question

Rising unemployment and decreased business confidence could be signs that the economy is at the start of a(n):

answer

A. recession.

question

Democrats often argue in favor of what to push the economy toward economic recovery, as they did during the recession that began in 2008?

answer

B. Increase government spending

question

Republicans often argue in favor of what to push the economy toward economic recovery, as they did during the recession that began in 2008?

answer

A. Tax cuts

question

The American Recovery and Reinvestment Act of 2009:

answer

D. All of these are true.

question

By 2012, the dollar value of the debt had climbed:

answer

A. past 100 percent of GDP.

question

According to this book, The American Recovery and Reinvestment Act of 2009:

answer

C. remains hotly debated whether it was successful or not.

question

Which model is used to evaluate the effects of macroeconomic policy such as tax cuts?

answer

A. Aggregate demand and aggregate supply

question

The model of aggregate demand and aggregate supply can be used to:

answer

D. All of these are true.

question

Government decisions about the level of taxation and public spending are called:

answer

A. fiscal policy.

question

Fiscal policy is:

answer

A. government decisions about the level of taxation and public spending

question

Fiscal policy most directly affects the economy by increasing or decreasing:

answer

A. aggregate demand.

question

Fiscal policy affects aggregate demand:

answer

D. All of these are true.

question

One way fiscal policy affects aggregate demand is:

answer

A. directly through government spending.

question

An example of fiscal policy would be government:

answer

D. All of these are examples of fiscal policy.

question

If the government were to increase its spending, it would expect

answer

A. aggregate demand to shift to the right.

question

If the government were to decrease its spending, it would expect:

answer

A. aggregate demand to fall, and thus GDP to fall.

question

If the government wished to shift aggregate demand to the right, it might:

answer

A. increase government spending.

question

If the government wished to shift aggregate demand to the left, it might

answer

A. decrease military spending.

question

Consumption depends on:

answer

B. disposable income.

question

Disposable income is:

answer

D. All of these are true.

question

If the government increases the income tax rate, consumers

answer

A. have less to spend and will reduce their consumption.

question

If the government decreases the income tax rate, then:

answer

C. aggregate demand will shift right.

question

If the government increases the income tax rate:

answer

A. disposable income decreases.

question

If the government decreases the income tax rate, they assume it will affect which component of GDP?

answer

A. C

question

If the government increases the income tax rate, they assume:

answer

A. C will decrease, shifting aggregate demand to the left.

question

We use the term expansionary fiscal policy when the overall effect of decisions about taxation and spending is to:

answer

A. increase aggregate demand.

question

If the fiscal policy makers aim to increase aggregate demand, they will likely enact:

answer

A. expansionary fiscal policy.

question

Increased government spending is an example of:

answer

A. expansionary fiscal policy.

question

Government decreasing taxes is an example of:

answer

A. expansionary fiscal policy.

question

If the government undertakes expansionary fiscal policy, it might

answer

B. decrease income taxes.

question

If the government undertakes expansionary fiscal policy, it:

answer

B. must want to encourage economic activity.

question

Contractionary fiscal policy is enacted when the overall effect of decisions about taxation and spending is to:

answer

A. reduce aggregate demand.

question

When fiscal policy makers wish to reduce aggregate demand, they could enact:

answer

A. contractionary fiscal policy.

question

If the government were to reduce its spending, it would be enacting:

answer

A. contractionary fiscal policy.

question

If the government were to increase taxes, it would be enacting:

answer

A. contractionary fiscal policy.

question

If the government enacts contractionary fiscal policy, it could:

answer

D. All of these are contractionary.

question

If the government enacts contractionary fiscal policy, it:

answer

D. All of these are true.

question

One reason the government enacts fiscal policy instead of waiting for the economy to correct itself is:

answer

A. the automatic adjustment can take a very long time.

question

Economist John Maynard Keynes is famous for saying, "In the long run, we are all dead." He is referring to:

answer

A. the length of time it can take the economy to recover to potential GDP without policy intervention.

question

Economist John Maynard Keynes once said, "In the long run, we are all dead." Keynes was likely:

answer

A. in favor of using fiscal policy.

question

When the government enacts fiscal policy, it:

answer

D. All of these are true.

question

Keynesian policy:

answer

A. refers to policies that actively shift aggregate demand in an effort to reach full employment.

question

One of the main difficulties with implementing fiscal policy is:

answer

D. All of these are true.

question

When government decides to use fiscal policy:

answer

D. None of these is true.

question

A difficulty with effective fiscal policy is:

answer

D. All of these are true.

question

Lags in the policy-making process come from:

answer

D. All of these are true.

question

A lack of understanding regarding the current state of the economy creates:

answer

A. an information lag.

question

The process of deciding on and passing fiscal policy legislation creates:

answer

B. a formulation lag

question

The amount of time it takes for fiscal policy to have an impact on the economy creates

answer

C. an implementation lag.

question

Fiscal policy that the government actively chooses to adopt is called:

answer

B. discretionary fiscal policy.

question

Taxes and government spending that affect fiscal policy without specific action from policymakers are called:

answer

A. automatic stabilizers.

question

Automatic stabilizers are the:

answer

A. taxes and government spending that affect fiscal policy without specific action from policymakers.

question

When output deviates from potential GDP, automatic stabilizers work to push the economy

answer

A. in the same direction that correctly timed and formulated discretionary policy would

question

The existing tax rates on income in the United States:

answer

D. All of these are true.

question

When an economy is in a recession, discretionary fiscal policy would call for ________, and the automatic stabilizers would ____________.

answer

A. lowering tax rates; lower tax revenues

question

When an economy is in an economic boom, discretionary fiscal policy would call for _____________, and the automatic stabilizers would _____________.

answer

C. increasing tax rates; increase tax revenues

question

Johnny has been working a lot of overtime during the most current economic boom. As a result, his income is high enough for him to move from the 10 percent tax bracket to the 15 percent tax bracket. So, Johnny pays a higher percentage of a higher income to the government this year. The increased amount paid to the government is an example of:

answer

B. automatic stabilizers slowing the economy.

question

Maude is complaining about how much she pays in taxes now that the economy is finally doing really well. Even though she's in the same tax bracket as she was last year, she's paying $500 more in taxes this year, just because she earned more overtime pay this year. Maude's increased tax payment to the government is an example of:

answer

D. automatic stabilizers

question

During times of economic boom, the spending on unemployment insurance

answer

A. likely falls, since more people are working.

question

Increased government spending on unemployment insurance during a recession is an example of:

answer

A. an automatic stabilizer.

question

An example of an automatic stabilizer is:

answer

D. All of these are examples of automatic stabilizers.

question

During a severe recession, the government decides to lower its tax rates to give consumers relief, and allow them to pay less in taxes. This is an example of:

answer

A. discretionary fiscal policy.

question

With the economy booming, the government starts to worry about the increasing rate of inflation, and decides to cut its spending on highway maintenance and defer it to sometime in the future. This is an example of:

answer

B. discretionary fiscal policy.

question

When the U.S. economy hits a recession, fiscal policy:

answer

A. automatically becomes expansionary because average tax rates go down and spending on welfare programs goes up.

question

In a booming economy, fiscal policy automatically becomes:

answer

A. contractionary as tax rates rise and welfare payments fall.

question

In a booming economy, discretionary fiscal policy:

answer

A. can be added to the automatic contractionary effects of policies already in place.

question

Ricardian equivalence predicts:

answer

D. All of these are true.

question

The idea that if governments cut taxes but not spending, people will not change their behavior, and expansionary policy will have little expansionary effect is known as:

answer

A. Ricardian equivalence.

question

Ricardian equivalence will fail to hold if:

answer

A. people increase their spending when they receive a tax rebate check.

question

The stimulus strategy behind tax cuts will only be effective if Ricardian equivalence:

answer

C. fails to hold, and people increase their spending.

question

If Ricardian equivalence holds, one way to get the expansionary effects of a tax cut to occur is:

answer

D. None of these will create the expansionary effects of a tax cut.

question

In 2008, consumers were mailed a stimulus check in response to the recession. The result showed that Ricardian equivalence:

answer

B. failed to hold, as most people spent a substantial share of the money.

question

The multiplier:

answer

A. measures the effect of government spending or tax cuts on national income.

question

The effect of government spending or tax cuts on national income is measured by the:

answer

A. multiplier.

question

The multiplier effect occurs when:

answer

A. spending by one person causes others to spend more too, increasing the impact of the initial spending on the economy.

question

The multiplier effect suggests that:

answer

A. spending $1 increases GDP by more than $1.

question

In order to accurately capture the multiplier effect, it is important to know:

answer

B. what proportion of their income people spend.

question

The multiplier effect suggests that:

answer

D. All of these are true.

question

The amount by which consumption increases when after-tax income increases by $1 is called the:

answer

A. marginal propensity to consume.

question

The marginal propensity to consume:

answer

D. All of these are true.

question

If the marginal propensity to consume was 0.75, it would mean that:

answer

A. $0.75 of an additional $1 of individuals' after-tax income is spent on consumption.

question

If the marginal propensity to consume was 0.9, it would mean that:

answer

A. consumers spend $9 out of every $10 of additional disposable income.

question

The government-spending multiplier tells us:

answer

A. the amount by which GDP increases when government spending increases by $1.

question

The government-spending multiplier:

answer

D. All of these are true.

question

The government spending multiplier:

answer

A. grows larger as the marginal propensity to consume increases.

question

The government spending multiplier is calculated as:

answer

A. 1/(1 - MPC).

question

If the marginal propensity to consumer is 0.8, the government spending multiplier must be:

answer

A. 5.

question

If the MPC = 0.75, then the government spending multiplier must be:

answer

B. 4.

question

If the MPC is 0.5, then the government spending multiplier must be:

answer

B. 2.

question

If the MPC were to increase from 0.75 to 0.8, then the government spending multiplier would:

answer

A. increase from 4 to 5.

question

If the government increased its spending by $100, and the GDP increased $400 as a result, the MPC must be:

answer

B. 0.75.

question

If the government increased its spending by $200, and the GDP increased $1,000 as a result, the MPC must be:

answer

A. 0.80.

question

If the government decreased its spending by $250, and the GDP decreased $1,000 as a result, the MPC must be:

answer

B. 0.75.

question

If the government decreased its spending by $400, and the GDP decreased $1,000 as a result, the MPC must be:

answer

A. 0.60.

question

If the MPC is 0.8, and the government spends an additional $100b, the overall effect on GDP will be:

answer

B. $500b.

question

If the MPC is 0.6, and the government spends an additional $50b, the overall effect on GDP will be:

answer

D. an increase of $125b.

question

If the MPC is 0.75, and the government cuts spending by $100b, the overall effect on GDP will be: A. a decrease of $400b.

answer

A. a decrease of $400b.

question

If the MPC is 0.9, and the government cuts spending by $200b, the overall effect on GDP will be:

answer

A. a decrease of $2,000b.

question

If the MPC is 0.6, and the government increases its spending by $300b, the overall effect on GDP will be: B. an increase of $750b.

answer

B. an increase of $750b.

question

If the MPC is 0.5, and the government cuts spending by $400b, the overall effect on GDP will be:

answer

C. a decrease of $800b.

question

If the government wishes to increase GDP by $1,000b, and the MPC is 0.6, it should increase its spending by:

answer

B. $400b.

question

If the government wishes to increase GDP by $1,200b, and the MPC is 0.8, it should:

answer

A. increase its spending by $240b.

question

If the government wishes to increase GDP by $1,200b, and the MPC is 0.75, it should:

answer

A. increase its spending by $300b.

question

If the government wishes to decrease GDP by $2,000b, and the MPC is 0.6, it should:

answer

D. decrease its spending by $800b.

question

The taxation multiplier tells us:

answer

B. tells us the amount GDP decreases when taxes increase by $1.

question

The taxation multiplier:

answer

A. is calculated as -MPC/(1 - MPC).

question

For any MPC, the taxation multiplier is:

answer

A. smaller in absolute value than the government spending multiplier.

question

The taxation multiplier is calculated as:

answer

C. -MPC/(1 - MPC).

question

If the marginal propensity to consume is 0.8, the taxation multiplier must be:

answer

D. -4.

question

If the MPC = 0.75, then the taxation multiplier must be:

answer

C. -3.

question

If the MPC is 0.5, then the taxation multiplier must be:

answer

B. -1.

question

If the MPC were to increase from 0.75 to 0.8, then the taxation multiplier would:

answer

B. decrease from -3 to -4.

question

If the government decreased taxes by $100, and the GDP increased $400 as a result, the MPC must be:

answer

B. 0.8.

question

If the government cut taxes by $200, and the GDP increased $1,800 as a result, the MPC must be:

answer

A. 0.90.

question

If the government increased taxes by $250, and the GDP decreased $1,000 as a result, the MPC must be:

answer

D. 0.80.

question

If the government increased taxes by $400, and the GDP decreased $600 as a result, the MPC must be:

answer

A. 0.60.

question

If the MPC is 0.8, and the government cuts taxes by $100b, the overall effect on GDP will be:

answer

A. $400b.

question

If the MPC is 0.6, and the government cuts taxes by $50b, the overall effect on GDP will be:

answer

D. an increase of $75b.

question

If the MPC is 0.75, and the government cuts taxes by $100b, the overall effect on GDP will be:

answer

B. an increase of $300b.

question

If the MPC is 0.6, and the government increases taxes by $300b, the overall effect on GDP will be:

answer

C. a decrease of $450b.

question

If the MPC is 0.5, and the government cuts taxes by $400b, the overall effect on GDP will be:

answer

B. an increase of $400b.

question

If the government wishes to increase GDP by $900b, and the MPC is 0.6, it should decrease taxes by:

answer

A. $600b.

question

If the government wishes to increase GDP by $1,200b, and the MPC is 0.8, it should:

answer

D. decrease taxes by $300b.

question

If the government wishes to increase GDP by $1,200b, and the MPC is 0.75, it should:

answer

D. decrease taxes by $400b.

question

If the government wishes to decrease GDP by $2,100b, and the MPC is 0.6, it should:

answer

A. increase taxes by $1,400b.

question

The government budget involves:

answer

D. All of these are true.

question

Transfer payments:

answer

D. All of these are true.

question

Payments from government accounts to individuals for programs that do not involve a purchase of goods or services are called:

answer

B. transfer payments.

question

A budget deficit is:

answer

A. the amount of money a government spends beyond the net revenue it brings in.

question

A budget surplus is:

answer

B. the amount of net revenue a government brings in beyond what it spends.

question

The total amount of money that a government owes is called:

answer

C. national debt.

question

Economists usually suggest that the best way to examine the deficit is by expressing it:

answer

A. as a percentage of GDP.

question

During a recession, government deficits can grow because:

answer

D. All of these are true.

question

A major distinction to be made is that deficits count government spending shortfalls ___________, and public debt counts _______________.

answer

A. in a year; the total amount owed from all years

question

Which country in the world has a debt larger than 100 percent of its GDP in 2010?

answer

B. Italy

question

Which country in the world has a debt larger than 100 percent of its GDP in 2010?

answer

D. All of these countries owe more than 100 percent of their GDP.

question

As of 2010, which country in the world is the only one to be debt-free?

answer

A. Brunei

question

Giving the government freedom to deficit spend when necessary is:

answer

A. seen as an economic benefit to public debt.

question

A direct cost of public debt is:

answer

A. the interest the government has to pay to the people it has borrowed from.

question

The direct cost of debt depends on:

answer

A. the interest rate.

question

If interest rates increase, the government debt becomes:

answer

A. more expensive to pay.

question

An indirect cost of government debt is:

answer

A. it can distort the credit market and slow economic growth.

Eco ch 12 – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards