Case_macro8c1_Ch9 - Chapter 9 The Government and Fiscal...

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Unformatted text preview: Chapter 9 The Government and Fiscal Policy Principles of Macroeconomics, Case/Fair, 8e 9.1 Government in the Economy Multiple Choice 1 Fiscal policy refers to A . the techniques used by a business firm to reduce its tax liability. B . the behavior of the nation's central bank, the Federal Reserve, regarding the nation's money supply. C . the spending and taxing policies used by the government to influence the economy. D . the 's ability to regulate a firm's behavior in the financial markets. government Answer : C Which of the following is NOT a category of fiscal policy? A . policies regarding the purchase of goods and services (SPENDING) Government B . Government policies regarding taxation C . policies regarding money supply in the economy (MONETARY POLICY!) Government D . policies regarding transfer payments and welfare benefits Government Answer : C What determines tax revenues? A . The income tax rate B . The income of households C . The money supply in the economy D . Both A and B are correct. Answer : D Which of the following is INCORRECT regarding tax revenues? A . They increase during recessions. B . They change with changes in the tax rate. C . They are a revenue source in the government's budget. D . None of the above. Answer : A (I THINK CZ RECESSION, UNEMP INCREASES, OUTPUT DECREASES SO INCOME DECREAES, SO TAX RATE ON INCOME DECREASES) During recessions, government spending usually A . decreases because unemployment payments decrease. B . increases because unemployment payments increase. C . decrease because unemployment payments increase. D . increases because unemployment payments decrease. Answer : B (I THINK UNEMP INCREASES SO GOVERNM PAYS MORE (HELP)FOR THE UNEMPLOYED) Dispos able income A . increases when net taxes increase. B . increases when income increases. C . decreases when saving increases. D . All of the above Answer : B (DIS Income= Y­ T(net taxes) Bill's income is $1,000 and his net taxes are $350. His disposable income is A . $1,350. B . $650. C . ­$350. D . $750. Answer : B When the government sector is included in the income­expenditure model, the equation for aggregate income is A . Y = C + S ­ T. B . Y = C + I. C . Y = C + I + G. D . Y = C + S + I. Answer : C The ence between what a government spends and what it collects in taxes in differ a year is A . net revenue. B . net taxes. C . the government budget deficit or surplus. D . the government debt. Answer : C In the city of Canfield collected $500,000 in taxes and spent $450,000. 1998, In 1998, the city of Canfield had a A . budget surplus of $450,000. B . budget surplus of $50,000. C . budget deficit of $50,000. D . budget surplus of $5,000. Answer : B In the city of Miketown collected $250,000 in taxes and spent $350,000. 1999, In 1999, the city of Miketown had a A . budget surplus of $100,000. B . budget surplus of 57%. C . budget deficit of $100,000. D . budget deficit of $200,000. Answer : C When the government sector is included in the income­expenditure model, planned aggregate expenditure A . increases. B . decreases. C . stays the same. D . depends. Answer : A After ment is added to the income­expenditure model, the formula for the govern aggregate consumption function is A . C = a ­ b(Y ­ T). B . C = a ­ b(T ­ Y). C . C = a + b(Y + T). D . C = a + b(Y ­ T). Answer : D The ate consumption function is C = 100 + .6Yd. If income is $1,000 and aggreg net taxes are $300, consumption equals A . 800. B . 520. C . 580. D . 700. Answer : B The ate consumption function is C = 800 + .8Yd. If income is $2,000 and aggreg net taxes are $500, consumption equals A . 2,000. B . 1,500. C . 2,150. D . 2,050. Answer : A The ate consumption function is C = 100 + .8Yd. If income is $600 and net aggreg taxes are zero, consumption equals A . zero. B . 460. C . 580. D . 360. Answer : C The ate consumption function is C = 1,000 + .9Yd. If income is $3,600 and aggreg net taxes are $600, consumption equals A . 3,400. B . 3,700. C . 2,400. D . 4,000. Answer : B If output is less than planned aggregate expenditure, there will be A . an unplanned increase in inventories. B . an unplanned decrease in inventories. C . no change in inventories. D . a planned increase in inventories. Answer : B Refer to the information provided in Table 9.1 below to answer the questions that follow. Table 9.1 Refer Table 9.1. At an output level of $600 billion, the level of aggregate to expenditure is A . $500 billion. B . $600 billion. C . $700 billion. D . $900 billion. Answer : C Refer Table 9.1. At an output level of $600 billion, there is an unplanned to inventory change of A . positive $10 billion. B . zero. C . negative $100 billion. D . positive $100 billion. Answer : C unpl in Refer Table 9.1. At an output level of $1000 billion, the level of aggregate to expenditure is A . $700 billion. B . $800 billion. C . $900 billion. D . $1,000 billion. Answer : C Refer Table 9.1. At an output level of $1000 billion, there is an unplanned to inventory change of A . positive $100 billion. B . positive $10 billion. C . negative $100 billion. D . zero. Answer : A Refer to Table 9.1. The equilibrium level of output is ________ billion. A . $600 B . $700 C . $800 D . $1,000 Answer : C Refer Table 9.1. At an output level of $400 billion, disposable income to equals ________ billion. A . $400 B . $300 C . $200 D . $100 Answer : B Refer Table 9.1. At an output level of $1,000 billion, the value of saving to A . cannot be determined from the given information. B . is $300 billion. C . is $200 billion. D . is $100 billion. Answer : B Y=C+S+T Refer Table 9.1. At the equilibrium level of income, leakages equal ________ to billion. A . $0 B . $100 C . $200 D . $300 Answer : D Y=C+S+T=800 find S. then leakage=S+T Refer Table 9.1 At an output level of $600 billion, there is a tendency for to output A . to fall. B . to increase. C . to remain constant. D . to either increase or decrease. Answer : B Refer to the information provided in Table 9.2 below to answer the questions that follow. Table 9.2 Refer Table 9.2. At an output levelof $1,500 billion, the level of to aggregate expenditure is ________ billion. A . $1,300 B . $1,400 C . $1,500 D . $1,600 Answer : B Refer Table 9.2. At an output level of $1,500 billion, there is an unplanned to inventory A . decrease of $200 billion. B . change of $0. C . increase of $100 billion. D . increase of $150 billion. Answer : C (inv Refer Table 9.2. At an output level of $2,500, the level of aggregate to expenditure is ________ billion. A . $1,500 B . $2,000 C . $2,300 D . $2,200 Answer : D Refer Table 9.2. At an output level of $2,500, there is an unplanned to inventory A . increase of $300 billion. B . decrease of $200 billion. C . change of $0. D . increase of $200 billion. Answer : A Refer to Table 9.2. The equilibrium level of output is ________ billion. A . $1000 B . $1,500 C . $2,000 D . $2,500 Answer : A Refer to Table 9.2. At an output level of $1,500, disposable income A . is $1,000. B . is $1,200. C . is $1,400. D . cannot be determined from this information. Answer : C Refer to Table 9.2. At an output level of $2,500, the level for saving A . is $300. B . is $400. C . is $500. D . cannot be determined from this information. Answer : B Y=C+S+T!!! Refer Table 9.2 At the equilibrium level of income, leakages equal ________ to billion. A . $0 B . $300 C . $500 D . $200 Answer : D (easiest way is Y=1000 is eq so S+T=I+G I+G at eq=200) Refer Table 9.2. At an output level of $2,500, there is a tendency for to output A . to increase. B . to remain constant. C . to either increase or decrease. D . to fall. Answer : D The Italian economy can be characterized by Equation 9.1. EQUATION 9.1: C = 200 + .75Yd G = 500 T = 200 I = 200 Refer Equation 9.1. The equilibrium level of output for the Italian economy to is A . $2,533.3. B . $3,000. C . $2,678.9. D . $3,500. Answer :B Refer Equation 9.1. At the equilibrium level of output in Italy, consumption to equals A . $2,300. B . $2,500. C . $1,833.3. D . $2,010.2 Answer : A Refer Equation 9.1. At the equilibrium level of output in Italy, saving to equals A . $450. B . $400. C . $550. D . $500. Answer : D (3000=2300+S+T !!!!) Refer Equation 9.1. At the equilibrium level of output in Italy, leakages to equal A . $650. B . $600. C . $750. D . $700. Answer : D The Canadian economy can be characterized by Equation 9.2. EQUATION 9.2: C = 500 + .5Yd Taxes = 600 Equilibrium Output = $4,000 Refer Equation 9.2. At equilibrium, the sum of investment and government to purchases in Canada is A . $1,800. B . $1,500. C . $1,750. D . cannot be determined from the given information. Answer : A REDO CZ DID MISTAKE!! (C=2200 then Y=C+S+T!!!! => I+G=S+T=Y­C= 1800!! ) Refer to Equation 9.2. At equilibrium, government purchases in Canada is A . $1,500. B . $1,000. C . $1,250. D . Cannot be determined from the given information. Answer : D Refer to Equation 9.2. At equilibrium, saving in Canada equals A . $1,200. B . $1,600. C . $1,350. D . 1,250. Answer : A (S=I+G­T) Refer to Equation 9.2. At equilibrium leakages in Canada equal A . $1,750. B . $1,800. C . $2,100. D . $1,700. Answer : B Assumi there is no foreign trade in the economy, the economy is in ng equilibrium when A . S + T = C + I. B . I + G = S + T. C . IT = S + G. D . G + T = S + I. Answer : B Assumi there is no foreign trade in the economy, equilibrium is achieved when ng government purchases (G!!!!) equal A . saving minus net taxes minus consumption. B . saving plus net taxes minus investment. C . net taxes plus investment minus saving. D . net taxes minus investment minus saving. Answer : B (G+I=S+T) Refer to the information provided in Figure 9.1 below to answer the questions that follow. Figure 9.1 Refer Figure 9.1. The equilibrium level of aggregate expenditure is to $________ billion. A . 3,000 B . 2,000 C . 4,000 D . 1,500 Answer : B Refer to Figure 9.1. The MPC in this economy is A . 0.4. B . 0.6. C . 0.5. D . Cannot be determined from the given information. Answer : C (cz AE AND C ARE PARALLEL!!! Refer to Figure 9.1. At equilibrium, injections A . can be greater than $1,000 billion. B . equal $1,500 billion. C . equal leakages. D . equal $2,000 billion. Answer : C Refer Figure 9.1. At equilibrium, the part of consumption that is dependent to on income equals $________ billion. A . $1,500 B . $1,000 C . $2,000 D . Cannot be determined from the given information. Answer : B ?????????????? ?????? Refer Figure 9.1. Suppose that the consumption function is C = 400 + 0.5Yd to and taxes are $200 billion, at equilibrium the value of injections are A . $700 billion. B . $500 billion. C . $650 billion. D . $350 billion. Answer : A Refer 9.1. Suppose that the consumption function is C = 400 + 0.5Yd and to taxes are $200 billion, at equilibrium the value of autonomous Figure consumption is A . $400 billion. B . $300 billion. C . $100 billion. D . $200 billion. Answer : B Refer 9.1. Suppose that the consumption function is C = 400 + 0.5Yd and to taxes are $200 billion, at equilibrium, what is the value of Figure consumption? A . $1,350 B . $2,000 C . $1,300 D . $1,150 Answer : C (C=400+0.5(Y­ 200)=300+0.5Y! !!!! c autonomous is 300!!! If planned injections exceed leakages, output will A . decrease. B . increase. C . remain constant. D . either increase or decrease. Answer : B For the economy to be in equilibrium, A . purchases must equal tax revenue and saving must equal investment. government B . purchases must equal the sum of tax revenue, saving and government investment. C . purchases plus investment must equal saving plus tax revenue. government D . plus tax revenue must equal government purchases plus saving. investment Answer : C True/False 1) The economy is in equilibrium when aggregate output equals consumption spending. Answer: True F F Diff: 1 Answer: Skill: D True F W ment Diff: 1 is h Skill: D egreate nr than plann i ed ninvest vment, eoutput s grows t . Answer: True F D Diff: 2 Answer: Skill: C True F ultiple Diff: 1 Choice Skill: D 9 . 2 F i s c a l P o l i c y a t W o r k : M u l t i p l i e r E f f e c t M If rnment wants to reduce unemployment, the government purchases should be ________ gove and/or taxes should be ________. . increased; increased B . decreased; decreased C . decreased; increased D . increased; decreased Answer : D The Presid ent of Vulcan hires you as an economic consultant. He is concerned that the output level in Vulcan is too high and that this will cause prices to rise. He feels that it is necessary to reduce output by $10 billion. He tells you that the MPC in Vulcan is .6. Which of the following would be the best advice to give to the Vulcan president? A . Reduce government purchases in Vulcan by $4 billion. B . Increase taxes in Vulcan by $10 billion. C . Reduce government purchases in Vulcan by $10 billion. D . Increase taxes in Vulcan by $2.5 billion. Answer : A The leader of Atlant is hires you as an economic consultant. He is concerned that the output level in Atlantis is too low and that this will cause prices to fall. He feels that it is necessary to increase output by $200 billion. He tells you that the MPC in Atlantis is .8. Which of the following would be the best advice to give to the Atlantis president? A . Reduce government spending in Atlantis by $100 billion. B . Decease taxes in Atlantis by $50 billion. C . Increase government spending in Atlantis by $200 billion. D . Increase government spending in Atlantis by $100 billion. Answer : B (deltaT*(­ Refer to the information provided in Table 9.3 below to answer the questions that follow. Table 9.3 All Numbers are in $ Million Refer 9.3. Assuming constant MPC, at income of $1,200 million, consumption to is $________ million, and at income of $1,500 million, consumption is Table $________ million. A . 800; 1,100 B . 790; 1,150 C . 840; 1,080 D . 900; 1,150 Answer : C Refer 9.3. Assuming constant MPC, at income of $1,000 million, saving is to $________ million, at income of $1,100 million, saving is $________ Table million. A . 100; 110 B . 120; 140 C . 130; 150 D . 140; 150 Answer : B Refer Table 9.3. The MPC in this economy is ________ and the MPS is to ________. A . 0.5; 0.5 B . 0.7; 0.5 C . 0.9; 0.1 D . 0.8; 0.2 Answer : D Refer Table 9.3. The equilibrium level of aggregate output is $________ to million. A . 1,200 B . 1,300 C . 1,400 D . 1,500 Answer : C Refer Table 9.3. Which of the following variables is NOT considered to autonomous? A . Saving B . Planned investment C . Planned government spending D . None of the above Answer : A Refer 9.3. Suppose the economy is in equilibrium and the government to increases spending (G)!!!by $50 million, the new equilibrium output is Table $________ million A . 1,650 B . 1,450 C . 1,750 D . 1,350 Answer : A (deltay=DELTAG *(1/mps)=> f­ i…. Refer 9.3. Suppose the economy is in equilibrium and the government raises to taxes from $100 million to $120 million, equilibrium output will Table ________ by $________ million. A . decrease; 20 B . increase; 20 C . decrease; 80 D . increase; REDO!! Answer : C Refer to the information provided in Table 9.4 below to answer the questions that follow. Table 9.4 All Figures in Billions of Dollars Refer to Table 9.4. The equilibrium level of income is A . $3400 billion. B . $3,800 billion. C . $2,000 billion. D . $3,600 billion. Answer : A Refer to Table 9.4. The MPS A . is .8. B . is .1. C . is .2 D . cannot be determined from the available information. Answer : B Refer to Table 9.4. The value of the government spending multiplier A . is 10. B . is .9. C . is 5. D . Cannot be determined from the available information Answer : A Refer 9.4. The economy is at the equilibrium level of output. If government to spending increases to $400 billion, the new equilibrium level of Table output is A . $5,400 billion. B . $2,100 billion. C . $6,040 billion. D . $6,600 billion. Answer : A REDO!! GOVEGovernment spending=G!!! not S! Refer 9.4. The economy is at the equilibrium level of output. If government to spending decreases by $100 billion, the new equilibrium level of Table output is A . $3,100 billion. B . $2,400 billion. C . $1,450 billion. D . $1,550 billion. Answer : B Refer Table 9.4. If taxes are reduced from $100 billion to $50 billion, the to new equilibrium level of output is A . $4,050 billion. B . $1,600 billion. C . $3,850 billion. D . $2,100 billion. Answer : C Refer 9.4. If taxes are reduced from $100 billion to $50 billion and to government spending is reduced from $200 billion to $150 billion, the Table new equilibrium level of income A . is $3,350 billion. B . is $3,550 billion. C . is $1,600 billion. D . cannot be determined from this information. Answer : A (I+G=S+T I+G=­ 100+0.1(Y­T) +T!!!!) The government purchases multiplier is A . the between the old equilibrium level of output and the new difference equilibrium level of output. B . the ratio of the change in government purchases to the change in the equilibrium level of output. C . the ratio of the change in the equilibrium level of output to a change in government purchases. D . the difference between the new and old levels of government purchases. Answer : C cz deltaY/deltaG= mult) The formula for the government spending multiplier is A . 1/(1 + MPC). B . 1/MPS. C . 1/MPC. D . 1/(1 + MPS). Answer : B If the MPS is .2, the government spending multiplier is A . 4. B . 1.11. C . 9. D . 5. Answer : D If the MPS is .1, the government spending multiplier is A . 10. B . 1.11. C . 5. D . 2. Answer : A If the MPC is .6, the government spending multiplier is A . 1.10. B . 2.5. C . 1.5. D . 8.5. Answer : B If the MPC is .5, the tax multiplier is A . ­2.5. B . ­2. C . ­1. D . ­1.666. Answer : C If the ment spending multiplier is 5 and government purchases increase by govern $100 billion, output will increase by A . $100 billion. B . $400 billion. C . $1,600 billion. D . $500 billion. Answer : D If the ment spending multiplier is 4 and government spending decreases by $50 govern billion, output will ________ by $________ billion. A . increase; 200 B . decrease; 200 C . decrease; 50 D . decrease; 100 Answer : B The economy of Bananaland can be characterized by Equation 9.3. EQUATION 9.3: C = 2,000 + .75Yd T = 200 G = 400 I = 500 Refer to Equation 9.3. The equilibrium level of income in Bananaland is A . 4,800. B . 11,000. C . 10,000. D . 5,600. Answer : B Refer Equation 9.3. If government spending in Bananaland increases by $100, to equilibrium output increases by A . $100. B . $200. C . $400. D . $800. Answer : C Refer to the information provided in Figure 9.3 below to answer the questions that follow. Figure 9.3 Refer Figure 9.3. At equilibrium, autonomous planned expenditures equal to $________ billion. A . 200 B . 100 C . 150 D . 300 Answer : A Refer to Figure 9.3. The expenditure multiplier is A . 4. B . 3. C . 2. D . 10. Answer : C Refer Figure 9.3. If autonomous planned expenditure increases by $10 to billion, equilibrium aggregate output ________ to $________ billion. A . decreases; 360 B . increases; 550 C . increases; 420 D . increases; 440 Answer : C (cz AE parallel toC so deltaY=deltaC* mult=10*2 Refer to the information provided in Figure 9.4 below to answer the questions that follow. Figure 9.4 Refer to Figure 9.4. Along aggregate expenditure AE1, the MPC is A . .6. B . .7. C . .8. D . .9. Answer : C Refer to Figure 9.4. What is the value of Point A? A . $3,500 billion. B . $6,000 billion. C . $7,000 billion. D . . Cannot be determined from the given information. Answer : A (0.8=(700­ Refer to Figure 9.4. What is the value of Point B? A . $7,000 billion B . $3,500 billion C . $6,000 billion D . Cannot be determined from the given information. Answer : B Refer to Figure 9.4. What is the value of the expenditure multiplier? A . 8 B . 10 C . 5 D . 20 Answer : C Refer Figure 9.4. Along AE1, injections equal leakages when aggregate output to equals $________ billion. A . 1,500 B . 3,000 C . 2,500 D . 2,000 Answer : D Refer 9.4. If aggregate expenditures are represented by AE2 and government to spending increases by $20 billion, equilibrium aggregate output Figure increases by $________ billion. A . 100 B . 200 C . 400 D . 800 Answer : A Govern spending increases by $50 billion and the equilibrium level of output ment increases by $200 billion. The government spending multiplier A . is 5. B . is 4. C . cannot be determined from this information, because the MPC is not given. D . is 6. Answer : B Assume y is in equilibrium at an output level of $1,000 billion. If an government spending increases by $100 billion, then at the output econom level of $1,000 billion, there is A . an unplanned rise in inventories. B . an unplanned fall in inventories. C . an unplanned inventory change of zero. D . either unplanned increase or decrease in inventories depending on the an value of the MPC. Answer : B Assume y is in equilibrium at an output level of $400 billion. If government an purchases decrease by $50 billion, then at the output level of $400 econom billion, there is A . an unplanned increase in inventories. B . an unplanned inventory change of zero. C . either an unplanned increase or decrease in inventories depending on the value of the MPC. D . an unplanned decrease in inventories. Answer :A A decrease in lump­sum taxes will A . make the consumption function flatter. B . make the consumption function steeper. C . shift the consumption function downward. D . shift the consumption function upward. Answer : D ?????????????????????????????? The tax multiplier is A . the ratio of the change in taxes to the change in the equilibrium level of output. B . the MPC multiplied by the MPS. C . the in taxes multiplied by the change in the equilibrium level of difference output. D . the the change in the equilibrium level of output to the change in ratio of taxes. Answer : D The formula for the tax multiplier is A . ­ (MPS/MPC). B . MPS/MPC. C . ­ (MPC/MPS). D . ­1/MPS. Answer : C If the MPC is .9, the tax multiplier is A . ­9. B . ­10. C . ­1.10. D . 10. Answer : A If the MPC is .55, the tax multiplier is A . ­2.22. B . ­1.22. C . ­2.33. D . ­3.33. Answer : B If the MPS is .3, the tax multiplier is A . ­2.5. B . ­1.67. C . ­1.5. D . ­2.33. Answer : D If the MPS is .25, the tax multiplier is A . ­9. B . ­4. C . ­3. D . ­5. Answer : C Taxes reduced by $50 billion and income increases by $200 billion. The value are of the tax multiplier is A . ­4. B . ­20. C . ­10. D . ­5. Answer : A Taxes reduced by $100 billion and income increases by $1,000 billion. The are value of the tax multiplier is A . ­4. B . 9. C . ­10. D . ­5. Answer : C If the tax multiplier is ­6 and taxes are reduced by $100 billion, output A . falls by $100 billion. B . falls by $600 billion. C . increases by $600 billion. D . increases by $100 billion. Answer : C If the tax multiplier is ­5 and taxes are increased by $10 billion, output A . falls by $10 billion. B . falls by $50 billion. C . increases by $500 billion. D . increases by $50 billion. Answer : B Refer to the information provided in Figure 9.5 below to answer the questions that follow. Figure 9.5 Refer Figure 9.5. Which of the following equations best represents the to aggregate expenditure function? A . AE = 600 + .5Y. B . AE = 600+ .8Y. C . AE = 750 + .75Y. D . AE = 2,250 + .2Y. Answer : B Refer Figure 9.5. At aggregate output of $4,000 billion, unplanned to inventories equal $________ billion. A . 200 B . 250 C . ­250 D . ­1,000 Answer : A (if not given previous quest, find EQUATION first!! Subs Y, AE=3800 , unplanned inv=Y­AE Refer Figure 9.5. The government spending multiplier equals ________ and the to tax multiplier equals ________. A . 2.5; ­1.5 B . 4; ­3 C . 5; ­4 D . 9; ­8 Answer : C (MPC=0.8 cz C parallel to AE!! Thus 1/0.2) Refer 9.5. If the economy is in equilibrium and the government increases to spending by $100 billion, equilibrium aggregate expenditures increase Figure to $________ billion. A . 3,400 B . 3,100 C . 3,500 D . 3,600 Answer : C (!!!imp: since eq deltaY=deltaG* mult=500 f­ 3000=500) Refer 9.5. If the economy is in equilibrium and the government decreases to spending by $200 billion, equilibrium aggregate output decreases to Figure $________ billion. A . 2,800 B . 2,400 C . 2,200 D . 2,000 Answer : D Refer 9.5. If the economy is in equilibrium and the government increases to taxes by $50 billion, equilibrium aggregate output ________ to Figure $________ billion. A . increases; 3,050 B . decreases; 2,950 C . decreases; 2,800 D . decreases; 2,850 Answer : C Refer 9.5. If the economy is in equilibrium and the government increases to spending by $100 billion and increases taxes by $100 billion, Figure equilibrium aggregate output A . does not change. B . increases by $100 billion. C . increases by less than $100 billion. D . increases by more than $100 billion. Answer : B If the government spending multiplier is 10, then the tax multiplier A . is ­5. B . is ­4. C . is ­9. D . cannot be determined because the MPS is not given. Answer : C If the tax multiplier is ­6.66, then the government purchases multiplier A . is 6.66. B . is 7.66. C . is 3.34. D . cannot be determined because the MPS is not given. Answer : B (maybe If ment spending is increased by $400, taxes are reduced by $400, and the govern MPS is .5, equilibrium output will change by A . ­$400. B . $0. C . $1,200. D . an amount that cannot be determined from this information. Answer : C (deltaY+deltaY ) If ment purchases are increased by $100, taxes are reduced by $100, and govern the MPC is .8, equilibrium output will change by A . 400. B . 800. C . 900. D . an amount that cannot be determined from this information. Answer : C If ment spending is increased by $700 and taxes are increased by $700, govern the equilibrium level of income will A . decrease by $700. B . not change. C . increase by $700. D . increase by $1,400. Answer : C If ment purchases are decreased by $800 and taxes are decreased by $800, govern the equilibrium level of income will A . decrease by $800. B . increase by $800. C . not change. D . decrease by $1600 Answer : A Assume MPC is .75. If government spending increases by $400, equilibrium that output ________; and if taxes increase by $400, equilibrium output the ________. A . increases by $1,600; decreases by $1,600 B . increases by $1,600; decreases by $1,200 C . increases by $1,200; decreases by $1,600 D . increases by $400; decreases by $400 Answer : B Assume MPC is .9. If government purchases increase by $100, equilibrium that output ________; and if taxes increase by $100, equilibrium output the ________. A . increases by $1,000; decreases by $1,000 B . increases by $900; decreases by $1,000 C . increases by $1,000; decreases by $900 D . increases by $400; decreases by $400 Answer : C You are hired by the Counci l of Economic Advisors (CEA) as an economic consultant. The Chairperson of the CEA tells you that she believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. She wants to know what policy to pursue to increase aggregate output by $300 billion. The best estimate she has for the MPC is .8. Which of the following policies should you recommend? A . Increase government purchases by $60 billion. B . Increase government purchases by $150 billion. C . Cut taxes by $60 billion. D . Cut $60 billion and to increase government purchases by $60 billion. taxes by Answer : A You are hired by the Bureau of Economic Analogies (BEA) as an economic consultant. The Chairperson of the BEA tells you that he believes the current unemployment rate is too low. The unemployment rate can be increased if aggregate output decreases. He wants to know what policy to pursue to decrease aggregate output by $100 billion. The best estimate he has for the MPC is .9. Which of the following policies should you recommend? A . Decrease government spending by $10 billion. B . Decrease government spending by $100 billion. C . Increase taxes by $100 billion. D . Cut $60 billion and to increase government spending by $60 billion. taxes by Answer : A You are hired by the Counci l of Economic Advisors (CEA) as an economic consultant. The chairperson of the CEA tells you that she believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. She wants to know what policy to pursue to increase aggregate output by $300 billion. The best estimate she has for the MPC is .8. Which of the following policies should you recommend? A . Increase government purchases by $75 billion. B . Reduce taxes by $75 billion. C . Reduce taxes by $75 billion and to increase government purchases by $75 billion. D . Reduce the budget deficit by $300 billion. Answer : B You are hired by the Bureau of Economic Analogies (BEA) as an economic consultant. The chairperson of the BEA tells you that he believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. He wants to know what policy to pursue to increase aggregate output by $500 billion. The best estimate he has for the MPC is .7. Which of the following policies should you recommend? A . Decrease government spending by $75 billion. B . Reduce taxes by $214.3 billion. C . Reduce taxes by $314.3 billion and to decrease government spending by $500 billion. D . Reduce the budget deficit by $300 billion. Answer : B You are hired by the Counci l of Economic Advisors (CEA) as an economic consultant. The chairperson of the CEA tells you that she believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. She wants to know what policy to pursue to increase aggregate output by $300 billion. The best estimate he has for the MPC is .8. Which of the following policies should you recommend? A . Increase spending by $300 billion and reduce taxes by $300 billion. government B . Reduce spending by $300 billion and increase taxes by $300 billion. government C . Increase both government spending and taxes by $300 billion. D . Decrease both government spending and taxes by $300 billion. Answer : C You are hired by the Bureau of Economic Analogies (BEA) as an economic consultant. The chairperson of the BEA tells you that he believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. He wants to know what policy to pursue to increase aggregate output by $300 billion. The best estimate he has for the MPC is .8. Which of the following policies should you recommend? A . Reduce spending by $300 billion and reduce taxes by $300billion. government B . Increase both government spending and taxes by $300 billion. C . Increase spending by $300 billion and reduce taxes by $300 billion. government D . None of the above Answer : B As the size of the MPC increases, the value of the balanced­budget multiplier A . increases. B . decreases. C . remains constant. D . could either increase or decrease. Answer : C The balanced­budget multiplier A . equals 0. B . is greater than 0 but less than 1. C . is greater than 1. D . equals 1. Answer : D Suppos beginning of 2003 the federal debt was $4 trillion. During 2003, the e that government balanced its budget. At the end of 2003, the federal debt in the A . increased. B . stayed the same. C . decreased. D . was eliminated. Answer : B True/False 1) As the MPC decreases, the government spending multiplier increases. Answer: True F If mous spending increases, the aggregate expenditure function becomes Diff: 1 autono steeper. Skill: A F ns w er: True F I Diff: 1 Answer: Skill: F True F A lion Diff: 2 will Skill: C t have aless xeffect on the cecono umy t than an oincrea f se in gover $nment 1purch 0ases of b$10 i billio l n. Answer: True F Tmulti Diff: 2 plier h Skill: C eworks when bever athe l gover anment nincrea cses espend ding - and bincrea uses dtaxes gby the esame t amou nt. Answer: True F Tt 9 . 3 T h e F e d e r a l B u d g e t M u l t i p l e C h o i c e the tfede oral tgove arnme lnt to athe mpubl oic uis nthe Diff: 1 owed h Skill: C eby . federal budget deficit. . federal debt. C . net tax revenue. D . fiscal drag. Answer : B What is the largest expenditure source in the government's budget? A . Consumption B . Transfer payments C . Net interest payments D . Net subsidies Answer : B What is the largest source of revenue in the government's budget? A . Social insurance B . Indirect business taxes C . Corporate taxes D . Personal taxes Answer : D A government's debt is reduced when it A . balances is budget. B . sells more bonds. C . runs a deficit. D . runs a surplus. Federal debt=deficit­surplus) Answer : D When a government runs a deficit A . its debt increases. B . it must raise taxes C . its debt decreases. D . it must cut spending. Answer : A True/False 1) The amount the government owes to the public is the deficit. Answer: True F I Diff: 1 Answer: Skill: D True F I rnmen Diff: 1 t runs f Skill: F a t deficit h, then ethe gover gnment odebt vincrea eses. Answer: True F dnding Diff: 2 is the e Skill: C f larges et part nof the s U.S. egover nment s spend ping. e Answer: True F T Diff: 2 Answer: Skill: F True F Diff: 1 Skill: C 9.4 The Economy’s W Influence on Government Budget Multiple Choice .ncom e Ufall ns, etax mreve pnue lfall os, yunem mploy ement nbene tfits rise f, aand lthe lbudg set ,defi cit irise s. . rises, income falls, tax revenue falls, Unempl unemployment benefits rise, and the oyment budget deficit rises. . nt rises, income falls, tax revenue rises, unemployment benefits Unemployme fall, and the budget deficit falls. D . nt rises, income rises, tax revenue rises, unemployment benefits Unemployme rise, and the budget deficit rises. Answer : B (cz bud deficit=G­T) spending increases, T dec) Which of the following is a CORRECT sequence of events during an expansion? A . nt falls, income falls, tax revenue falls, unemployment benefits Unemployme rise, and the budget deficit falls. B . nt rises, income falls, tax revenue falls, unemployment benefits Unemployme rise, and the budget deficit rises. C . nt rises, income falls, tax revenue rises, unemployment benefits Unemployme fall, and the budget deficit falls. D . nt falls, income rises, tax revenue rises, unemployment benefits Unemployme fall, and the budget deficit falls. Answer : D The automatic stabilizers means that the federal deficit is ________ than presen it otherwise would be in a recession and ________ than it otherwise ce of would be in an expansion. A . larger; smaller B . smaller; larger C . smaller; smaller D . larger; larger pg 519 Answer : A During a recession, automatic stabilizers cause the federal deficit to A . decrease. B . either increase or decrease. C . remain unchanged. D . increase. Answer : D An example of an automatic stabilizer is A . the food stamp program. B . changing the tax laws to increase the marginal tax rates. C . the of social security benefits to the consumer price index. indexation D . the interest the government pays on loans. Answer : A If the y is in a recession, the full­employment deficit is ________ the econom actual deficit. A . larger than B . equal to C . smaller than D . equal to or larger than Answer : C (maybe at actual we have more unemployment than at full emp)cz of recession no emp If the full­employment output is $9 trillion, actual output is $8.5 trillion, econom and the budget deficit is $50 billion, the deficit in this case is y's known as a A . natural employment deficit. B . cyclical deficit. C . structural deficit. D . debt deficit. Answer : B (cz I think something wron with economy) If the full­employment output is $9 trillion, actual output is $9 trillion, econom and the budget deficit is $20 billion, the deficit in this case is y's known as a A . natural employment deficit. B . cyclical deficit. (deficit cz of downturn of economy) C . structural deficit. (deficit that remains at full employment) D . fiscal deficit. Answer : C (normal I Assume United States the actual deficit is $300 billion. If the United States that were at full employment, the deficit would be $100 billion. The in the structural deficit in the United States is A . $100 billion. B . $200 billion. C . $300 billion. D . $400 billion. Answer : A (maybe normal deficit at full employment is 100) Assume Atlantis the actual deficit is $200 billion. If the Atlantis were at that full employment, the deficit would be $50 billion. The structural in the deficit in the Atlantis is A . $100 billion. B . $200 billion. C . $50 billion. D . $150 billion. Answer : C (cz normal If the y is in a recession and the government lowers the tax rate, tax econom revenue A . will definitely increase. B . will definitely decrease. C . may increase, decrease or stay the same. D . will not change. Answer : C In which case will the government collect more tax revenue? A . 40% tax rate and $40,000 average income B . 90% tax rate and $10,000 average income C . 20% tax rate and $90,000 average income D . 4% tax rate and $80,000 average income Answer : C If taxes are a function of income, then the AE function is A . flatter than if taxes are a lump­sum amount. B . steeper than if taxes are a lump­sum amount. C . vertical. D . downward sloping. Answer : A (I think cz a+bY(1­t)­ T0+I…) (1­t) makes it flatter) True/False 1) During , automatic stabilizers work to reduce government expenditures and increase government revenues. recessions Answer: True F T Diff: 2 Answer: Skill: C True F Diff: 1 Skill: D The structural deficit is the deficit at full employment. A n s w e r: True F I on the Diff: 1 U.S. n Skill: D federa al ngover nment edeficit xautom paticall ay ngrows s . i Answer: True F A Diff: 1 Answer: Skill: C True F Apend 9 . 5 A p p e n d i x A M u l t i p l e C h o i c e ume. mThe eMPC is . t8 hand at is t.25. The tgove arnme xnt espen sding mult dipli eer is Diff: 1 on s Skill: C sinco . 1.67. . 2.5. C . 5. D . 10. Answer : B Assume taxes depend on income. The MPC is .9 and t is .3. The government that spending multiplier is A . 10. B . 2.7. C . 1.17. D . 1.42. Answer : B Assume depend on income. The MPC is .5 and t is .2. If government spending that increases by $10 billion, the equilibrium level of output will taxes increase by A . $16.7 billion. B . $25 billion. C . $50 billion. D . $100 billion. Answer : A Assume depend on income. The MPC is .8 and t is .4. If government purchases that increase by $100 billion, the equilibrium level of output will taxes increase by A . $16.7 billion. B . $215.9 billion. C . $57.5 billion. D . $192.31 billion. Answer : D If depend on income and the MPC is .8 and t is .5, the tax multiplier is taxes A . ­1.6. B . ­1.3. C . 75. D . 67. Answer : B Assume taxes depend on income and the MPC is .8 and t is .5. An increase in that taxes of $10 billion will decrease equilibrium income by A . $16 billion. B . $13.3 billion. C . $7.5 billion. D . $6.7 billion. Answer : B If depend on income, then the magnitude of the government spending taxes multiplier ________ it would be if taxes were a lump­sum amount. A . could be either larger than or smaller than B . is larger than C . is equal to what D . is smaller than Answer : D If depend on income, then the absolute value of the tax multiplier taxes ________ it would be if taxes were a lump­sum amount. A . could be either larger than or smaller than B . is larger than C . is equal to what D . is smaller than Answer : D As the tax rate increases, the government spending multiplier A . increases. B . decreases. C . does not change. D . could either increase or decrease depending on the value of the MPC. Answer : B As the tax rate increases, the absolute value of the tax multiplier A . increases. B . decreases. C . does not change. D . could either increase or decrease depending on the value of the MPC. Answer : B True/False 1) When taxes depend on incomes, a higher tax rate implies a higher government spending multiplier. Answer: True F W Diff: 1 Answer: Skill: F True F I is .2 Diff: 2 and t f Skill: F is .3, t then hthe etax multi M plier Pis Sabout -3.8. Answer: True F I Diff: 3 Answer: Skill: C True F W rate Diff: 3 increa h Skill: C eses, nthe absol t ute hvalue eof the tax t multi aplier xfalls. Answer: True F Diff: 1 Skill: F ...
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