Macroeconomics #11 – Flashcards
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1. All of the following are sources of federal tax revenue EXCEPT:
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B) sales taxes.
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2. Social insurance programs are:
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A) government programs intended to protect families against economic hardships.
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3. Which of the following is NOT an example of government purchases of goods and services?
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C) a surgeon's bill reimbursed under the Medicare program
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4. Suppose the economy is in a recessionary gap. To move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to:
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B) decrease taxes.
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5. If the current level of real GDP lies below potential GDP, then an appropriate fiscal policy would be to _____, which will shift the _____ curve to the _____.
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D) increase government purchases; AD; right.
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6. If the economy is at equilibrium above potential output:
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B) there is an inflationary gap, and contractionary fiscal policy is appropriate.
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7. Government's efforts to stabilize the business cycle through fiscal policy can destabilize the economy because of:
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A) lags in the process of crafting a budget appropriate to the circumstances.
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8. Time lags associated with policy decision making and implementation suggest that:
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C) increases in spending to fight a recessionary gap may occur too late.
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9. Suppose the government increases taxes by more than is necessary to close an inflationary gap. Which of the following would most likely result?
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B) The economy could move into a recession.
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10. If the marginal propensity to save is 0.1, then the government spending multiplier has a value of
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C) 10.
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11. When the economy expands, which of the following is true?
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D) Income tax receipts and sales tax revenues will both rise.
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12. The fact that tax receipts fall during a recession:
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C) reduces the adverse effect of the initial fall in aggregate demand.
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13. When the economy is in a recession:
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A) tax receipts decrease but unemployment insurance payments increase.
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14. Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If current real GDP is $700 billion:
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B) there is a recessionary gap.
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15. Expansionary fiscal policies:
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A) make the budget surplus smaller.
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16. The government has a budget surplus if:
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C) its total revenues are greater than its total expenditures.
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17. If the economy is operating well below potential output, which of the following is likely?
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A) The cyclically adjusted budget balance deficit is smaller than the actual budget balance.
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18. Over the past few decades in the United States, large federal budget deficits have been most often caused by:
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C) a depressed economy.
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19. When the government has a deficit, it will most likely finance the deficit by:
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C) borrowing the money.
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20. The difference between a budget deficit and government debt is that:
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A) a deficit is the amount by which government spending exceeds tax revenues, whereas debt is the amount the government owes.
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21. When the government borrows funds in financial markets to pay for budget deficits:
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C) private investment spending may be crowded out.
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22. The Social Security trust fund refers to the:
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B) government bonds held by the Social Security system.
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23. Suppose the MPC = 0.8. If the government were to cut taxes by $100 billion, then real GDP would increase by $400.
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A) True
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24. The effect of automatic stabilizers is to increase the size of the multiplier.
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B) False
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25. Transfer payments are payments that:
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A) governments make to households even if the government did not receive a good or service from the household.
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26. If the economy exhibited an inflationary gap, the government should follow:
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D) a contractionary policy, which would shift the AD curve to the left.
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27. During a recessionary gap:
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A) holding everything else constant, the budget deficit would increase.
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28. The government deficit:
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C) measures the difference between the amount government spends and the amount it collects in tax revenues in a given period.
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29. If a government's debt is increasing but its GDP is increasing faster, one will find the government's:
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B) debt-GDP ratio falling.
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30. The inclusion of a tax rate in the model results in a new multiplier that is:
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C) smaller than the original multiplier.
