practice problems and questions for chapter 17

practice problems and questions for chapter 17 - ECON 2100...

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ECON 2100 Practice Problems and Questions for Chapter 17 "Fiscal Policy" Name: __________________________ Date: _____________ 1. When the budget is in deficit, the government generally: A) raises taxes. B) increases the public debt. C) sells public assets like national parks. D) decreases military spending. 2. Which of the following is NOT an example of government transfers? A) prescription drugs for low-income individuals B) unemployment insurance C) a disability pension D) a reimbursement of personal income tax withheld 3. Government's efforts to stabilize the business cycle through fiscal policy can destabilize the economy due to the presence of: A) lags in the process of crafting a budget appropriate to the circumstances. B) a negative interaction between fiscal and monetary policy due to the multiplier effect. C) a tendency of prices to change faster than the interest rate. D) business cycles that are closely synchronized to the political cycle. 4. An inflationary gap occurs when: A) we need to increase prices. B) real output is too low. C) potential output exceeds actual output. D) actual output exceeds potential output. Page 1
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5. Suppose the MPC = 0.8 and the government cuts taxes by $40 billion. Which of the following will be the likely effect? A) Real GDP will expand by $200. B) Real GDP will contract by $200. C) Real GDP will expand by $160. D) Real GDP will contract by $160. Use the following to answer question 6: Figure: Inflationary and Recessionary Gaps 6. (Figure: Inflationary and Recessionary Gaps) The movement from AD 1 to AD 3 could be caused by: A) increased government purchases. B) increased government transfers. C) decreased taxes. D) all of the above. 7. If legislation were introduced to require the budget to be balanced at all times: A) fiscal policy could not operate as an automatic stabilizer of the business cycle. B) the effectiveness of monetary policy as an automatic stabilizer of the business cycle would decrease. C) the effectiveness of fiscal policy as an automatic stabilizer of the business cycle would increase. Page 2
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D) monetary policy could not operate as an automatic stabilizer of the business cycle. Use the following to answer question 8: Figure: Inflationary and Recessionary Gaps 8. (Figure: Inflationary and Recessionary Gaps) The movement from AD 3 to AD 1 would be caused by: A) increased government purchases. B) increased government transfers. C) increased taxes. D) all of the above. 9. If the
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This note was uploaded on 03/16/2010 for the course ECON 2100 taught by Professor Klimenko during the Spring '08 term at Georgia Institute of Technology.

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practice problems and questions for chapter 17 - ECON 2100...

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