Economicd last test of year

The table describes five possible outcomes in a country for​ 2020, depending on the level of aggregate demand in that year. Potential GDP is​ $10 trillion and the natural unemployment rate is 5 percent. Calculate the inflation rate for each possible outcome and fill in the right column of the table.

Price level ​(2019 =​ 100) Unemployment rate ​(percentage of labor​ force) Inflation rate ​(percent per​ year) A 102.5 9 2.5 B 105.0 6 5.0 C 106.0 5 6.0

Which of the following statements illustrates fiscal policy​?

The US government has proposed a hike in the corporate tax rate.

The table shows the tax revenues and the outlays of a nation at each level of real GDP. What is the budget balance when real GDP is ​$7 ​trillion? Real GDP Tax revenues Outlays ​(trillions of​ dollars) 3 0.1 0.5 4 0.2 0.4 5 0.3 0.3 6 0.4 0.2 7 0.5 0.1

The budget balance is 0.4 trillion dollars.

U.S. budget deficit widens In the fiscal year​ 2019, the projected U.S. federal government deficit totaled​ $960 billion, which is 23.2 percent higher than a year earlier. ​Source: Congressional Budget​ Office, August​ 21, 2019 Given the information in the news​ clip, what was the total change in U.S. national debt during the fiscal years 2018 and​ 2019?

The budget deficit in 2018 was ​$779 billion. During Fiscal 2018 and Fiscal​ 2019, the national debt increased by ​$1739 billion.

The country of Ecotopia records the transactions in the table. Calculate the current account​ balance, the capital and financial account​ balance, the official settlements account​ balance, and imports of goods and services. Exports of goods and services 2,100 Interest paid to the rest of the world 600 Interest received from the rest of the world 450 Increase in Ecotopian official reserves 10 Government sector balance −200 Saving 2,100 Investment 2,300 Net transfers 0

The current account balance is ​$−550 billion. The capital and financial account balance is ​$560 billion. The official settlements account balance ​$10 billion Imports of goods and services are ​2,500 billion.

The U.S. economy records the transactions in the table. Calculate the current account​ balance, the capital and financial account​ balance, the official settlements account​ balance, and exports of goods and services. Imports of goods and services 2,500 Interest paid to the rest of the world 700 Interest received from the rest of the world 650 Increase in U.S. official reserves 10 Government sector balance −200 Saving 1,900 Investment 2,050 Net transfers 0

The current account balance is −400 billion dollars. The capital and financial account balance is 410 billion dollars. The official settlements account balance -10 billion dollars. Exports of goods and services are 2,150 billion dollars.

The table describes five possible outcomes for​ 2020, depending on the level of aggregate demand in that year. Potential GDP is ​$11 trillion and the natural unemployment rate is 5 percent. What are the expected price level and the expected inflation rate in​ 2020? Price level ​(2019 =​ 100) Unemployment rate ​(percentage of labor​ force) A 102.5 9 B 105.0 6 C 106.0 5 D 107.5 4 E 110.0 3

The expected price level in 2020 is 106.0. The expected inflation rate in 2020 is 6.0 percent a year.

What does the potential GDP line​ illustrate?

The potential GDP line is vertical because potential GDP is independent of the price level.

Consider aggregate supply and then choose the statement that is correct.

The quantity of real GDP supplied equals potential GDP at the price level at which the real wage rate is at its​ full-employment equilibrium level.

What is the true income tax rate on interest income if the nominal interest rate is 8 percent a​ year, the inflation rate is 5 percent a​ year, and the tax rate on nominal interest is 25​ percent?

The true income tax rate is 66.67 percent.

Suppose that the tax on interest income is levied on the nominal interest​ rate, the tax rate is 20 ​percent, and the real interest rate is 4 percent a year. There is no inflation. Calculate the​ after-tax real interest rate and the true tax rate on interest income.

The​ after-tax real interest rate is 3.2 percent. The true tax rate on interest income is 20 percent.

The table describes five possible outcomes for​ 2020, depending on the level of aggregate demand in that year. Potential GDP is ​$8 trillion and the natural unemployment rate is 5 percent. Using​ Okun's Law, when the unemployment rate is 4 ​percent, what is real​ GDP? Price level ​(2019 =​ 100) Unemployment rate ​(percentage of labor​ force) A 102.5 9 B 105.0 6 C 106.0 5 D 107.5 4 E 110.0 3

When the unemployment rate is 4 ​percent, real GDP is ​$8.16 trillion.

What is fiscal​ policy? Prior to the Great​ Depression, what was the purpose of the federal​ budget? Fiscal policy is the use of the federal budget to​ _______. Prior to the Great​ Depression, the purpose of the federal budget was to​ _______.

achieve the macroeconomic objectives of high and sustained economic growth and full employment finance the activities of the federal government

The government expenditure multiplier is the effect of a change in government expenditure on goods and services on​ _____.

aggregate demand

The tax multiplier is the effect of a change in taxes on​ _____.

aggregate demand

Classify each of the following items as automatic fiscal​ policy, discretionary fiscal​ policy, or not part of fiscal policy. A decrease in tax revenues in a recession is​ _______. Additional government expenditure to upgrade highways is​ _______. An increase in the public education budget is​ _______. A cut in infrastructure expenditure during a boom is​ _______.

automatic fiscal​ policy; discretionary fiscal policy discretionary fiscal​ policy; discretionary fiscal policy

The table describes four possible outcomes for​ 2020, depending on the level of aggregate demand in that year. Potential GDP is ​$12 trillion and the natural unemployment rate is 4 percent. Draw the four points ​A,B,C​, and D on the​ short-run Phillips curve using the data in the table. Label the points. Draw the​ short-run Phillips curve through the points. Label it SRPC. Price level ​(2019 =​ 100) Unemployment rate ​(percent of labor​ force) A 102.5 9 B 105.0 6 C 107.5 4 D 110.0 3

check google doc

The table describes four possible outcomes for​ 2020, depending on the level of aggregate demand in that year. Potential GDP is ​$9 trillion and the natural unemployment rate is 6 percent. Draw the four points ​A,B,C​, and D on the aggregate supply curve using the data in the table. Label the points. Draw the​ short-run aggregate supply curve. Label it AS. Price level ​(2019 =​ 100) Unemployment rate ​(percent of labor​ force) A 102.5 9 B 105.0 6 C 107.5 4 D 110.0 3

check google doc

Draw an aggregate supply curve. Label it.: What happens as an economy moves up along its aggregate supply​ curve?

check google doc: The money wage rate and the money prices of other resources remain constant

Explain the effect of each of the following events on​ Mexico's aggregate demand. Mexico trades with the United States. When the United States experiences strong economic​ growth, Mexico's aggregate demand​ _______. When the Mexican government sets new environmental standards that require factories to upgrade their production​ facilities, investment in Mexico increases and​ Mexico's aggregate demand​ _______.

decreases​, and the aggregate demand curve shifts leftward: increases because its exports to the United States increase. ​Mexico's AD curve shifts rightward: increases. The AD curve shifts rigthward

U.S. official reserves are the​ government's holding of​ _____.

foreign currency

The capital and financial account is the record of​ _____ minus U.S. investment abroad.

foreign investment in the United States

Explain the influence of the following events on the quantity of real GDP supplied and aggregate supply in India. In the short​ run, when U.S. firms moved their IT and data functions to​ India, India's aggregate supply​ _______. In the short​ run, when the money wage rate rose ​India's aggregate supply​ _______. In the short​ run, when the price level in India​ increased, India's aggregate supply​ _______.

increased: decreased: ​didn't change, but the quantity of real GDP supplied increased

Explain how aggregate demand changes when government expenditure on national defense increases by​ $100 billion. Aggregate demand​ _______.

increases by more than​ $100 billion because the government expenditure has a multiplier effect

As the price level​ rises, how do firms respond in the short run to the change in the real wage​ rate? As the price level​ rises, firms respond in the short run to the change in the real wage rate by​ _______.

increasing production

Balance of payments accounts are the accounts in which a nation records its​ _____.

international​ trading, borrowing, and lending

A creditor nation is a country that during its entire history has​ _____ the rest of the world than other countries have​ _____ it.

invested more​ in; invested in

Classify each of the following items as discretionary fiscal policy or automatic fiscal policy or neither. The imposition of huge fines on tobacco companies is​ _______. A cut in the gas tax rate is​ _______. A cut in​ cross-border (custom) tax rates is​ _______. The increase in the total amount paid in unemployment benefits as more workers lose their jobs is​ _______.

neither discretionary nor automatic fiscal​ policy; discretionary fiscal policy discretionary fiscal​ policy; automatic fiscal policy

The official settlements account is the record of the change in U.S.​ _____.

official reserves

What are the tax revenues and outlays in the federal​ budget, and what was the projected budget balance for Fiscal​ 2020? The tax revenues in the federal budget include​ _______. The outlays in the federal budget include​ _______. The projected budget balance for Fiscal 2020 is a___ of ____ billion

personal income​ taxes, Social Security​ taxes, corporate income​ taxes, and indirect taxes transfer​ payments, expenditure on goods and​ services, and debt interest deficit of 1100 billion

What are the three ways in which the U.S. fiscal imbalance might be successfully​ addressed? The three ways in which the U.S. fiscal imbalance might be successfully addressed are​ _______.

raising income​ taxes, raising Social Security​ taxes, and cutting Social Security benefits

Automatic stabilizers are features of fiscal policy that stabilize​ _____ without explicit action by the government.

real GDP

Induced taxes are taxes that vary with​ _____.

real GDP

Aggregate supply is the relationship between the quantity of​ _____ supplied and the​ _____ when all other influences on production plans remain the same.

real​ GDP; price level

U.S. unemployment fell to 3.6​ percent, lowest since 1969 The unemployment rate fell to 3.6​ percent, the lowest since 1969. Low unemployment is forcing employers to raise pay and average hourly earnings rose 3.2 percent in the past year. ​Source: The Washington Post​, May​ 3, 2019 With the expected inflation rate​ steady, did the U.S. economy move along its​ short-run Phillips​ curve? If​ so, in which​ direction? Or did the economy move off its​ short-run Phillips​ curve? As the expected inflation rate remained​ steady, _______.

the United States moved up along its​ short-run Phillips curve as wage inflation rose and the unemployment rate fell

Explain the effect of each of the following events on the quantity of U.S. real GDP demanded and the demand for U.S. real​ GDP: The world economy goes into a strong​ expansion; the U.S. price level​ rises; Congress raises income taxes. When the world economy goes into a strong​ expansion, _______. When the U.S. price level​ rises, _______. When Congress raises income​ taxes, _______.

the demand for U.S. exports increases and the demand for U.S. real GDP increases a movement up along the AD curve occurs and the quantity of U.S. real GDP demanded decreases the demand for U.S. real GDP decreases and the AD curve shifts leftward

Investment and government expenditure down and exports up The BEA announced that nonresidential investment and federal government spending decreased in the first quarter of 2016 while U.S. exports increased and U.S. imports decreased. ​Source: Bureau of Economic​ Analysis, June​ 28, 2016 Explain how the items in the news clip influence U.S. aggregate demand. The decrease in nonresidential investment​ ______ aggregate demand. The decrease in federal government spending​ ______ aggregate demand. The change in exports and imports​ _______ aggregate demand because​ _______.

​decreases; decreases ​increase; an increase in exports increases aggregate demand and a decrease in imports increases aggregate demand

A net borrower is a country that is borrowing​ _____ from the rest of the world​ _____ it is lending to the rest of the world.

​more; than

A net lender is a country that is lending​ _____ to the rest of the world​ _____ it is borrowing from the rest of the world.

​more; than

Suppose that in an​ economy, investment is​ $400 billion, saving is​ $400 billion, tax revenues are​ $500 billion, exports are​ $300 billion, and imports are​ $200 billion. What is government expenditure and the​ government's budget​ balance?

Government expenditure is ​$400 billion. The​ government's budget balance is ​$100 billion.

At the end of Fiscal​ 2019, national debt was​ $16.9 trillion and the budget deficit in Fiscal 2020 is​ $1.1 trillion. If the budget deficit remains at​ $1.1 trillion for two​ years, what will the national debt be at the end of Fiscal​ 2021?

If the budget deficit remains at its Fiscal 2020 level for two​ years, the national debt at the end of Fiscal 2021 is ​$19.1 trillion.

The transfer payments multiplier is the effect of a change in transfer payments on​ _____.

aggregate demand

The U.S. economy is at full employment. If the federal government increases ​taxes, and all other influences on aggregate demand remain the​ same, explain how aggregate demand will change in the short run. When the federal government increases ​taxes, _______.

aggregate demand decreases

The balanced budget multiplier is the effect on​ _____ of a​ _____ change in government expenditure and taxes that leaves the budget balance unchanged.

aggregate​ demand; simultaneous

A fall in income results in a decrease in tax revenues. What does this​ illustrate? A fall in income that results in a decrease in tax revenues is an example of​ _______.

automatic fiscal policy

A debtor nation is a country that during its entire history has​ _____ the rest of the world than it has​ _____ the rest of the world.

borrowed more​ from; lent to

U.S. trade gap widened in May despite tariff moves The U.S. trade gap widened sharply in May despite a new round of tariffs on Chinese goods that took effect in the first half of the month. ​Source: Wall Street Journal​, July​ 3, 2019 Explain how the United States pays for its international trade deficit and why tariffs​ don't lower the deficit. The United States pays for its international trade deficit by​ _______. Tariffs​ don't lower the deficit because​ _______.

borrowing from abroad net exports equals the private sector balance plus the government sector balance regardless of tariffs

The graph shows the aggregate supply curve and the aggregate demand curve for an economy. Draw an aggregate demand curve that shows the effect of a​ $100 billion decrease in government expenditure. Label it AD1. What is the effect of a​ $100 billion increase in taxes on the aggregate demand​ curve? A​ $100 billion increase in taxes would shift the aggregate demand curve​ _______.

check googel doc leftward but not as far leftward as a​ $100 billion decrease in government expenditure

Changing​ course, Australia raises interest rate The Reserve Bank of Australia​ (the central​ bank) raised its overnight rate​ (equivalent to the U.S. federal funds​ rate) by a quarter of a percentage​ point, to 3.25 percent a​ year, amid concerns about rising inflation. The interest rate rise came earlier than many economists had expected. ​Source: New York Times​, October​ 6, 2009 Sketch the Phillips curves if expected inflation is 2 percent a year and the natural unemployment rate is 5 percent. On the​ graph, sketch and label the​ long-run Phillips curve and the​ short-run Phillips curve for Australia.

check google doc

Inflation at lowest rate in 5 years In​ September, inflation in the United Kingdom fell to​ 1.1% a​ year, its lowest in 5 years. Analysts expected an inflation rate of​ 1.3% a year. ​Source: The New York Times​, October​ 13, 2009 The unemployment rate is 8 percent and the natural unemployment rate is 6 percent. Draw a point that shows the unemployment rate and the inflation rate in September. Label it A. Draw a point that shows the natural unemployment rate and the expected inflation rate. Label it B. Draw the​ short-run Phillips curve that is consistent with these data. Label it.

check google doc

Use an aggregate​ supply-aggregate demand graph to illustrate the effects on real GDP and the price level of a fiscal stimulus when the economy is in recession. The graph shows the economy in a recession. Draw a curve that shows the effect of a fiscal stimulus. Label it. Draw a point at the new macroeconomic equilibrium.

check google doc

The graph shows the aggregate supply curve and the aggregate demand curve for an economy. Draw an aggregate demand curve that shows the effect of a​ $100 billion decrease in government expenditure and a​ $100 billion decrease in taxes occurring simultaneously. Label it AD1. What is the value of the balanced budget​ multiplier? The balanced budget multiplier​ _______.

check google doc: is a positive number

Suppose that the United States is at full employment. Explain the effect of each of the following events on aggregate​ supply: Union wage settlements push the money wage rate upward by 10 percent​; the price level​ increases; potential GDP increases. Union wage settlements push the money wage rate upward by 10 percent. Draw a curve to show the effect of this event on aggregate supply. Label it AS1. If the price level​ increases, _______. If potential GDP​ increases, _______.

check google doc: the quantity of real GDP supplied increases: the AS curve shifts rightward

Draw the potential GDP line when potential GDP is ​$21.0 trillion. Label it. Do any costs remain constant as we move up along the potential GDP​ line? As we move up along the potential GDP​ line, _______.

check google doc: the real wage rate remains constant

The U.S. economy records the transactions in the table. Is the United States a debtor or a creditor​ nation? The United States is a​ _______ nation because​ _______. Imports of goods and services 2,000 Interest paid to the rest of the world 500 Interest received from the rest of the world 550 Increase in U.S. official reserves 10 Government sector balance 200 Saving 1,800 Investment 1,900 Net transfers 0

creditor; its interest recieved exceeds its interest paid

National debt is the amount of government​ _____ -​ _____ that has arisen from past​ _____.

debt​ outstanding; debt; budget deficits

Democrats introduce bill to hike federal minimum wage to​ $15 per hour Democrats want to gradually raise the federal minimum wage to​ $15 per hour from the current​ $7.25. ​Source: CNBC​, January​ 16, 2019 Explain how a gradual rise in the federal minimum wage will influence aggregate supply. The gradual rise in the federal minimum wage​ _______. If the rise in the minimum wage increases the natural unemployment​ rate, potential GDP​ ______ and aggregate supply​ ______.

decreases aggregate supply because the money wage rate increases and​ firms' costs increase: ​decreases; decreases further

As more people in India have access to higher​ education, explain how potential GDP and aggregate supply will change in the long run. As more people in India have access to higher education​ _______ and in the long run​ _______.

human capital​ increases; both potential GDP and aggregate supply increase

Many events have followed the ending of apartheid in South Africa. Explain their effect on South​ Africa's aggregate supply. When U.S. businesses established branches in South​ Africa, in the short​ run, South​ Africa's aggregate supply​ _______. South​ Africa's aggregate supply​ _______ when unemployment decreased. When the price level in South Africa​ increased, South​ Africa's aggregate supply​ _______.

increased: increased: ​didn't change, but as the price level increased the quantity of real GDP supplied increased

CBO expects deficit to grow more than projected Federal deficits are expected to swell to higher levels over the next decade than previously expected. The U.S. budget deficit is expected to average a whopping​ $1.2 trillion per year between 2020 and 2029. The aging of the U.S. population and growth in​ health-care spending are the main drivers of the large deficit. ​Source: CNBC​, August​ 21, 2019 Explain why the national debt does not measure the federal​ government's true indebtedness. How does the​ nation's fiscal imbalance provide a more accurate account of​ government's debt? The national debt does not measure the federal​ government's true indebtedness because​ _______. The​ nation's fiscal imbalance provides a more accurate account of​ government's debt because the fiscal imbalance​ _______.

the national debt​ doesn't include the​ government's commitments to pay future benefits nor the present value of its future tax revenues: measures​ today's value of the future cost of the programs to which the government is committed minus​ today's value of the future taxes it will collect

The current account is the record of receipts from​ _____ other​ countries, minus​ _____ other​ countries, plus the net amount of​ _____ received from and paid to other countries.

the sale of goods and services​ to; payments for goods and services bought​ from; interest and transfers

An automatic fiscal policy is a fiscal policy action that is triggered by​ _____. A discretionary fiscal policy is a fiscal policy action that is initiated by​ _____.

the state of the​ economy; an act of Congress

What is fiscal​ policy? What is the federal budget time​ line? Fiscal policy is​ _______. The​ _______ proposes a budget to​ _______. The​ _______ passes the budget acts in​ _______.

the use of the federal budget to achieve macroeconomic objectives ​President; Congress each February ​Congress; September

A country has been in existence for only two years. In the first​ year, tax revenues were​ $1.0 million and outlays were​ $1.5 million. In the second​ year, tax revenues were​ $1.5 million and outlays were​ $2.0 million. What is the​ government's debt at the end of the second​ year? At the end of the second​ year, the government had issued debt worth​ _______.

​$1 million

If saving is​ $850 billion, investment is​ $500 billion, government expenditure on goods and services is​ $700 billion, net exports is​ $50 billion, and net taxes are​ $800 billion, then calculate the government sector balance.

​$100 billion

If saving is​ $850 billion, investment is​ $500 billion, government expenditure on goods and services is​ $600 billion, and net exports is​ $100 billion, then calculate the private sector balance.

​$350 billion

If tax revenues are​ $3,500 billion and the​ government's budget balance is a​ $720 billion​ deficit, calculate the​ government's outlays.

​$4,220

The table gives some data that describes the economy of Antarctica in 2050. Calculate​ Antarctica's current account​ balance, capital and financial account​ balance, and the change in​ Antarctica's official reserves. Item ​(billions of Antarctica​ dollars) Imports of goods and services 100 Exports of goods and services 75 Net interest −15 Net transfers 50 Foreign investment in Antarctica 150 ​Antarctica's investment abroad 25

​Antarctica's current account balance is 10 billion dollars. ​Antarctica's capital and financial account balance is 125 billion dollars. The change in​ Antarctica's official reserves is an increase of 135 billion dollars.