CH. 13 WS – Flashcards
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In the Employment Act of 1946, the Federal government:
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committed itself to accept some degree of responsibility for the general levels of employment and prices.
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Fiscal policy is carried out primarily by:
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the Federal government.
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Discretionary fiscal policy refers to:
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changes in taxes and government expenditures made by Congress to stabilize the economy.
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Countercyclical discretionary fiscal policy calls for:
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deficits during recessions and surpluses during periods of demand-pull inflation.
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Discretionary fiscal policy is so named because it:
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involves specific changes in T and G undertaken expressly for stabilization at the option of Congress.
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Contractionary fiscal policy is so named because it:
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is aimed at reducing aggregate demand and thus achieving price stability.
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A politically conservative economist who favors smaller government would recommend:
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tax cuts during recession and reductions in government spending during inflation.
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If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by:
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increasing government spending by $4 billion.
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If the MPC in an economy is .8, government could shift the aggregate demand curve rightward by $100 billion by:
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decreasing taxes by $25 billion.
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A politically liberal economist who favored expanded government would recommend:
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increases in government spending during recession and tax increases during inflation.
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If the MPS in an economy is .4, government could shift the aggregate demand curve leftward by $50 billion by:
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reducing government expenditures by $20 billion.
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If the MPC in an economy is .75, government could shift the aggregate demand curve leftward by $60 billion by:
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increasing taxes by $20 billion.
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The effect of a government surplus on the equilibrium level of GDP is substantially the same as:
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an increase in saving.
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Assume the economy is at full employment and that investment spending declines dramatically. Under these conditions government fiscal policy should be directed toward:
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an excess of government expenditures over tax receipts.
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Assume that aggregate demand in the economy is excessive, causing demand-pull inflation. Which of the following would be most in accord with appropriate government fiscal policy?
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an increase in Federal income tax rates
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In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $120 billion. To obtain price level stability under these conditions the government should:
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increase tax rates and reduce government spending.
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Suppose that in an economy with a MPC of .5 the government wanted to shift the aggregate demand curve rightward by $80 billion at each price level to expand real GDP. It could:
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increase government spending by $40 billion.
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In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will:
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shift the AD curve to the left.
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Which of the following represents the most expansionary fiscal policy?
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a $10 billion increase in government spending
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A tax reduction of a specific amount will be more expansionary, the:
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larger is the economy's MPC.
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Refer to the above diagram. A contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at:
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AD3
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Refer to the above diagram. An expansionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at:
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AD0
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Refer to the above diagram. Assume that the initial aggregate demand curve is AD1 and the government undertakes fiscal policy that shifts the aggregate demand curve to AD2. If the horizontal distance between AD1 and AD2 is $100 billion, the change in real GDP in this situation:
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would be less than $100 billion.
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Refer to the above diagram. The Q3 level of real GDP is best described as:
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the full-capacity level of real GDP.
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Refer to the above diagram. The Q2 level of real GDP appears to be:
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the full-employment level of real GDP.
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Which of the following fiscal actions would be the most effective in curbing inflation?
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incurring a budget surplus and impounding that surplus
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If the government increases its spending during recession to assist the economy, the funds for such expenditures must come from some source. Which of the following sources would be the most expansionary?
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creating new money
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Built-in stability means that:
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with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus.
