Macro Economics Chapter 9

If the tax multiplier is -6 and taxes are reduced by $100 billion, output

Increases by $600 billion

The formula for the government spending multiplier is

1/MPS

If the MPS is .1, the government spending multiplier is

10

Assume that in the United States the actual deficit is $300 billion. If the United States were at full employment, the deficit would be $100 billion. The structural deficit in the United States is

100 billion

If government spending is increased by $400, taxes are reduced by $400, and the MPS is .5, equilibrium output will change by

$1,200

Assume that taxes depend on income and the MPC is .8 and t is .5. An increase in taxes of $10 billion will decrease equilibrium income by

13.3 billion

Assume that taxes depend on income. The MPC is .5 and t is .2. If government spending increases by $10 billion, the equilibrium level of output will increase by

16.7 billion

Assume that taxes depend on income. The MPC is .8 and t is .4. If government purchases increase by $100 billion, the equilibrium level of output will increase by

192.31 billion

The aggregate consumption function is C=800+.8Yd. If income is 2,000 and net taxes are $500, consumption equals

2,000

Assume that taxes depend on income. The MPC is .8 and t is .25. The government spending multiplier is

2.5

If the MPC is .6, the government spending multiplier is

2.5

Assume that taxes depend on income. The MPC is .9 and t is .3. The government spending multiplier is

2.7

In which case will the government collect more tax revenue?

20% tax rate and 90,000 average income

the aggregate consumption function is C=1,000 +.9Yd. If income is $3,600 and net taxes are $600, consumption equals

3,700

If the MPS is .2, the government spending multiplier is

5

Assume that in the Atlantis the actual deficit is $200 billion. If the Atlantis were at full employment, the deficit would be $50 billion. The structural deficit in the Atlantis is

50 billion

If the government spending multiplier is 5 and government purchases increase by $100 billion, output will increase by

500 billion

The aggregate consumption function is C=100+.6Yd. If income is $1,000 and net taxes are $300, consumption equals

520

The aggregate consumption function is C=100+.8Yd. If income is $600 and net taxes are zero, consumption equals

580

You are hired by the Council of Economic Advisors (CEA) as an economic consultant. The Chairperson of the CEA tells you that she believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. She wants to know what policy to pursue to increase aggregate output by $300 billion. The best estimate she has for the MPC is .8. Which of the following policies should you recommend?

Increases government purchases by 60 billion

What determines tax revenues?

The income tax rate AND the income of household Ans: both A and B are correct

Which of the following is incorrect regarding tax revenues?

They increase during recessions.

If the tax multiplier is -5 and taxes are increased by $10 billion, output

falls by $50 billion

The total amount owed by the federal government to the public is the

federal debt

If taxes are a function of income, then the AE function is

flatter than if taxes are a lump-sum amount

For the economy to be in equilibrium,

government purchases plus investment must equal saving plus tax revenue

During a recession, automatic stabilizers cause the federal deficit to

increase

If planned injections exceed leakages, output will

increase

****ING HIRED AGAIN BY Council of Economic Advisors (CEA) as an economic consultant. The chairperson of the CEA tells you that she believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. She wants to know what policy to pursue to increase aggregate output by $300 billion. The best estimate he has for the MPC is .8. Which of the following policies should you recommend?

increase both government spending and taxes by 300 billion

you are hired by Bureau of Economic Analogies (BEA) as an economic consultant. The chairperson of the BEA tells you that he believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. He wants to know what policy to pursue to increase aggregate output by $300 billion. The best estimate he has for the MPC is .8. Which of the following policies should you recommend?

increase both government spending and taxes by 300 billion

If government spending is increased by $700 and taxes are increased by $700, the equilibrium level of income will

increase by $700

Assume that the MPC is .75. If government spending increases by $400, equilibrium output ________; and if taxes increase by $400, equilibrium output ________.

increase by 1,600;decrease by 1,200

If the government wants to reduce unemployment, government purchases should be __________________ and/or should be ______________________.

increased;decreased

When the government sector is included in the income expenditure-model, planned aggregate expenditure

increases

During recessions, government spending usually

increases because employment payments increase

Assume that the MPC is .9. If government purchases increase by $100, equilibrium output ________; and if taxes increase by $100, equilibrium output ________.

increases by 1,000; decreases by 900

Disposable income

increases when income increases

If the government spending multiplier is 10, then the tax multiplier

is -9

Government spending increases by $50 billion and the equilibrium level of output increases by $200 billion. The government spending multiplier

is 4

If the tax multiplier is -6.66, then the government purchases multiplier

is 7.66

If taxes depend on income, then the absolute value of the tax multiplier ________ it would be if taxes were a lump-sum amount.

is smaller than

If taxes depend on income, then the magnitude of the government spending multiplier ________ it would be if taxes were a lump-sum amount.

is smaller than

When a government runs a deficit

its debt increases

The presence of automatic stabilizers means that the federal deficit is ________ than it otherwise would be in a recession and ________ than it otherwise would be in an expansion.

larger;smaller

If the economy is in a recession and the government lowers the tax rate, tax revenue

may increase, decrease or stay the same

What is the largest source of revenue in the government's budget?

personal taxes

You are ****ing hired AGAIN by Bureau of Economic Analogies (BEA) as an economic consultant. The chairperson of the BEA tells you that he believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. He wants to know what policy to pursue to increase aggregate output by $500 billion. The best estimate he has for the MPC is .7. Which of the following policies should you recommend?

reduce taxes by 214.3 billion

You are hired by Council of Economic Advisors (CEA) as an economic consultant. The chairperson of the CEA tells you that she believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. She wants to know what policy to pursue to increase aggregate output by $300 billion. The best estimate she has for the MPC is .8. Which of the following policies should you recommend?

reduce taxes by 75 billion

As the size of the MPC increases, the value of the balanced-budget multiplier

remains constant

A government's debt is reduced when it

runs a surplus

Assuming there is no foreign trade in the economy, equilibrium is achieved when government purchases equal

saving plus net taxes minus investment

A decrease in lump-sum taxes will

shift the consumption function upward.

If the economy is in a recession, the full-employment deficit is ________ the actual deficit.

smaller than

Suppose that in the beginning of 2003 the federal debt was $4 trillion. During 2003, the government balanced its budget. At the end of 2003, the federal debt

stayed the same

If the economy's full-employment output is $9 trillion, actual output is $9 trillion, and the budget deficit is $20 billion, the deficit in this case is known as a

structural deficit

The difference between what a government spends and what it collects in taxes in a year is

the government budget deficit or surplus

The government purchases multiplier is

the ratio of the change in the equilibrium level of output to a change in government purchases

A tax multiplier

the ratio of the change in the equilibrium level of output to the change in taxes.

Fiscal policy refers to

the spending and taxing policies used by the government to influence the economy

What is the largest expenditure source in the government's budget?

transfer payments

Which of the following is a CORRECT sequence of events during a recession?

unemployment rises, income falls, tax revenue falls, unemployment benefits ride, and the budget deficit rises.

Which of the following is a CORRECT sequence of events during an expansion?

Unemployment falls, income rises, tax revenue rises, unemployement benefits falls, and the budget deficit falls

When the government sector is included in the income-expenditure model, the equation for aggregate income is

Y=C+I+G

An example of an automatic stabilizer is

a food stamp program

If output is less than planned aggregate expenditure, there will be

an unplanned decrease in inventories

Assume an economy is in equilibrium at an output level of $1,000 billion. If government spending increases by $100 billion, then at the output level of $1,000 billion, there is

an unplanned fall in inventories

Assume an economy is in equilibrium at an output level of $400 billion. If government purchases decrease by $50 billion, then at the output level of $400 billion, there is

an unplanned increase in inventories

In 1999, the city of Mike town collected $250,000 in taxes and spent $350,000. In 1999, the city of mike town had a

budget deficit of $100,000

In 1998, the city of canfield collected $500,000 in taxes and spent $450,000. In 1998, the city of Canfield had a

budget surplus of 50,000

If the economy's full-employment output is $9 trillion, actual output is $8.5 trillion, and the budget deficit is $50 billion, the deficit in this case is known as a

cyclical deficit

If government purchases are decreased by $800 and taxes are decreased by $800, the equilibrium level of income will

decrease by 800

You are hired by the Bureau of Economic Analogies (BEA) as an economic consultant. The Chairperson of the BEA tells you that he believes the current unemployment rate is too low. The unemployment rate can be increased if aggregate output decreases. He wants to know what policy to pursue to decrease aggregate output by $100 billion. The best estimate he has for the MPC is .9. Which of the following policies should you recommend?

decrease the government spending by 10 billion

If the government spending multiplier is 4 and government spending decreases by $50 billion, output will ________ by $________ billion.

decrease; 200

As the tax rate increases, the absolute value of the tax multiplier

decreases

As the tax rate increases, the government spending multiplier

decreases

the balanced-budget multiplier

equals 1

Bill's income is 1,000 and his net taxes are $350. His disposable income is

$650

If government purchases are increased by $100, taxes are reduced by $100, and the MPC is .8, equilibrium output will change by

$900

the formula for the tax multiplier is

-(MPC/MPS)

If the MPC is .5, the tax multiplier is

-1

If the MPC is .55, the tax multiplier is

-1.22

If taxes depend on income and the MPC is .8 and t is .5, the tax multiplier is

-1.3

Taxes are reduced by $100 billion and income increases by $1,000 billion. The value of the tax multiplier is

-10

If the MPS is .3, the tax multiplier is

-2.33

If the MPS is .25, the tax multiplier is

-3

Taxes are reduced by $50 billion and income increases by $200 billion. The value of the tax multiplier is

-4

If the MPC is .9, the tax multiplier is

-9

After government is added to the income-expenditure model, the formula for the aggregate consumption function is

C= a+b(Y-T)

The leader of Atlantis hires you as an economic consultant. He is concerned that the output level in Atlantis is too low and that this will cause prices to fall. He feels that it is necessary to increase output by $200 billion. He tells you that the MPC in Atlantis is .8. Which of the following would be the best advice to give to the Atlantis president?

Decrease taxes in Atlantis by $50 billion

Which of the following is NOT a category of fiscal policy

Government policies regarding money supply in the economy

Assuming there is no foreign trade in economy, the economy is in equilibrium when

I+G=S+T

The president of Vulcan hires you as an economic consultant. He is concerned that the output level in Vulcan is too high and that this will cause prices to rise. He feels that it is necessary to reduce output by $10 billion. He tells you that the MPC in Vulcan is .6. Which of the following would be the best advice to give to the Vulcan president?

Reduce government purchases in Vulcan by $4billion