ECON 131 Homework Chapter 13

3 September 2022
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question
The group of three economists appointed by the president to provide fiscal policy recommendations is the:
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Council of Economic Advisers.
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The American Recovery and Reinvestment Act of 2009 was implemented primarily to:
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stimulate aggregate demand and employment.
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Suppose the federal government had budget surpluses of $80 billion in year 1 and $120 billion in year 2 but had budget deficits of $10 billion in year 3 and $40 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the federal government's public debt would have:
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decreased by $150 billion.
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The actual budget deficit of the federal government in 2009 was about $1.4 trillion. On the basis of this information, it:
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cannot be determined whether the government engaged in expansionary or contractionary fiscal policy in 2009.
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Which of the following fiscal policy actions is most likely to increase aggregate supply?
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An increase in government spending on infrastructure that increases private sector productivity.
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An increase in the cyclical deficits will automatically increase the cyclically adjusted budget deficit.
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False
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(Advanced analysis) Answer the question on the basis of the following before-tax consumption schedule for an economy: Picture Refer to the data. A 10 percent proportional tax on income would:
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reduce the size of the multiplier and make the economy more stable.
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Refer to the diagram, in which Qf is the full-employment output. An expansionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at:
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AD0.
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Which of the following best describes the built-in stabilizers as they function in the United States?
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Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.
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If the full-employment GDP for the economy is at L, then we can say with certainty that the:
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cyclically adjusted budget will have a surplus.
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Answer the question on the basis of the following before-tax consumption schedule for a closed economy: Picture Refer to the data. If a lump-sum tax (the same tax amount at each level of GDP) of $40 is now imposed in this economy, the consumption schedule will be:
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$0 - $8 100 - 88 200 - 168 300 - 248 400 - 320
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Refer to the diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD1 to AD2 and thereby to increase GDP from X to Z. In terms of graph B, which of the following might explain why GDP increases to Y rather than to Z?
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Crowding-out effect.
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In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions, the government should:
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reduce tax rates and/or increase government spending.
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Which of the following is a true statement?
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Fiscal policy swung from contractionary to expansionary in 2002.
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The public debt is held as Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.
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True
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Contractionary fiscal policy is so named because it:
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is aimed at reducing aggregate demand and thus achieving price stability.
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Expansionary fiscal policy is so named because it involves an expansion of the nation's money supply.
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False
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Recessions have contributed to the public debt by:
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reducing national income and therefore tax revenues.
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The operational lag of fiscal policy refers to the time that elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening.
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False
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Countercyclical discretionary fiscal policy calls for:
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deficits during recessions and surpluses during periods of demand-pull inflation.
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The average tax rate required to service the public debt is roughly measured by:
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interest on the debt as a percentage of the GDP.
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Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD3, it would be appropriate for the government to:
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reduce government expenditures or increase taxes.
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If the MPS in an economy is .4, government could shift the aggregate demand curve leftward by $50 billion by:
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reducing government expenditures by $20 billion.
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If the MPC in an economy is .8, government could shift the aggregate demand curve rightward by $100 billion by:
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decreasing taxes by $25 billion.
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An appropriate fiscal policy for a severe recession is:
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a decrease in tax rates.
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(Last Word) The combined cost of Social Security and Medicare programs was what percent of U.S. GDP in 2011?
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8.5.
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If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by:
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increasing government spending by $4 billion.
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The portion of the public debt held outside federal agencies and the Federal Reserve is:
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larger than the portion held by federal agencies and the Federal Reserve.
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What percentage of the U.S. public debt is held by federal agencies and the Federal Reserve?
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40 percent.
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Which of the following is considered a legitimate concern of a large public debt?
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Crowding-out of private investment.
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The real burden of an increase in the public debt:
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may be very small or conceivably zero when the economy is in a severe depression.
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A specific reduction in government spending will dampen demand-pull inflation by a greater amount the:
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smaller is the economy's MPS.
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Refer to the figure. Suppose that the economy is currently operating at the intersection of AS and AD2, and that the full-employment level of output is Y. If the government wants to move the level of real GDP back to Y and reduce demand-pull inflation, in the presence of a ratchet effect, it should:
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enact a contractionary fiscal policy that will shift aggregate demand to the left, but not as far as AD1.
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Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. In this economy:
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tax revenues vary directly with GDP, but government spending is independent of GDP.
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The political business cycle refers to the possibility that:
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politicians will manipulate the economy to enhance their chances of being reelected.
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Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions?
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33 percent.
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A contractionary fiscal policy shifts the aggregate demand curve leftward.
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True
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Refer to the diagram. Assume that G and T1 are the relevant curves, the economy is currently at A, and the full-employment GDP is B. This economy has a(n):
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neither a surplus nor deficit in the actual budget.
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Tax revenues automatically increase during economic expansions and decrease during recessions.
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True
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Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?
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Reductions in federal tax rates on personal and corporate income.
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Refer to the diagram, where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment and actual GDP are each $400 billion, government can balance its cyclically adjusted budget by:
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reducing G by $20 billion.
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Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it would be appropriate for the government to:
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increase government expenditures or reduce taxes.
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Refer to the diagram. If the full-employment GDP is Y3, government should:
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increase taxes and reduce government spending.
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A tax reduction of a specific amount will be more expansionary the:
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larger is the economy's MPC.
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Refer to the diagram. Which tax system has the most built-in stability?
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T1.
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Answer the question using the following budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. Picture Refer to the data. If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is:
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3.9 percent.
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To say that "the U.S. public debt is mostly held internally" is to say that:
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the bulk of the public debt is owned by U.S. citizens and institutions.
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Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. The equilibrium level of GDP in this economy:
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cannot be determined from the information given.
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Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward:
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an excess of government expenditures over tax receipts.
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Fiscal policy refers to the:
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deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.