Myeconlab chapter 16 quiz

what is the difference between federal government purchase spending and federal government expenditures?

Government purchase are included in government expenditures

in the long run increase in government purchase result in

complete crowding out

Each year that the federal government runs a deficit the federal debt _____ Each year that the federal government runs a surplus the federal debt__

grows shrinks

when is it considered good policy for the government to run a budget deficit

when borrowing is used for long lived capital goods

does the government spending ever reduce private spending

yes due to crowding out

If the marginal propensity to consume equals 0.60 the tax rate equals 0.25 what is the value of the government purchases multiplier ? THE GOVERNMENT PURCHASE MULTIPLIERS IS EQUAL TO

1.82 or consume +0.75 and .20 tax rate =2.50 multiplier or 0.75 .25 =2.29 0.80 0.25= 2.50 0.75 0.10 =3.08 0.60 0.10= 2.17

HOW DOES A BUDGET DEFICIT ACT AS AN AUTOMATIC STABILIZER AND REDUCE THE SEVERITY OF A RECESSION?

ALL OF THE ABOVE during a recession tax obligations fall due to falling wages and profits consumers spend then they would in the absence of social insurance programs like unemployment transfer payments to households increase.

what are the gains to be had from simplifying the tax code?

ALL OF THE ABOVE 1. Greater clarity of the decisions made by households and firms 2. resources from the tax preparation industry freed up for other endeavors increased efficiency of households and firms

SOME SPENDING AND TAXES INCREASE OR DECREASE WITH THE BUSINESS CYCLE. THIS EVENT OFTEN HAS AN EFFECT ON THE ECONOMY THAT IS SIMILAR TO FISCAL POLICY AND IS CALLED

AUTOMATIC STABILIZERS

WHAT IS CONTRACTIONARY FISCAL POLICY?

CONTRACTIONARY FISCAL POLICY INCLUDES DECREASING GOVERNMENT SPENDING AND INCREASING TAXES TO DECREASE AGGREGATE DEMAND.

WHAT IS AN EXPANSIONARY FISCAL POLICY?

EXPANSIONARY FISCAL POLICY INCLUDES INCREASING GOVERNMENT SPENDING AND DECREASING TAXES TO INCREASE AGGREGATE DEMAND

consider the figure below determine which combination of fiscal policies shifted to AD1 to AD2 in each figure and returned the economy to long run macroeconomic equilibrium.

Example A expansionary fiscal policy example b contractionary fiscal policy

THE MULTIPLIER EFFECT IS ONLY A CONSIDERATION FOR INCREASE IN GOVERNMENT PURCHASE __ FALSE

FALSE

.WHICH OF THE FOLLOWING STATEMENTS IS MOST ACCURATE REGARDING FISCAL POLICY AND MONETARY POLICY?

Fiscal policy includes changes in the government spending and taxes and is controlled by the federal government. Monetary policy includes changes in the money supply and interest rates and is controlled by the federal reserve. BOTH POLICY ARE INTENDED TO ACHIEVE MACROECONOMICS OBJECTIVES

AFTER SEPTEMBER 11, 2011 THE FEDERAL GOVERNMENT INCREASED MILITARY SPENDING ON WARS IN IRAQ AND AFGANISTAN. IS THIS INCREASE IN SPENDING CONSIDERED FISCAL POLICY?

NO THE INCREASE IN DEFENSE SPENDING AFTER THAT DATE WAS DESIGNED TO ACHIEVE HOMELAND SECURITY OBJECTIVES.

WHY DOES A $1 INCREASE IN GOVERNMENT PURCHASES LEAD TO MORE THAN A $1 INCREASE IN INCOME AND SPENDING

THROUGH THE GOVERNMENT PURCHASE MULTIPLIER, THE 1$ INCREASE IN GOVERNMENT SPENDING WILL LEAD TO AN INCREASE IN AGGREGATE DEMAND AND NATIONAL INCOME WHICH WILL LEAD TO AN INCREASE IN INCLUDED SPENDING

WHY DO FEW ECONOMIST ARGUE THAT IT WOULD BE A GOOD IDEA TO BALANCE THE FEDERAL BUDGET EVERY YEAR?

TO KEEP A BALANCED BUDGET DURING A RECESSION TAXES WOULD HAVE TO INCREASE AND GOVERMNET EXPENDITURES WOULD HAVE TO DECREASE WHICH WOULD FURTHER REDUCE AGGREGATED DEMAND AND DEEPEN THE RECESSION

In 2009 congress and the president enacted cash for clunkers legislation that paid people buying new cars up tp 4500 if they traded in old cars was this piece of legislation an example of fiscsal policy ?

YES BECAUSE THE PRIMARY GOAL OF THE SPENDING PROGRAM WAS TO STIMULATE THE NATIONAL ECONOMY.

The simple multiplier effect shows the resulting change in real GDP due to an increase in government purchases or a decrease in taxes assuming that the price level is ____ in reality the SRAS is ____ AS a result when AD shifts to the right in reality the change in real GDP will be __ it would be if the price level were constant

constant upward sloping less than

one time tax rebates such as those in 2001 and 2008 increase consumption spending by less than a permanent tax cut because one time tax rebates increase

current income

IN WHAT WAYS DOES THE FEDERAL BUDGET SERVE AS AN AUTOMATIC STABILIZER FOR THE ECONOMY?

during a recession there is an increase in government expenditures for transfer payments and a decrease in taxes as wages and profit FALL . during EXPANSION there is a decrease in gov expenditures for transfer payments and an INCREASE IN taxes as wages and profits rise. BOTH OF THESE OCCUR AUTOMATICALLY AND BOTH EFFECTS HELP STABILIZE AGGREGATE DEMAND

the multiplier effect is only a consideration for increase in government purchases

false

What would be the federal government reaction if actual real GDP in 2006 occurs at point B and potential GDP occurs at LRAS06? that is what step can we expect the federal government to take to control inflation in the second period?

graph all of the above Decrease government spending on goods and services contractionary policy increase taxes on businesses

According to the multiplier effect an initial increase in government purchases increase real GDP by _____ the initial increase in government purchase

more than

policy that is specifically designed to affect aggregate supply and increase incentives to work save and start a business by reducing the tax wedge

supply side economics

suppose the government increase expenditures while holding taxes the same time, this will INCREASE deficits or DECREASE SURPLUSES. assume the increase in government expenditures from above occurs use the graph of the money market to the right to show the effect it will have in interest rates.

the increase in government expenditures will INCREASE THE interest rate which will cause a DECREASE in private investments spending and is referred to as CROWDING OUT FOR THE GRAPH DRAW A DEMAND LINE TO THE RIGHT AND THE NEW EQUALIBRIUM

the highier the tax rate

the smaller the multiplier effect