ECON 102 Exam 3: Chapter 9 2022

If the government increases spending to eliminate the recessionary gap portrayed in the above figure, the result is ________ price level and ________ government budget deficit. A)a higher; a larger B)no change in the; no change in the C)a lower; a larger D)a lower; a lower E)a higher; a lower

A

Does the figure above illustrate a recessionary or an inflationary gap? What do potential GDP and real GDP equal? What is an appropriate fiscal policy to restore real GDP to potential real GDP?

A recessionary gap occurs when real GDP is less than potential GDP, which is precisely what the figure illustrates. In the figure, potential GDP equals $20.5 trillion but real GDP equals only $20.0 trillion. In order to restore real GDP back to potential GDP using fiscal policy, the government could increase government expenditures on goods and services and/or decrease taxes.

An economy is at a short-run equilibrium as illustrated in the above figure. An appropriate FISCAL policy option to move the economy to full employment is to A)lower the interest rate by increasing the quantity of money and move the economy to a full-employment equilibrium at point b. B)increase government expenditure and move the economy to a full-employment equilibrium at point b. C)increase tax rates and move the economy to a full-employment equilibrium at point b. D)increase government expenditure and move the economy to a full-employment equilibrium at point c. E)increase tax rates and move the economy to a full-employment equilibrium at point c.

B

During a recession, unemployment benefit payments increase without the need for any government action. This increase is an example of A)automatic monetary policy. B)automatic fiscal policy. C)discretionary fiscal policy. D)discretionary monetary policy. E)government expenditure but it is not an example of either discretionary or automatic policy.

B

If fiscal stimulus creates a large budget ________, then in the long run economic growth ________. A)deficit; increases B)deficit; decreases C)surplus; increases D)surplus; decreases E)None of the above answers is correct.

B

The federal budget is defined as A)an annual statement of what policy actions the U.S. government has pursued. B)an annual statement of expenditures and tax revenues of the U.S. government. C)a monthly statement of whether the U.S. government is in deficit or surplus. D)a monthly statement of expenditure laws passed by the U.S. government. E)an annual statement of U.S. government violations of international laws.

B

The government has a budget surplus if A)government outlays are greater than tax revenues. B)tax revenues are greater than outlays. C)a fiscal stimulus is being used to combat a recession. D)there is no national debt. E)the budget is balanced.

B

The law-making time lag is best described as the time that it takes A)Congress to REALIZE that new laws must be passed to change taxes or spending. B)Congress to PASS laws needed to change taxes or spending. C)a jury to render a verdict. D)a newly passed law to become the norm in daily lives. E)the President to sign a bill sent from Congress.

B

The supply-side effects show that a tax cut on labor income ________ employment and ________potential GDP. A)decreases; increases B)increases; increases C)increases; decreases D)increases; does not change E)decreases; decreases

B

When tax revenues equal government outlays, the situation is referred to as A)an equal budget. B)a balanced budget. C)a legal budget. D)an equivalent budget. E)an equilibrium budget.

B

An example of automatic fiscal policy is A)the Federal Reserve reducing interest rates as economic growth slows. B)a change in taxes that has no multiplier effect. C)expenditure for unemployment benefits increasing as economic growth slows. D)the federal government expanding spending at the Department of Education. E)Congress passing a tax rate reduction package.

C

Discretionary fiscal policy is defined as fiscal policy A)initiated by a Presidential proclamation. B)left to the discretion of military authorities. C)initiated by an act of Congress. D)with multiplier effects. E)triggered by the state of the economy.

C

In 2009, Congress passed tax laws to reduce income tax rates for some taxpayers. This action is called A)an automatic fiscal policy. B)induced tax policy. C)a discretionary fiscal policy. D)an annual tax policy. E)a discretionary revenue policy.

C

In the United States for the year 2020, the federal government had a ________ so the national debt was ________. A)budget surplus; decreasing B)budget deficit; decreasing C)budget deficit; increasing D)budget surplus; increasing E)balanced budget; not changing

C

The crowding out effect refers to the ________ from ________ in the government's budget deficit. A)decrease in consumption; a decrease B)decrease in employment; an increase C)increase in consumption; an increase D)decrease in investment; an increase E)increase in investment; an increase

D

The government collects tax revenues of $100 million and has $105 million in outlays. The budget balance is a A)deficit of $105 million. B)surplus of $105 million. C)surplus of $100 million and a deficit of $105 million. D)deficit of $5 million. E)surplus of $5 million.

D

The use of discretionary fiscal policy is hampered by i.difficulty of estimating the level of potential GDP. ii.lack of accuracy of economic forecasts. iii.the small impact tax cuts and increases in government expenditure have on aggregatedemand. A)i only B)ii only C)iii only D)i and ii E)i, ii, and iii

D

Transfer payments include i.social security benefits. ii.medicare and medicaid benefits. iii.unemployment benefits. A)i only. B)ii only. C)iii only. D)i, ii, and iii. E)i and iii only.

D

An increase in taxes on labor income shifts the labor supply curve ________, and the ________. A)rightward; before-tax wage rate rises B)leftward; before-tax wage rate does not change C)leftward; after-tax wage rate does not change D)leftward; after-tax wage rate rises E)leftward; after-tax wage rate falls

E

Discretionary fiscal policy is handicapped by A)economic forecasting, law-making time lags, and induced taxes. B)automatic stabilizers, law-making time lags, and potential GDP estimation. C)automatic stabilizers and induced taxes. D)induced taxes and automatic stabilizers. E)law-making time lags, estimation of potential GDP, and economic forecasting.

E

Do automatic fiscal stabilizers eliminate business cycles? A)No, they increase the likelihood that a business cycle occurs. B)No, they make business cycle fluctuations more severe. C)No, because they have no effect if the business cycle is the result of some unanticipated change. D)Yes E)No, but they do moderate business cycles.

E

If tax revenues are $230 billion and the government's outlays are $235 billion, then the budget A)deficit is $5 billion and government debt will remain the same. B)surplus is $230 billion and the budget deficit is $235 billion. C)surplus is $5 billion and government debt will increase by $5 billion. D)deficit is $5 billion and government debt will decrease by $5 billion. E)deficit is $5 billion and government debt will increase by $5 billion.

E

The national debt is the amount A)by which government outlays exceed tax revenue in a given year. B)by which government tax revenue exceed outlays in a given year. C)of all future entitlement spending. D)of government outlays summed over time. E)of debt outstanding that arises from past budget deficits.

E