Ch. 13 HW – Lori

Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If real GDP is $850 billion, to bring the economy to potential output the government should:

(Figure: Fiscal Policy Choices) Look at the figure Fiscal Policy Choices. It would be appropriate to use contractionary fiscal policy to shift aggregate demand in _____ from _____.

(Figure: Short- and Long-Run Equilibrium) Look at the figure Short- and Long-Run Equilibrium. The government should _____ aggregate demand by _____ taxes to close the _____ gap.

If legislation required the budget to be balanced at all times, _____ as an automatic stabilizer of the business cycle.

The cyclically adjusted budget deficit:

The stability pact signed by many of the countries that adopted the euro limited each member nation's deficit to 3% of GDP. This:

If _____, expansionary fiscal policy is most likely to crowd out private spending.

(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. A movement from AD3 to AD1 could be caused by:

If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should _____ taxes by _____ .

When the unemployment rate decreases, the budget:

Assume the marginal propensity to consume is 0.8 and potential output is $800 billion. If actual real GDP is $850 billion, which of the following policies would bring the economy to potential output?

If the marginal propensity to consume is 0.1, then the tax multiplier is:

An automatic stabilizer that works when the economy contracts is:

The stability pact signed in 1999 by the European nations that adopted the euro required each country to:

(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD, the most appropriate discretionary fiscal policy is to _____ government spending and _____ income tax rates.

If overall spending declines and thus the economy contracts, the government could counter this by:

If the actual output lies below potential output, then an appropriate fiscal policy would be to _____, which will shift the _____ curve to the _____.

(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E1, the economy:

Discretionary fiscal policy may fail to stabilize the economy or may even make the economy less stable because of:

To close an inflationary gap with fiscal policy, the government could:

An increase in government spending of $300 billion and a tax cut of $300 billion will have _____ effects on the budget balance and _____ effects on real GDP.

Do economists believe that the budget should be balanced each fiscal year?

Assume the marginal propensity to consume is 0.8 and potential output is $800 billion. If actual real GDP is $700 billion, which of the following policies would bring the economy to potential output?

If legislation required the budget to be balanced at all times, _____ as an automatic stabilizer of the business cycle.

If the marginal propensity to consume is 0.9, then the tax multiplier will be:

Which of the following is NOT an example of government transfers?

All of the following are examples of fiscal policy EXCEPT:

The fact that tax receipts fall during a recession:

Scenario: Fiscal Policy Consider the economy of Arcadia. Its households spend 75% of increases in their income. There are no taxes and no foreign trade. Its currency is the arc. Potential output is 600 billion arcs. (Scenario: Fiscal Policy) Look at the scenario Fiscal Policy. Suppose actual real GDP in Arcadia is 500 billion arcs. This economy has:

When the unemployment rate decreases, the budget:

(Figure: Fiscal Policy Choices) Look at the figure Fiscal Policy Choices. In panel (a), the economy is initially at output level Y1 and there is:

If the marginal propensity to consume is 0.1, then the tax multiplier is:

Discretionary fiscal policy refers to changes in:

Over the past few decades in the United States, large federal budget deficits most often have been caused by:

The U.S. national debt as a percentage of GDP is _____ that of Greece.

If the marginal propensity to consume is 0.75 and taxes increase by $30 billion, real GDP will:

After passage of the American Recovery and Reinvestment Act in 2009 government borrowing _____, and interest rates_____.

If _____, expansionary fiscal policy is most likely to crowd out private spending.

Suppose the government increases spending to fund tuition assistance for qualified college students. Automatic stabilizers will _____ the _____ effect of the _____ in aggregate demand.

(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. Which of the following measures a recessionary gap?

(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y1 and P1, the government should use _____ fiscal policy to shift the aggregate demand curve to the _____.

An increase in government transfers is an example of _____ fiscal policy because it shifts the aggregate demand curve to the _____ aggregate output.

Suppose that U.S. debt is $7 trillion at the beginning of the fiscal year. During the fiscal year, its purchases of goods and services and its transfers are $2 trillion, and tax revenues are $1.5 trillion. At the end of the fiscal year, the debt is:

(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD:

(Figure: Fiscal Policy I) Look at the figure Fiscal Policy I. Suppose that this economy is in equilibrium at E2. If there is an increase in taxes_____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD, the most appropriate discretionary fiscal policy is to _____ government spending and _____ income tax rates.

Suppose the government increases taxes by more than is necessary to close an inflationary gap. Which of the following is the most likely result?

When the unemployment rate increases, the budget:

Which of the following is NOT a government transfer payment?

Suppose the economy is operating at an output of $4,000 billion. Assume furthermore that potential output is $5,000 billion and the marginal propensity to consume is 0.75. _____ would close this recessionary gap.

Suppose the economy is in a recessionary gap. A $100 billion _____ is likely to increase real GDP by the largest amount.

If the current equilibrium output lies above potential output, then an appropriate fiscal policy would be to _____, which will shift the AD curve to the _____.

(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E1, the economy:

(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. The economy is in short-run equilibrium. To move the economy to potential GDP, the government should reduce its spending by an amount equal to:

Assume that the marginal propensity to consume is 0.8. Government purchases of goods and services increase by $100 billion, financed by a $100 billion tax increase. Real GDP will:

Expansionary fiscal policy shifts the aggregate demand curve to the _____ and is used to close a(n) _____ gap.

The 2009 U.S. stimulus was a(n) _____ fiscal policy that _____ aggregate demand.

A cut in taxes will have the most effect on aggregate demand if it is given to:

Suppose that marginal propensity to consume is equal to 0.9 and the government increases its spending by $200 billion. This increase in spending is financed by a $200 billion increase in taxes. As a result of this, GDP will:

The multiplier effect of changes in government transfers is:

(Figure: Fiscal Policy II) Look at the figure Fiscal Policy II. Suppose that this economy is in equilibrium at E2. If there is an increase in government transfers, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

If the marginal propensity to consume is 0.9, then the government spending multiplier is:

Social insurance programs are:

If the marginal propensity to consume is 0.8 and government transfers decrease by $50 million, then equilibrium GDP will decrease by:

One of the shortcomings of fiscal policy is that:

An expansionary fiscal policy:

Consumer spending will likely fall if:

Which of the following fiscal policies would make a budget surplus smaller or a budget deficit larger?

Suppose the government increases spending to fund tuition assistance for qualified college students. Automatic stabilizers will _____ the _____ effect of the _____ in aggregate demand.

Which of the following is NOT an argument AGAINST the use of expansionary fiscal policy?

An inflationary gap occurs when:

(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. The economy is in short-run equilibrium. To move the economy to potential GDP, the government should reduce its spending by an amount equal to:

(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD?, the most appropriate discretionary fiscal policy is to _____ government spending and _____ income tax rates.

Assume that the marginal propensity to consume is 0.8. Government purchases of goods and services increase by $100 billion, financed by a $100 billion tax increase. Real GDP will:

Social insurance programs are:

For a marginal propensity to consume of 0.9, the multiplier effect of an increase of $100 billion in government purchases of goods and services is larger than the multiplier effect of a tax cut of $100 billion because:

If the marginal propensity to consume is 0.9, then the government spending multiplier is:

If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should _____ government purchases of goods and services by _____ .

If the marginal propensity to save is 0.25, investment spending is $600 million, and the government increases its transfers by $100 million, then real GDP increases by:

(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. It reflects a short-run inflationary gap. According to the labeling on the graph, the size of the inflationary gap is equal to:

A recessionary gap can be closed with:

(Figure: Short- and Long-Run Equilibrium II) Look at the figure Short- and Long-Run Equilibrium II. Which of the following would be the appropriate response on the part of the government upon viewing the state of the economy?

(Figure: Fiscal Policy I) Look at the figure Fiscal Policy I. Suppose that this economy is in equilibrium at E2. If there is a decrease in government purchases, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

Expansionary fiscal policy shifts the aggregate demand curve to the _____ and is used to close a(n) _____ gap.

A change in taxes or a change in government transfers affects consumption through its effect on:

Congress increases personal income tax rates to balance the budget. Automatic stabilizers will _____ the _____ effect of the _____ in aggregate demand.

Consider an economy whose households save 20% of increases in their income. If the government lowers its transfers by $100 billion, then the real GDP will:

If the marginal propensity to save is 0.25, investment spending is $700 million, and the government increases its purchases of goods and services by $100 million, then real GDP increases by:

Expansionary fiscal policies:

If there is an inflationary gap in the economy, discretionary fiscal policy will likely include action to:

(Figure: Short- and Long-Run Equilibrium II) Look at the figure Short- and Long-Run Equilibrium II. If the economy is at equilibrium at E1, the government should use _____ fiscal policy to shift the aggregate demand curve to the _____.

Suppose the economy is operating at an output level of $5,400 billion. Assume furthermore that potential output is $5,000 billion and the marginal propensity to consume is 0.75. _____ would close this inflationary gap.

To close an inflationary gap with fiscal policy, the government could:

Which of the following is an expansionary fiscal policy?

Automatic stabilizers are government spending and taxation changes that cause fiscal policy to be _____ when the economy contracts.

If the actual output lies below potential output, then an appropriate fiscal policy would be to _____, which will shift the _____ curve to the _____.

(Figure: Short- and Long-Run Equilibrium II) Look at the figure Short- and Long-Run Equilibrium II. Which of the following would be the appropriate response on the part of the government upon viewing the state of the economy?

If the marginal propensity to consume is 0.75 and transfer payments increase by $30 billion, real GDP will:

(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. It reflects a short-run inflationary gap. According to the labeling on the graph, the size of the inflationary gap is equal to:

(Figure: Fiscal Policy I) Look at the figure Fiscal Policy I. Suppose that this economy is in equilibrium at E2. If there is a decrease in government purchases, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

All of the following are sources of state and local revenue EXCEPT:

When the economy is in a recession, tax receipts _____ and unemployment insurance payments _____.

If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should _____ transfer payments by _____ $40 billion.

(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD":

Discretionary fiscal policy may fail to stabilize the economy or may even make the economy less stable because of:

The cyclically adjusted budget deficit:

Congress increases personal income tax rates to balance the budget. Automatic stabilizers will _____ the _____ effect of the _____ in aggregate demand.

Suppose an economy is producing real GDP of $300 billion. The potential output is equal to $400 billion, and the marginal propensity to consume is equal to 0.80. The government should _____ taxes by _____ to bring the economy to potential output.

(Figure: Fiscal Policy II) Look at the figure Fiscal Policy II. Suppose that this economy is in equilibrium at E1. If there is a decrease in government transfers, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

If overall spending declines and thus the economy contracts, the government could counter this by:

Consider the economy of Arcadia. Its households spend 75% of increases in their income. There are no taxes and no foreign trade. Its currency is the arc. Potential output is 600 billion arcs. (Scenario: Fiscal Policy) Look at the scenario Fiscal Policy. If actual output is 500 billion arcs, to restore the economy to potential output the government should _____ by 25 billion arcs.

(Figure: Short- and Long-Run Equilibrium) Look at the figure Short- and Long-Run Equilibrium. If the economy is at equilibrium at E1, the government should use _____ fiscal policy to shift the aggregate demand curve to the _____ .

The larger the amount of outstanding public debt:

Consider the economy of Arcadia. Its households spend 75% of increases in their income. There are no taxes and no foreign trade. Its currency is the arc. Potential output is 600 billion arcs. (Scenario: Fiscal Policy) Look at the scenario Fiscal Policy. Suppose that actual output is 700 billion arcs, and the government of Arcadia decides to tax its citizens. To bring the economy to potential output, the government should:

If the economy is at equilibrium below potential output, there is a(n) _____ gap, and _____ fiscal policy is appropriate.

If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should _____ government purchases of goods and services by _____ .

The income-expenditure model predicts that if the marginal propensity to consume is 0.8 and the federal government decreases spending by $200 billion, real GDP will fall by:

(Figure: AD-AS) Look at the figure AD-AS. Suppose the economy is producing the output level Yp and a negative demand shock shifts the AD1 curve to AD3. The economy now has a(n) _____ gap, which can be closed by _____ fiscal policy.

(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E3, the economy:

Assume that marginal propensity to consume is 0.8 and potential output is $800 billion. If the actual real GDP is $700 billion, _____ government spending by _____ would bring the economy to potential output.

A contractionary fiscal policy is one that reduces aggregate demand by decreasing:

(Figure: Fiscal Policy II) Look at the figure Fiscal Policy II. Suppose that this economy is in equilibrium at E1. If there is a decrease in taxes, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

(Figure: Fiscal Policy II) Look at the figure Fiscal Policy II. Suppose that this economy is in equilibrium at E1. If there is an increase in government purchases, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

Decreasing funding for space exploration will shift the _____ curve to the _____.

Consider an economy that already has a sizable budget deficit. If the economy is facing a major downturn, the government should:

Consider the economy of Arcadia. Its households spend 75% of increases in their income. There are no taxes and no foreign trade. Its currency is the arc. Potential output is 600 billion arcs. (Scenario: Fiscal Policy) Look at the scenario Fiscal Policy. Suppose the government decides to tax its citizens. The tax multiplier is:

Suppose the government increases spending more than is necessary to close a recessionary gap. What is the most likely result?

The theory of Ricardian equivalence argues that expansionary fiscal policy:

Assume that marginal propensity to consume is 0.8 and potential output is $800 billion. The tax multiplier is:

The effect of a government deficit is:

(Figure: Fiscal Policy Choices) Look at the figure Fiscal Policy Choices. If the government uses discretionary fiscal policy for the economy in panel (a) when real GDP is Y1, government spending is likely to be _____ and taxes are likely to be _____.

If the government spends an extra $5 billion on goods and services, GDP will:

If the marginal propensity to consume is 0.75 and transfer payments increase by $30 billion, real GDP will:

Suppose the economy is operating at an output of $4,000 billion. Assume furthermore that potential output is $5,000 billion and the marginal propensity to consume is 0.75. _____ would close this recessionary gap.