Econ 2200 Exam #3

move the economy to full employment.

(Figure: Determining Fiscal Policy) Expansionary fiscal policies would:

The economy is in a recessionary gap, which calls for expansionary fiscal policy.

(Figure: Determining Fiscal Policy) Which of the following is correct about the economy that is depicted in the above graph?

S0; S1; b

(Figure: Market for Loanable Funds 2) If households decide to save a larger portion of their income because they fear job loss due to a recession, the loanable funds supply curve will shift from ____ to ____, and the new equilibrium will be at point _____.

D0; D1; c

(Figure: Market for Loanable Funds 2) If technological advances increase productivity, the demand for loanable funds curve will shift from ____ to _____ and the new equilibrium will be at point ____, holding supply constant at S0.

fight inflation stemming from an overheated economy

Contractionary fiscal policy is typically used to

mandatory

Federal spending that is authorized by permanent laws and does not go through the annual appropriation process is called _____ spending

saver or as a supplier of funds.

Given that Sean's gross earning exceeds his consumption spending and tax payments, Sean is best described as a:

$800

If a perpetually bond has an interest payment of $80 and your required rate of return is 10% the most you would be willing to pay for the bond (the price) is:

decrease of $500 in GDP

If the MPC is 0.8, what will be the change in GDP when there is a decrease of $100 in government spending?

increase; decrease

If the economy is producing at an output level below full employment, the government should _____ spending and _____taxes

products are exchanged for other products.

In a barter economy:

one-third

In the U.S., discretionary fiscal policy comprises nearly ______ of the government's budget.

M1 fell by 5,000, but M2 was unchanged

Karen decided to take $5,000 from her basic checking account and put the money in her savings account at the same bank.

decision lag

Legislators debate for a year on which spending programs to utilize to manipulate the business cycle. This is an example of the:

increase; decrease

Net taxes act as automatic stabilizers because when the economy is in a recessionary gap, taxes received by the government ______, and transfer payments paid by the government ______ automatically, thus reducing the decrease in incomes and aggregate spending.

A change in the tax laws encourages people to consume more and save less.

Refer to Figure 26-2. The figure depicts a supply of loanable funds curve and two demand for loanable funds curves (D1 and D2).

$226 billion.

Refer to Table 29-1. What is the value of M1?

$125 billion.

Refer to Table 29-1. What is the value of Near Monies?

GDP will increase by $25 billion.

Suppose MPC=0.75 and the government has just decided to increase government spending and net taxes both by $25 billion and at the same time to maintain its budgetary balance. What will be the impact of this policy change on GDP?

mT<mBB<mG.

Suppose MPC=0.75. Which of the following is correct regarding the tax multiplier (mT), government expenditure multiplier (mG), and the balance budget multiplier (mBB)?

deficit of $150 billion; $6.65 trillion

Suppose in 2009 the government of country X had net revenues of $550 billion and government expenditures of $700 billion. In addition, as of the end of 2008, its national debt was $6.5 trillion. In 2009, country X had a ________ and at the of 2009 national debt of ________.

Lowering net taxes by $100 billion will result in an increase of $400 billion in GDP

Suppose the government decided to lower net taxes by $100 billion to stimulate the economy. Given that MPC=0.80, what will be the impact of this fiscal policy intervention on GDP?

increased spending leads to a larger increase in GDP than the same reduction in taxes.

The $787 billion stimulus package passed in the United States in 2009 focused more on spending than on taxes partly because:

an increase; higher interest rates and lower investment spending.

The crowding out effect refers to the fact that, for a given monetary policy, ______ in the government's budget deficit results in _____.

as interest rates fall, businesses find more investment projects to be profitable and thus want to borrow more.

The demand for loanable funds is downward-sloping because:

Individual income taxes

The largest source of federal government revenues is:

Hurricane relief funds

Which of the following categories is an example of discretionary spending?

Unit of account.

Which of the following is a function of money with which people use money as a yardstick to post prices and record debts?

The coupon bond's current market price is less than its face value

Which of the following is correct about a coupon bond which is selling at discount?

The U.S. Dollar is a flat money with no intrinsic value.

Which of the following is correct about the U.S. Dollar?

M2 >M1 > Currency in circulation.

Which of the following is correct?

$500 dollars in your savings account

Which of the following is not included in M1?

Your credit card balance

Which of the following is not included in M2?

M1

Which of the following is the narrow money?

Currency in circulation, Demand Deposits Accounts, Money Markey Deposits Accounts.

Which of the following lists ranks types of assets from most liquid to least liquid?

An increase in government regulations that make plant expansion difficult.

Which one of the following would cause the supply of loanable funds curve to shift leftward?

Social Security, interest on the national debt, and Medicare

______ are all examples of mandatory spending

Fiscal Policy

can be defined as the government's plan to steer the economy in some desired direction by using Government Expenditures (G) and Net Taxes (TNet) as policy instruments.