macro test 3 ws 1

The expenditure multiplier is a. 1/MPC. b. 1/(1 - MPC). c. (1 - MPC)/1. d. 1/change in MPC.

1/(1 - MPC)

If the marginal propensity to consume is two-thirds, the multiplier is a. 30. b. 66. c. 1.5. d. 3.

3.

The federal government buys $20 million worth of computers from Dell. If the MPC is 0.60, what will be the impact on aggregate demand, other things being equal? a. Aggregate demand will increase $12 million. b. Aggregate demand will increase $13.33 million. c. Aggregate demand will increase $20 million. d. Aggregate demand will increase $50 million. e. Aggregate demand will not change.

Aggregate demand will not change.

One of the real-world complexities of countercyclical fiscal policy is that a. fiscal policy is based on forecasts, which are not foolproof. b. a lag occurs between a change in fiscal policy and its effect. c. how much of the multiplier effect will take place in a given amount of time is uncertain. d. All of the above are correct.

All of the above are correct.

How does the government finance budget deficits? a. The Federal Reserve creates new money. b. It issues debt to government agencies, private institutions, and private investors. c. It is primarily financed by foreign investors. d. It does nothing to finance budget deficits.

It issues debt to government agencies, private institutions, and private investors.

During a recession, if a government uses an expansionary fiscal policy to increase GDP, the: a. aggregate supply curve will shift to the right. b. aggregate supply curve will shift to the left. c. aggregate demand curve will shift to the left. d. aggregate demand curve will shift to the right.

aggregate demand curve will shift to the right.

policy which increased the federal government deficit would tend to increase which of the following in the short run, other things being equal? a. aggregate demand b. real output c. the price level d. employment e. all of the above

all of the above

The government can use in the form of to increase the level of aggregate demand in the economy. a. an expansionary fiscal policy; an increase in government spending b. a contractionary fiscal policy; a reduction in taxes c. a contractionary fiscal policy; an increase in taxes d. an expansionary fiscal policy; an increase in corporate taxes

an expansionary fiscal policy; an increase in government spending

If the government wanted to move the economy out of a current recession, which of the following might be an appropriate policy action? a. decrease taxes b. increase government purchases of goods and services c. increase transfer payments d. any of the above

any of the above

AD will shift to the right, other things being equal, when a. the government budget deficit increases because government purchases rose. b. the government budget deficit increases because taxes fell. c. the government budget deficit increases because transfer payments rose. d. any of the above circumstances exist.

any of the above circumstances exist.

If an economy moves into a recession, causing that country to produce less than potential GDP, then: a. automatic stabilizers will cause tax revenue to decrease and government spending to increase. b. automatic stabilizers will cause tax revenue to increase and government spending to decrease. c. tax revenue and government spending will be higher because of automatic stabilizers. d. tax revenue and government spending will be lower because of automatic stabilizers.

automatic stabilizers will cause tax revenue to decrease and government spending to increase.

A _______________________means that government spending and taxes are equal. a. fiscalbudget b. balanced budget c. contractionary fiscal policy d. discretionary fiscal policy

balanced budget

A ____________ is created each time the federal government spends more than it collects in taxes in a given year. a. budget deficit b. budget surplus c. corporate tax d. regressive tax

budget deficit

A typical level of aggregate demand, through increases in taxes. a. expansionary b. contractionary c. discretionary d. standardized

contractionary

An increase in taxes combined with a decrease in government purchases would a. increase AD. b. decrease AD. c. leave AD unchanged. d. have an indeterminate effect on AD.

decrease AD.

Contractionary fiscal policy consists of a. increased government spending and increased taxes. b. decreased government spending and decreased taxes. c. decreased government spending and increased taxes. d. increased government spending and decreased taxes.

decreased government spending and increased taxes.

When taxes are increased, disposable income ____, and hence consumption ____. a. increases; increases b. increases; decreases c. decreases; increases d. decreases; decreases e. stays the same; stays the same

decreases; decreases

When the government passes a new law that explicitly changes overall tax or spending levels, it is enacting: a. discretionary fiscal policy. b. progressive fiscal policy. c. regressive fiscal policy. d. fiscal policy.

discretionary fiscal policy.

Higher budget deficits would tend to a. raise interest rates. b. reduce investment. c. reduce the growth rate of the capital stock. d. do all of the above.

do all of the above.

If the government wanted to offset the effect of a boom in consumer and investor confidence on AD, it might a. decrease government purchases. b. decrease taxes. c. increase taxes. d. do either a or c.

do either A or C

If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used? a. discretionary b. contractionary c. standardized d. expansionary

expansionary

Budget deficits are created when a. government spending exceeds its tax revenues. b. government tax revenues exceed its spending. c. government spending equals its tax revenues. d. none of the above

government spending exceeds its tax revenues.

By June, 2010, the U.S. government owed $13.6 trillion dollars that, over time, has remained unpaid. a. from decreases in excise tax b. from decreases in income tax c. in accumulated government debt d. from decreases in corporate tax

in accumulated government debt

In the short run, expansionary fiscal policy can cause a rise in real GDP a. in combination with a rise in the price level. b. in combination with no rise in the price level. c. in combination with a reduction in the price level. d. in combination with a rise or reduction in the price level, depending on the economy.

in combination with a rise in the price level.

If a country's GDP decreases, but its debt increases during that year, then the country's debt to GDP ratio for the year will in proportion to the magnitude of the changes. a. decrease b. increase or decrease c. increase d. decrease because GDP decreased

increase

Starting at full employment, if MPC = 2/3, an increase in government purchases of $10 billion would lead AD to ____ and ____ real output in the long run. a. increase $30 billion; increase b. increase $30 billion; not change c. decrease $30 billion; decrease d. decrease $30 billion; not change e. none of the above

increase $30 billion; not change

A combination of an increase in government purchases and a decrease in taxes would a. increase AD. b. decrease AD. c. leave AD unchanged. d. have an indeterminate effect on AD.

increase AD.

If government policymakers were worried about the inflationary potential of the economy, which of the following would not be a correct fiscal policy change? a. increase consumption taxes b. increase government purchases c. reduce government purchases d. increase the budget deficit

increase government purchases

During a recession, government transfer payments automatically ____ and tax revenue automatically ____. a. fall; falls b. increase; falls c. increase; increases d. fall; increases

increase; falls

Using the accompanying graph , answer the following question. 4. In order for the economy pictured here to return to RGDPNR, this economy could use a. decreased taxes and increased government purchases. b. increased taxes and increased government purchases. c. decreased taxes and decreased government purchases. d. decreased taxes and increased government purchases.

increased taxes and increased government purchases.

A ___________________ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes. a. proportional tax b. regressive tax c. progressive tax d. excise tax

progressive tax

A ______is calculated as a flat percentage of income earned, regardless of level of income. a. progressive tax b. regressive tax c. proportional tax D. estate and gift tax

progressive tax

If government tax policy requires Peter to pay $15,000 in tax on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is: a. optional. b. progressive. c. proportional. d. regressive

regressive

When the share of individual income tax collected by the government from people with higher incomes is smaller than the share of tax collected from people with lower incomes, then the tax is ___________________________ a. optional b. proportional c. progressive d. regressive

regressive

According to the crowding-out effect, if the federal government borrows to finance deficit spending, a. the demand for loanable funds will decrease, driving interest rates down. b. the demand for loanable funds will increase, driving interest rates up. c. the supply for loanable funds will increase, driving interest rates up. d. the supply for loanable funds will decrease, driving interest rates down.

the demand for loanable funds will increase, driving interest rates up.

When inflation begins to climb to unacceptable levels in the economy, the government should: a. use contractionary fiscal policy to shift aggregate demand to the right. b. use contractionary fiscal policy to shift aggregate demand to the left. c. use expansionary fiscal policy to shift aggregate demand to the right. d. use expansionary fiscal policy to shift aggregate demand to the left.

use contractionary fiscal policy to shift aggregate demand to the right