Pre-Test Chapter 11 ed17 - Pre-Test Chapter 11 ed17...

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Prof Keep Econ Chap 11 ed 17 Pre-Test Chap 11 Page 1 of 8 Pre-Test Chapter 11 ed17 Multiple Choice Questions 1. Built-in stability means that: A. an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby stabilize the economy. B. with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus. C. Congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity. D. government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year. 2. Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the actual budget deficit is: A. $200 billion. B. $20 billion. C. $40 billion. D. $60 billion.
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Prof Keep Econ Chap 11 ed 17 Pre-Test Chap 11 Page 2 of 8 3. Refer to the above diagram. Which tax system has the most built-in stability? 4. Refer to the above diagram, in which Q f is the full-employment output. If aggregate demand curve AD 1 describes the current situation, appropriate fiscal policy would be to:
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Prof Keep Econ Chap 11 ed 17 Pre-Test Chap 11 Page 3 of 8 Answer the next question(s) on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Congress; (4) The tax cut is passed by Congress and signed by the President; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover.
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