chapter 12.rtf - Exam Name MULTIPLE CHOICE Choose the one...

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Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) If the tax multiplier is - 1.5 and a $200 billion tax increase is implemented, what is the change in GDP, holding everything else constant? (Assume the price level stays constant.) 1) _______ A) a $300 billion decrease in GDP B) a $133.33 billion increase in GDP C) a $300 billion increase in GDP D) a $133.33 billion decrease in GDP E) a $30 billion increase in GDP 2) What is the difference between government purchases and government expenditure? 2) _______ A) Government expenditures include purchases plus all other government expenditures. B) Government purchases and government expenditure are the same. C) Government purchases include transfer payments while government expenditure doesn't. D) None of the above. Figure 23 - 3
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3) Refer to Figure 23 - 3. In the dynamic model of AD - AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B 3) _______ A) the unemployment rate is very low. B) firms are operating at below capacity. C) income and profits are falling. D) there is pressure on wages and prices to fall. E) the economy is below full employment. 4) Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________. 4) _______ A)
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higher; lower B) higher; higher C) lower; higher D) lower; lower 5) The impact of crowding out may be least 5) _______ A) when real GDP is below but close to potential GDP. B) when real GDP is above but close to potential GDP. C) during a deep recession. D) during an expansion. 6) Suppose the budget deficit for the year was $100 billion and the economy was in a recession. If the economy had been at potential GDP, it is estimated that tax revenues would have been $60 billion higher and government spending on transfer payments $50 billion lower. Using these estimates, the cyclically adjusted budget 6) _______ A) deficit was $110 billion. B) surplus was $10 billion. C) surplus was $110 billion. D) deficit was $210 billion. 7)
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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 ________. 7) _______ A) more; more B) more; less C) less; less D) less; more 8) A recession tends to cause the budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________. 8) _______ A) decrease; rise; fall B) increase; fall; rise C) increase; rise; fall D) decrease; fall; rise 9) Tax cuts on business income ________ aggregate demand. 9) _______ A) would not change B) would decrease
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C) may increase or decrease D) would increase 10) Which of the following would increase the size of the government purchases multiplier?
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