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.