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Chapters 6 & 11

Terms in this set (20)

An issue that generates substantial benefits to a small group of individuals while imposing a small cost on many others is called a
special-interest issue
Legislation that offers immediate and easily recognized benefits, at the expense of costs that are observable only in the distant future, is often enacted even when economic inefficiency results. This can be expected because of
the short-sightedness effect
Economists refer to the lack of incentive that voters have to search for and obtain information to help make better political choices as the
rational-ignorance effect
If a federal agency requested funds to build a dam on an Idaho river to irrigate nearby farmland used for growing potatoes, the most active support for the project probably would come from
potato farmers who own the land to be irrigated
Government action will often result in the counterproductive use of resources because
there is often a conflict between winning political elections and adoption of only productive programs.
Long lags make discretionary policy less effective because
by the time the impact of a policy is felt, the problem may have been corrected by market forces.
During normal times, if the marginal propensity to consumer is 3/4, and the government borrows $10 billion in order to increase spending by that amount, real output will expand by
less than $40 billion, because the additional borrowing will place upward pressure on real interest rates, weakening the impact of the multiplier.
The primary tool of fiscal policy is
the federal budget
According to the Keynesian view, if real GDP is slowing and the economy appears to be headed for a recession, a reduction in tax rates is
highly appropriate because it will stimulate aggregate demand and, thereby, help to strengthen the economy.
Within the Keynesian model, when total spending is less than the full-employment level of output, firms will
cut production to reduce their inventory accumulation
Which of the following is a predictable side effect of increased government activity (for example, taxes and subsidies) designed to redistribute income among citizens?
an increase in rent-seeking activity
Which of the following is an example of a good that is produced by the public sector but consumers purchase it in proportion to the benefit received?
first - class mail delivery from the U.S. post office
Direct income transfers account for approximately what percentage of total government spending?
50 percent
A local government operates a city recreation center with a pool and tennis courts. The center is financed through $50 annual membership fees (required for members to use it). This type of financing is an example of a
user charge
Which of the following is true?
To remain in office, a politician must try to enact policies that gain him votes for his reelection and increase the support coming from contributors.
If the economy is experiencing inflationary boom, and the government lowers taxes in an effort to balance the budget, the Keynesian model indicates the likely effect will be to
continue inflationary pressures
During normal times, the multiplier effect of an increase in government spending financed by taxes will be
weakened by an offsetting reduction in spending due to the higher taxes
When aggregate demand exceeds current output, Keynesian analysis indicates that
unplanned inventory reductions will cause output to rise
According to the Keynesian view, the prolonged unemployment of the Great Depression
resulted because the total expenditures on goods and services were less than the full-employment rate of output.
The larger the marginal propensity to consume,
the larger the multiplier
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