Chapter 13 questions Flashcards
(22 cards)
The aggregate demand curve shifts when there are changes in:
A. the price level.
B. aggregate spending that are not caused by changes in output or the price level.
C. planned spending that are caused only by changes in output or the price level.Incorrect
D. real GDP or real output and income.
B. aggregate spending that are not caused by changes in output or the price level.
Sticky wages occur because:
A. employers must wait until the current contract ends to cut someone’s pay.
B. unions often negotiate wages for several years in advance.
C. wages can only be changed at the end of contracts, as opposed to final good prices which can change anytime.
D. All of these are true.
D. All of these are true.
In the Keynesian model a recessionary gap will develop if there is:
A. too little spending.
B. a decrease in average labor productivity.
C. too much spending.
D. an increase in average labor productivity.
A. too little spending.
Changes in government purchases affect planned spending _____, and changes in taxes and/or transfers affect planned spending _______.
A. directly; directly
B. directly; indirectly
C. directly; not at all
D. indirectly; indirectly
B. directly; indirectly
We use the term expansionary fiscal policy when the overall effect of decisions about taxation and spending is to:
A. increase aggregate demand.
B. decrease aggregate demand.
C. increase aggregate supply.
D. decrease aggregate supply.
A. increase aggregate demand.
Contractionary fiscal policy could involve a combination of government:
A. spending increases and income tax increases.
B. spending cuts and income tax cuts.
C. spending cuts and income tax increases.
D. spending increases and income tax cuts
C. spending cuts and income tax increases.
The purpose of contractionary fiscal policy is to _________ __________, whereas the purpose of expansionary fiscal policy is to ________ ____________.
reduce aggregate demand
increase aggregate demand
Fiscal policy can:
A. have real effects on the economy in the short run.
B. bring the economy to its long run equilibrium faster C. than it can correct itself.
D. cause inflation.
E. All of these are true
E. All of these are true
Which of the following is true about an economy’s self-correcting tendency?
A. An economy’s self-correcting tendency always makes active use of stabilization policy unnecessary.
B. The self-correcting tendency usually operates faster during deeper and more severe recessions.
C. The absence of long-term contracts will make self-correction work slower in an economy.
D. The more slowly the economy adjusts, the more likely it is that stabilization policy will be useful.
D. The more slowly the economy adjusts, the more likely it is that stabilization policy will be useful.
The marginal propensity to consume:
A. is the amount by which consumption increases when after-tax income increases by $1.
B. is closely linked to the multiplier effect of government spending.
C. is a value between 0 and 1.
D. All of these are true.
D. All of these are true.
The marginal propensity to consume is the:
A. overall portion of disposable income that is consumed (and not saved)
B. amount by which consumption increases when disposable income increases by $1.
C. portion of a one dollar bill that is on average spent on consumption.
D. amount by which disposable income increases when consumption increases by $1.
B. amount by which consumption increases when disposable income increases by $1.
The multiplier effect occurs when:
A. spending by one person causes others to spend more too, increasing the impact of the initial spending on the economy.
B. the level of consumer confidence increases more than predicted given a tax cut.
C. increased spending by one or more individuals causes others to react and increase their savings.
D. None of these is true.
A. spending by one person causes others to spend more too, increasing the impact of the initial spending on the economy.
The larger the mpc, the ______ the income-expenditure multiplier and the ______ the effect of a change in aggregate spending on the equilibrium output.
A. larger; larger
B. larger; smaller
C. smaller; smaller
D. smaller; larger
A. larger; larger
Everything else equal, which will have a larger effect on aggregate demand and GDP: a $100 million reduction in taxes or a $100 million increase in government spending?
A. The increase in government spending—the tax cut will cause an initial increase in consumption spending of less than $100 million.
B. The tax cut—the initial increase in consumption spending will be more than $100 million.
C. The impact will be the same—the tax cut will D. increase consumption spending by $100 million.
A. The increase in government spending—the tax cut will cause an initial increase in consumption spending of less than $100 million.
A lack of understanding regarding the current state of the economy creates a(n) _________ blank lag.
A. information
B. formulation
C. implementation
D. direction
A. information
The process of deciding on and passing fiscal policy legislation creates a(n) _________blank lag.
A. information
B. formulation
C. implementation
D. direction
B. formulation
When output deviates from potential GDP, automatic stabilizers work to push the economy:
A. in the same direction that correctly timed and formulated discretionary policy would.
B. in the opposite direction that correctly timed and formulated discretionary policy would.
C. in unpredictable ways, causing a need for discretionary policy.
D. even further from its long-run equilibrium.
A. in the same direction that correctly timed and formulated discretionary policy would.
The existing tax rates on income in the United States:
A. act as an automatic stabilizer.
B. curtail spending slightly when incomes rise because people have to pay more in taxes when incomes are high.
C. encourage spending slightly when incomes fall because people pay less in taxes when incomes are low.
D. All of these are true.
D. All of these are true.
Increased government spending on unemployment insurance during a recession is an example of:
an automatic stabilizer.
discretionary fiscal policy.
expansionary fiscal policy.
contractionary fiscal policy.
an automatic stabilizer.
The government budget involves:
money coming in as tax revenues.
money going out through government purchases.
money going out to individuals for programs that do not involve goods or services.
All of these are true.
All of these are true.
During a recession, government deficits can grow because:
government spending often increases as part of an expansionary fiscal policy.
income tax revenues tend to decrease because people are earning less.
sales tax revenues tend to decrease because people are spending less.
All of these are true.
All of these are true.
