Lecture 11 Flashcards
Fiscal policy refers to the
A) business sector’s influence on investment and GDP.
B) government’s use of spending and taxing policies to influence equilibrium real GDP.
C) government’s use of trade-related policy tools to influence the net export function, thereby influencing GDP.
D) households’ attempts to change saving to encourage growth.
E) government’s attempts to maintain a vertical AS curve so as to stabilize output.
B) government’s use of spending and taxing policies to influence equilibrium real GDP.
Refer to Figure 25-3. Suppose the interest rate in this market for financial capital is 2%. In this case there is an excess ________ financial capital of ________ billion dollars.
A) demand for; 30 B) demand for; -30 C) supply of; 50 D) supply of; 30 E) demand for; 80
A) demand for; 30
Refer to Figure 25-3. Suppose the interest rate in this market for financial capital is 4%. In this case there is an excess ________ financial capital of ________ billion dollars.
A) demand for; 30 B) demand for; 60 C) supply of; 90 D) supply of; 30 E) demand for; -60
D) supply of; 30
Suppose the government has a budget surplus of $2 billion. If the country’s level of private saving is $1.2 billion, then national saving must be
A) -$800 million. B) $3.2 billion C) $0. D) -$1.2 billion. E) $800 million
B) $3.2 billion
Refer to Table 25-2. What is the level of national saving for this economy?
A) -$150 B) $250 C) $150 D) -$200 E) -$50
B) $250
Consider the market for financial capital in the long run. The investment demand curve is downward sloping because
A) all components of desired investment are negatively related to the real interest rate.
B) an increase in the real interest rate leads to an increase in investment demand.
C) a decrease in the real interest rate reflects a higher opportunity cost to firms of using financial capital.
D) an increase in the real interest rate reflects a lower opportunity cost to firms of using financial capital.
E) all components of desired investment are positively related to the real interest rate.
A) all components of desired investment are negatively related to the real interest rate.
Suppose the economy is experiencing an inflationary gap in the short run. The advantage of using a contractionary fiscal policy rather than allowing the economy’s natural adjustment process to operate is that
A) it will close the output gap.
B) it will reduce the downward pressure on the price level that would otherwise occur.
C) it will reduce the upward pressure on the price level that would otherwise occur.
D) it will shorten what might otherwise be a long recession.
E) if private-sector expenditures increase on their own, the policy will stabilize real GDP.
C) it will reduce the upward pressure on the price level that would otherwise occur.
Suppose the economy is experiencing a significant recessionary gap, but it has taken the government six months to determine that it will change fiscal policy. This is an example of
A) gross tuning. B) automatic fiscal stabilizers. C) a decision lag. D) an execution lag. E) fine tuning.
C) a decision lag.
Refer to Figure 24-1. If the economy is currently producing output of Y0 and the government initiates an expansionary fiscal policy adequate to close the output gap, the result is intended to be
A) that the AS curve and the AD curve will shift left simultaneously.
B) that the AS curve will shift to the right until point A is reached.
C) no change in either price level or output, since expansionary fiscal policy is ineffective.
D) the vertical line at Y* will shift to the left, intersecting the AS and AD curves at Y0.
E) that the AD curve will shift to the right until point B is reached.
E) that the AD curve will shift to the right until point B is reached.
One advantage of using expansionary fiscal policy rather than relying on automatic adjustment to recover from a recessionary gap is that
A) the economy will overshoot potential GDP and a boom will be underway.
B) the recovery may be more rapid.
C) the recovery will be slower, thereby causing less disruption.
D) price level will rise higher than otherwise.
E) inflation will not be as stimulated.
B) the recovery may be more rapid.
Consider the market for financial capital in the long run. The national saving curve is upward sloping because an increase in the real interest rate
A) decreases the supply of public saving.
B) leads households to increase their current consumption.
C) decreases the supply of private saving.
D) leads households to reduce their current consumption.
E) leads to an increase in investment demand.
D) leads households to reduce their current consumption.
Refer to Figure 24-2. Suppose the economy is in a short-run equilibrium at Y1. A contractionary fiscal policy would restore the economy to potential output (Y*) by shifting the
A) AS curve to the left to intersect AD at C.
B) potential GDP and the AS curve to the left.
C) AS curve to the right.
D) AD curve to the right.
E) AD to the left to intersect AS at point A.
E) AD to the left to intersect AS at point A
Data from most industrialized countries show that countries with high investment rates (as a percentage of GDP) tend to be countries
A) with the lowest rate of national saving.
B) with a negative relationship between investment and the rate of economic growth.
C) with the highest levels of per capita GDP.
D) with high rates of economic growth.
E) with the highest levels of GDP.
D) with high rates of economic growth.
Refer to Figure 25-3. The equilibrium interest rate in this market is ________% and the equilibrium flow of investment and saving is ________ billion dollars.
A) 2; 60 B) 3; 70 C) 4; 80 D) 5; 90 E) 1; 50
B) 3; 70
Refer to Table 25-2. What is the level of public saving for this economy?
A) $200 B) $150 C) -$200 D) -$50 E) -$150
E) -$150
