Macro Chapter 13

If the marginal propensity to consume (MPC) is 0.75 and the federal government increases spending by 100 billion, then the income expenditure model would predict that real GDP would raise by:

400 billion

If the economy is at equilibrium at E1 (intersects SRAS and AD) what fiscal policy should be used

Expansionary to shift the AD curve to the right

If the current level of real GDP lies below potential GDP, what would be the appropriate fiscal policy?

Increase government spending which will shift the aggregate demand curve to the right

Expansionary fiscal Policy

Increases government spending or decreases taxes

Contractionary Fiscal Policy

Is used to close an inflationary gap and shifts the aggregate demand curve to the left

Suppose that the budget deficit of a country remains level for five years. Which of the following is true concerning the fiscal stance of this government

The federal debt will rise.

If the economy is at equilibrium at E1 (intersects SRAS and AD) what is it experiencing

a recessionary gap

When government spending results in persistent deficits that necessitate borrowing, thereby leading to a reduction in private investment, it is referred to as:

crowding out.

Spending promises made by governments that are effectively a debt, despite the fact that they are not included in the usual debt statistics, are known as:

implicit liabilities.

Budget deficits almost always:

increase when unemployment increases and fall when unemployment falls.

Changes in taxes and government transfers shift the aggregate demand curve by

less than government purchases

What is the largest source of federal tax revenue

personal income taxes

Because of the role of automatic stabilizers and discretionary fiscal policy, the historical record of the United States since 1970 shows that:

the budget tends to move into a deficit during recessions.

The larger the amount of outstanding public debt:

the larger the fraction of the federal budget deficit that must be devoted to interest payments.

Medicaid, Medicare, and Social Security are examples of

transfer payments