final exam questions pt 2 Flashcards
The aggregate demand curve will shift to the right ________ the initial increase in government
purchases.
A. by less than
B. by more than
C. by the same amount as
D. sometimes by more than and other times by less than
by more than
Refer to Figure 5- A-B from AD1 - AD2. In the graph above, the shift from AD1 to AD2 represents the total change (both
primary and induced) in aggregate demand due to an increase in government purchases, G. If government
purchases increased by $50 billion, then the distance from point A to point B ________ $50 billion.
A. would be equal to
B. would be greater than
C. would be less than
D. may be greater than or less than
would be greater than
A change in consumption spending caused by income changes is ________ change in spending, and a
change in government spending that occurs to improve roads and bridges is ________ change in spending.
A. an induced; an autonomous
B. an expansionary; a contractionary
C. an autonomous; an induced
D. a contractionary; an expansionary
an induced; an autonomous
The tax multiplier equals the change in ________ divided by the change in ________.
A. taxes; equilibrium real GDP
B. equilibrium real GDP; taxes
C. taxes; consumption spending
D. consumption spending; taxes
equilibrium real GDP; taxes
A decrease in the tax rate will ________ the disposable income of households and ________ the size of
the multiplier effect.
A. increase; increase
B. decrease; increase
C. increase; decrease
D. decrease; decrease
E. increase; not change
increase; increase
Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the
budget balanced. What will happen to real equilibrium GDP?
A. Real equilibrium GDP will fall.
B. Real equilibrium GDP will rise.
C. There will be no change in real equilibrium GDP.
D. Real equilibrium GDP will initially rise, but then fall below its previous equilibrium value
Real equilibrium GDP will rise.
Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion. To move the economy back to
potential GDP, Congress should
A. lower government purchases by an amount less than $200 billion.
B. lower government purchases by $200 billion.
C. raise taxes by $200 billion.
D. lower taxes by $200 billion.
E. raise taxes by an amount more than $200 billion
lower government purchases by an amount less than $200 billion.
The tax multiplier
A. is negative.
B. is larger in absolute value as compared to the government spending multiplier.
C. is a measure of how much taxes will fall when income is falling.
D. is always less than one.
is negative
Cutting taxes
A. will lower disposable income and lower spending.
B. will raise disposable income and lower spending.
C. will lower disposable income and raise spending.
D. will raise disposable income and raise spending.
will raise disposable income and raise spending.
The Federal Reserve plays a larger role than Congress and the president in stabilizing the economy
because
A. the Federal Reserve can more quickly change monetary policy than the president and the Congress can
change fiscal policy.
B. the Federal Reserve can immediately recognize when real GDP is below or above potential GDP.
C. changes in interest rates have a considerably larger effect on the economy than changes in government
purchases or taxes.
D. changes in interest rates have their full effect on the economy in a short period of time, whereas changes
in government spending and taxes have their full effect over a long period of time.
the Federal Reserve can more quickly change monetary policy than the president and the Congress can
change fiscal policy.
Crowding out refers to a decline in ________ as a result of an increase in ________.
A. tax revenues; unemployment
B. government purchases; tax rates
C. government purchases; private expenditures
D. private expenditures; government purchases
private expenditures; government purchases
If policy makers implement an expansionary fiscal policy but do not take into account the potential for
crowding out, the new equilibrium level of GDP is likely to
A. be at potential GDP.
B. be above potential GDP.
C. be below potential GDP.
D. There is insufficient information given here to draw a conclusion.
be below potential GDP.
Following a decrease in government spending, as the price level falls we would expect the level of
interest rates to ________ and investment to ________.
A. decrease; decrease
B. decrease; increase
C. increase; decrease
D. increase; increase
decrease; increase
An increase in government spending may expedite recovery from a recession in the short run, but in the
long run this policy may
A. reduce investment in new capital.
B. make domestic businesses less competitive in international markets as the dollar appreciates in value.
C. raise interest rates and reduce consumer expenditures on automobiles and new houses.
D. All of the above are correct.
all of the above are correct
The federal budget deficit acts as an automatic stabilizer because
A. government tax revenues decrease during a recession.
B. unemployment insurance payments decrease during a recession.
C. food stamp payments increase during expansionary periods.
D. Medicaid payments increase during expansionary periods
government tax revenues decrease during a recession.
During recessions, government expenditure automatically
A. falls because of programs such as unemployment insurance and Medicaid.
B. rises because of programs such as unemployment insurance and Medicaid.
C. falls because of the progressive income tax system.
D. rises because of the progressive income tax system.
rises because of programs such as unemployment insurance and Medicaid.
Suppose the government wants to maintain a balanced budget. To achieve this goal, when the economy
falls into recession government would need to ________ taxes, which would cause aggregate demand to
________.
A. decrease; decrease
B. decrease; increase
C. increase; decrease
D. increase; increase
increase; decrease
Refer to Figure 6- ad increases from a - b. Given that the economy has moved from A to B in the graph above, which of the
following would the appropriate fiscal policy to achieve potential GDP?
A. increase taxes
B. increase government spending
C. decrease the money supply
D. increase interest rates
increase taxes
Economists who believe the supply-side effects of tax cuts are small essentially believe that
A. tax cuts mainly affect aggregate demand.
B. tax cuts mainly affect aggregate supply.
C. tax cuts will increase the quantity of labor supplied.
D. tax cuts will result in relatively small changes in the price level
tax cuts mainly affect aggregate demand.
Compare the effect on the price level and real GDP of a decrease in tax rates assuming a supply-side
effect versus no supply-side effect. Compared to no supply-side effect, including a supply-side effect for
the decrease in tax rates will cause the price level to increase ________ and real GDP to increase
________.
A. less; less
B. less; more
C. more; less
D. more; more
less; more
Fiscal policy actions that are intended to have long-run effects on real GDP attempt to increase
________ through changing ________.
A. aggregate demand; government spending
B. aggregate supply; taxes
C. aggregate demand; taxes
D. aggregate supply; government spending
aggregate supply; taxes
As the tax wedge associated with a given economic activity gets smaller, we would expect
A. more of that economic activity to occur.
B. the distortions caused by taxes on that activity to be greater.
C. people to engage in less of that particular activity.
D. no change in the practice of that activity until the tax wedge ultimately disappears.
more of that economic activity to occur.
Tax revenues tend to grow more quickly when
A. people have higher incomes due to overall economic growth
B. the economy is in a recession
C. the Federal Reserve increases tax rates
D. it is an election year
people have higher incomes due to overall economic growth