Econ chapters 7-9
If income increases from $20,000 to $30,000 and $9,000 of the new income is spent on consumption, then the MPC is ___________. (Check all that apply)
0.9
If MPC is 0.9, then the simple multiplier is __________ .
10
With an MPC of .9, an initial increase of government spending of $10 billion leads to a total increase of $___ billion.
100
With an MPC of .95, the multiplier is ___.
20
Keynesian Theory assumptions are shown in the AS/AD graph below. Because there is no unused capacity in Stage _____, if Government spending increases then AD increases (in theory) will result only in rising prices. (Check all that apply)
3
With an MPS of .25, an initial increase of taxes of $10 billion leads to a total decrease of $___billion in income.
40
Assuming no change in government spending, an increase in taxes of $100 billion with an MPC of 0.80 will subtract a total of $_____________ billion from the economy after the multiplier effect.
400
If MPC is 0.8, then the multiplier is _____.
5
Assuming no change in government spending, an increase in taxes of $100 billion with an MPC of 0.90 will subtract a total of $_____________ billion from the economy after the multiplier effect.
900
Please match the following terms with their examples.
A 0.9 B 0.1 C 0.8 D 0.2
Please match the following terms with their definitions.
A.MPS B. MPC C. APS D. APC
Conservatives prefer to ____________ to stimulate the economy during a recessionary gap (less than full employment and output).
Decrease T
If a deficit increased from -$100 billion to -$400 billion, fiscal policy would be considered __________.
Expansionary
Adam Smith's demand-side economics is the idea that an economy with less government restriction serves people best for allowing free allocation of resources.
False
Aggregate Demand (AD) is the total demand at various GDP levels for goods and services within the economy.
False
If Savings = Investment, the economy must be in a recession.
False
If there is unused capacity, the government can stimulate an increase in AD to move the economy further away from full employment.
False
Imports are an injection in the Keynesian bathtub.
False
In 1929 the U.S. stock market fell which in turn caused a widespread loss of confidence and a collapse in Investment spending, followed by rising inflation.
False
Keynesian phase of the As curve is the vertical portion.
False
Monetarism is a revised form of Keynesian theory emphasizing the appropriate growth of the money supply.
False
Most economists believe the New Deal helped bring the US out of the Great Depression.
False
The United States experienced a mild recession in 2008 caused largely by the bust of the "dot-com" bubble
False
When AS is greater than AD, savings will be greater than investment and economic activity will decline.
False
Through _________ policy, the federal government is capable of counterbalancing recession or inflation to some extent through changing tax rates and spending, but there will be some uncertainties and risks.
Fiscal
Unemployment benefits, welfare, and some subsidies automatically ___________ in a recession.
Increase
Check all of the following that pertain to fiscal policy.
Increasing T and decreasing G in an overheated economy
Check all of the following that pertain to fiscal policy.
Increasing T and decreasing G in an overheated economy inherently a Keynesian idea
Check all of the following that are characteristic of Keynesian theory.
John Maynard Keynes "The General Theory" in 1936
With the continuation of the Great Depression in the 1930's ______________ explanations of economic activity began to be widely studied. (Check all that apply)
John keynes'
______ are the reasons that wages are not very flexible to the downside. (Check all that apply)
Labor Unions Labor Contracts
Increases in T will reduce the economy's GDP by causing a(n) ________ in the AD.
Leakage and shift left
The multiplier factor is given by 1 divided by the ________ or similarly 1 divided by 1-MPC.
MPS
With Savings __________ being equal to Investment according to Keynes, the resulting impact on Aggregate Demand creates changes in economic activity.
Seldom
The Employment Act of 1946 was passed by Congress for government to accept _________ responsibility for promoting full employment and price stability.
Some
Check all of the following that pertain to fiscal policy.
Tax rates President and congress
Check all of the following that are supply-side factors of economic growth.
Technology education and training of workers the number of workers amount and quality of capital
Check all of the following that are true.
The "Great Recession" occurred from December 2007 through June 2009 and followed the boom and bust in the housing market
Barack Obama said that the government is the only entity left that can help the economy recover from a recession.
True
Barack Obama's administration has increased the national debt more than any other in US history (in absolute terms).
True
Even though President Bush's first inclination was to let the banks fail in the fall of 2008 (which would have been the capitalistic approach), the argument was made that the banks were "too big to fail" since their collapse would have had severe consequences for the whole economy
True
Excessive speculation following the extreme growth in the use and adoption of the internet in the late 1990s inflated the dot-com bubble, also known as the tech or Internet bubble
True
If Investment > savings, this leads to a growth impact
True
In the Classical Theory if Aggregate Demand increases only an increase in the price level is possible since the assumption is for a constant level of full employment.
True
In the Great Depression, businesses lost their confidence in the economy and did not spend enough on Investment to return Savings into the flow even though interest rates were lower.
True
Monetarism is a revised form of the classical theory proposing the appropriate growth of the money supply is equal to the growth rate of Real GDP.
True
Once financial institutions started collapsing in the fall of 2008, the Bush Administration was faced with a choice: it could have let the banks suffer the consequences of their risky loans by letting them fail, or it could intervene with a taxpayer-funded bailout
True
Perverse incentives, critics argue, lead to unintended and undesirable results contrary to the good intentions of the policymakers who create such programs
True
Ronald Reagan said, "In this present crisis, government is not the solution...Government is the problem."
True
The only two things people can do with their income in spend it or save it.
True
Check all of the following that are true.
a brief but significant drop in illegitimacy for whites, Asians, and blacks corresponds to the 1996 welfare reform signed into law by President Clinton, who claimed it "ended welfare as we know it" by adding a work requirement to receive benefits the percentage of children born out of wedlock rose dramatically following the onset of the Great Society, for white and Hispanic children but especially in the black community
Check all of the following that apply to fiscal policy.
advocates expansionary policies in recessions advocates for contractionary policies in overheated economies sometimes can lead to a larger budget deficit
Keynes responded to the "crowding out" criticism by saying that government deficits are appropriate in a depression because there is no motivation for business to borrow and spend __________ in this situation.
all of the choices are correct
Check each of the following that apply to the Classical theory.
became popular in America in 1776
__________________is the action of government to adjust spending and/or taxation to combat recession or inflation.
countercyclical fiscal policy
The water level in the Classical bathtub refers to ____ (check all that apply)
employment and income output
Political leaders may propose _______ policy to aid their own political interest by promoting the upside of the business cycle to coincide with an election.
fiscal
The dynamics of a ___________ interest rate will eliminate excess savings and ____________ prices and wages will maintain constant consumption.
flexible
Check all of the following that are true about the response to the financial crisis of 2009.
greater government intervention into the economy was the hallmark of the incoming Obama administration and its "stimulus" package that passed through Congress in February 2009 with unemployment rising over the previous year to 7.6 percent, Obama asserted that the American Recovery and Reinvestment Act (ARRA) was necessary because the government "was the only entity left with the resources needed to jolt our economy" back to life following the enactment of the stimulus package, the unemployment rate continued to rise, not only surpassing the eight percent estimate of the administration, but staying above eight percent for 43 consecutive months until late 2012
Nondiscretionary fiscal policy or built-in stabilizers automatically _____________ government spending (G) during recessions.
increase
Check all of the following non-income determinants of economic activity according to Keynes.
level of personal debt value of assets held by individuals
Check all of the following that are supply-side factors of economic growth.
more resources available
Check all that apply to the Obama presidency.
national debt increased from approximately $10 trillion to more about $20 trillion number in poverty risen from 37 million to around 44 million food stamps increased from 29 million to around 44 million drop in labor force participation to lowest level since 1977 real incomes down have fallen
Aggregate Demand (AD) consists of spending for Consumption, ____________, Government, and Net Exports. (Check all that apply)
none of these are correct
_________ is the total of the ________ still financed by government borrowing since the beginning of the nation in 1776.
none of these are correct
Critics of active fiscal policy argue that when funds are borrowed to finance a deficit, those savings could have been used in the private sector, thereby ____________ private expansion in favor of the public sector.
none of these choices are correct
One reason that wages and prices are not very flexible to the downside is that labor is _____________ replaceable in the production process.
not immediately
In the "crowding out effect" borrowing by government will cause interest rates to rise and savings to be given to government rather than the ________ sector. (Check all that apply)
private
Check all of the following that are disadvantages of fiscal policy.
recognition lag legislative lag effectiveness lag may worsen the problem can lead to larger deficits
Check all of the following that may cause savings to not equal investment according to Keynes.
savings for deferred transactions savings set aside for speculation savings for precautionary reasons
Check all of the following that are true.
the poverty rate was already declining prior to LBJ's expansion of the welfare state, falling from 32.2 percent in 1950 to 17.3 percent in 1965, the first year the War on Poverty was implemented Following the onset of the War on Poverty the poverty rate declined from roughly 19 percent to just over 11 percent in the late 1970s the poverty rate rose and has since basically hovered around 14 percent ever since even though welfare spending has drastically increased over the same period
Check all of the following that are true
viewed by many economists as a successful reform, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 implemented new work requirements for welfare recipients and a five-year limit on benefits critics of the welfare state believe it actually creates a perverse incentive to not get married because single parents receive more government transfer payments than do those who are married President Trump in 2018 signed an executive order that ordered departmental secretaries to review their existing welfare programs and propose new regulations that would create new work requirements for welfare recipients the push for Welfare Reform led to the law signed by President Clinton in 1996
