Macro Chapter 13
If the marginal propensity to consume (MPC) is 0.75 and the federal government increases spending by 100 billion, then the income expenditure model would predict that real GDP would raise by:
400 billion
If the economy is at equilibrium at E1 (intersects SRAS and AD) what fiscal policy should be used
Expansionary to shift the AD curve to the right
If the current level of real GDP lies below potential GDP, what would be the appropriate fiscal policy?
Increase government spending which will shift the aggregate demand curve to the right
Expansionary fiscal Policy
Increases government spending or decreases taxes
Contractionary Fiscal Policy
Is used to close an inflationary gap and shifts the aggregate demand curve to the left
Suppose that the budget deficit of a country remains level for five years. Which of the following is true concerning the fiscal stance of this government
The federal debt will rise.
If the economy is at equilibrium at E1 (intersects SRAS and AD) what is it experiencing
a recessionary gap
When government spending results in persistent deficits that necessitate borrowing, thereby leading to a reduction in private investment, it is referred to as:
crowding out.
Spending promises made by governments that are effectively a debt, despite the fact that they are not included in the usual debt statistics, are known as:
implicit liabilities.
Budget deficits almost always:
increase when unemployment increases and fall when unemployment falls.
Changes in taxes and government transfers shift the aggregate demand curve by
less than government purchases
What is the largest source of federal tax revenue
personal income taxes
Because of the role of automatic stabilizers and discretionary fiscal policy, the historical record of the United States since 1970 shows that:
the budget tends to move into a deficit during recessions.
The larger the amount of outstanding public debt:
the larger the fraction of the federal budget deficit that must be devoted to interest payments.
Medicaid, Medicare, and Social Security are examples of
transfer payments