $7 trillion at the beginning of the fiscal year. During the fiscal year, the government spending and government transfers are $2 trillion and tax revenues equal $1.5 trillion. At the end of the fiscal year, the debt is:

d. 7.5 trillion