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30 terms

Macro Ch. 10

STUDY
PLAY
All of the following are variables that can be manipulated to affect fiscal policy except one. Which is the exception?
Interest Rate
A $200 increase in government purchases has a greater effect on the equilibrium level of real GDP than a $200 decrease in autonomous net taxes would.
True
f the multiplier for autonomous government purchases equals 4, then it is true that the simple tax multiplier
equals -3
If the MPC equals 0.75 and G increases by $100, real GDP demanded will increase by
$400
Assume autonomous net taxes fall by $300; the MPC = 2/3. Net exports, planned investment, taxes, and government purchases are autonomous and remain fixed. As a result, consumption will initially
Rise by $200
Assume autonomous net taxes fall by $300; the MPC = 2/3. Net exports, planned investment, taxes, and government purchases are autonomous and remain fixed. As a result, equilibrium real GDP demanded will
Rise by $600
To close a contractionary gap using fiscal policy, the government can
increase government spending by less than the size of the gap
An increase in federal budget deficit
may increase inflation
When the government closes an expansionary gap with a change in government spending, the __________ in government spending leads to __________.
decrease; a decrease in both real GDP and the price level
Suppose that the economy has an expansionary gap of $1,000 and the MPC equals 0.8. With an upward-sloping short-run aggregate supply curve, the government can close the gap if it increases autonomous net taxes by
more than $250
The steeper the short-run aggregate supply curve,
the larger the impact of a shift in aggregate demand on the equilibrium price level
The difference between the classical approach and the Keynesian approach to fiscal policy is
Keynesians believe that it may be necessary that government increase aggregate demand so as to stimulate output and employment, if the economy is to achieve its potential output
The Classical economists believed in the self-correcting nature of the economic system. They believed that the major adjustment
mechanisms were flexible wages, prices and interest rates
Which of the following is not an automatic stabilizer?
new legislation to increase tax rates
A progressive income tax ensures that during expansionary periods,
disposable income will increase by less than the increase in GDP
The reason that fiscal policy was not helpful in the 1970s was that such policy is aimed at
aggregate demand only, but the problem was in aggregate supply
If policy makers think the natural rate of unemployment is higher than it really is, then their policies designed to move the economy to the estimated natural rate, if continued over the long run, will
keep the economy below its potential GDP level
Which of the following is not a weakness of fiscal policy?
Fiscal policy works only during periods of stagflation.
The Reagan experiment in supply-side economics resulted in all of the following except
A reduction in federal debt
The federal government budget is
a plan for government expenditures and revenues for the coming year
If government increased Social Security benefits and decreased the salaries of government workers by the same amount, we would expect the immediate effect to be
no change in the budget deficit because government purchases of goods and services have decreased by the same amount as transfer payments have increased
Problems with the federal government budget process include
the use of continuing resolutions that reward last year's programs without adequate review of performance
If the government runs a cyclically balanced budget, its revenue will equal its expenditure
over the course of the business cycle
An annually balanced budget
accentuates cyclical swings by increasing government spending during expansions and reducing it during recessions
In 1981, policy makers in the Reagan administration predicted a balanced budget for the 1980s because
growth in GDP was expected to be large enough to lead to an increase in tax revenues despite the tax cut
The crowding in of private investment is associated with
more favorable business expectations resulting from an increase in aggregate demand induced by increased government borrowing
Which of the following steps does not belong in a sequence reflecting the impact on international markets of increased borrowing to finance a large government budget deficit?
The rising value of the dollar leads to increased U.S. exports and reduced imports.
The national debt is
a stock variable measuring the net accumulation of past deficits
Among the following cases, the opportunity cost of crowding out is the smallest when the government spends $9 billion
on new interstate highways
Some economists have predicted that parents will act to offset the impact of deficit spending on their children by
saving more to increase gifts and bequests to their children