Assume autonomous net taxes fall by $300; the MPC 2

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Assume autonomous net taxes fall by $300; the MPC=2/3. Net exports, planned investment, taxes, and government purchases are atunomous and remain fixed. As a result, consumption will initially

a. remain unchanged

b. rise by $300

c. Fall by $300

d. rise by $200

e. fall by $200

Fiscal policy focuses on manipulating

a. Aggregate demand to smooth out business fluctuations

c. Both aggregate supply and aggregate demand to smooth out business fluctuations

d. Aggregate demand to stimulate the economy and aggregate supply to contract it

e. Short-run aggregate supply to stimulate the economy and aggregate demand to contract it

Assume autonomous net taxes rise by $ 500; the marginal propensity to consume=3/4. Net exports, planned investment, taxes, and government purchases are autonomous and remain fixed. Disposable income will initially

b. Fall by $500

c. Fall by $375

d. Fall by $2000

e. Rise by $500

In which of the following ways does government affect the consumption component of planned aggregate expenditures?

a. Through net taxes, which change disposable income

b. By purchasing goods and services, which increase consumption

c. By using subsidies to encourage firms to invest

d. By using net taxes to encourage firms to invest

e. By producing public goods

If autonomous net taxes increase by $200 billion and the MPC equals .75, equilibrium income will

a. Decrease by $200 billion

b. Decrease by $150 billion

c. Decrease by $600 billion

d. Decrease by $267 billion

e. Decrease, but it is impossible to calculate the exact amount of the change

Discretionary fiscal policy works by shifting the aggregate demand curve

a. True b. False

A decrease in government purchases can close an expansionary gap by shifting the aggregate demand curve.

a. True b. False

Discretionary fiscal policy works by shifting the short-run aggregate supply curve.

a. True b. False

If government equilibrium purchases and autonomous net taxes increase by the same amount, the equilibrium level of real GDP will be unchanged

a. True b. False

Suppose the government reduces its budget deficit at the same time that energy prices rise sharply. Which of the following will happen?

a. The price level will rise, since higher energy prices increase the cost of production.

b. Real GDP will fall, since both events will tend to cause an economy contraction.

c. The price level will fall, because the aggregate demand curve has shifted leftward

d. Real GDP will rise; with less government spending, there are more opportunities for the private sector.

e. Both the price level and real GDP will fall

If the marginal propensity to consume is .8 and the proportional income tax is .25, by how much would the equilibrium level of real GDP demanded increase if government purchases rose by $50 billion?

a. $50 billion

b. $100 billion

c. $500 billion

d. $125 billion

e. $275 billion

When we relax the assumption that net exports do not change with income, the aggregate expenditure function

a. Becomes steeper because net exports decrease as real domestic income increases

b. Becomes steeper because net exports increase as real domestic income increases

c. Becomes flatter because net exports decrease as real domestic income increases

d. Becomes flatter because net exports increase as real domestic income increases

e. Remains unchanged because it is not affected by changes in net exports

If the government wants to increase equilibrium income $150 billion but does not want to change the size of the deficit, it should

a. Increase G and decrease T by $150 billion

b. Increase G and T by $150 billion

c. Decrease G and T by $150 billion

d. Decrease C and increase T by $150 billion

e. We cannot answer this question without knowing the MPC

If the MPC equals .75 and the proportional income tax rate is .2, the spending multiplier equals

a. 3

c. 16/13

d. 1

e. 4

With proportional income tax,

a. Each individual pays whatever he/she is able to pay

b. Each individual pays the same amount of money to the government

c. Each individual pays the same percent of income in the form of taxes

d. The spending multiplier is unaffected by the tax rate

e. The spending multiplier increases as the tax rate increases

A $100 increase in autonomous government purchases has the same effect on the equilibrium level of real GDP as $100 increase in autonomous investment spending would.

a. True b. False

With proportional income tax,

a. The tax multiplier equals (MPC)(1-MPC)

b. The tax multiplier equals –MPC/(1-MPC)

c. The spending multiplier equals (MPC)/(1-MPC)

d. The spending multiplier equals 1/[1-MPC(1-t)]

e. The spending multiplier equals 1/[1-(MPC)t]

If the MPC=.8 and both government purchases and autonomous net taxes fall by $100 billion, by how much does the equilibrium level of real GDP demanded change (assuming neither income taxes nor net exports exist)?

a. -$100 billion

c. -$500 billion

d. +$500 billion

e. +$200 billion

In which of the following situations will the combination of the marginal propensity to consume and the proportional income tax rate (t) result in the larges multiplier?

a. Both the MPC and t are large

b. Both the MPC and t are small

c. The MPC is large; t is small

d. The MPC is small; t is large

e. The MPC equals t

Suppose that government purchases increase by $200 and at the same time autonomous net taxes are increased by $200. If there are neither income taxes nor net exports, the change in equilibrium real GDP demanded will

a. Depend on the value of the MPC

b. Be a $200 decrease

c. Be a $200 increase

Approximately what percentage of the U.S. federal budget was used for interest payments (on the national debt) in 2004?

a. 7 percent

The Council of Economic Advisors was created by

a. The same legislation which created the Federal Reserve Board

b. President John F. Kennedy

c. The Employment Act of 1946

d. The Office of Management and Budget

e. Congress in 1921

A deficit resulting from the use of discretionary fiscal policy

a. Increases interest rate

b. Decreases interest rates

c. Increases interest rates if the effect of the decrease in the demand for money is greater than the effect of the increase in the supply of government securities

d. Increases interest rates if the effect of the decrease in the demand for money is less than the effect of the increase in the supply of government securities

e. Increases interest rates if the effect of the increase in the demand for money is greater than the effect of the decrease in the supply of government securities

Some economists have theorized that increases in the deficit have little or no expansionary effect because families reduce their spending by an equivalent amount in order to protect the economic security of their offspring

a. True b. False

Crowding occurs because lower interest rates discourage saving and make it harder to borrow

a. True b. false

What were the chief links between the U.S. federal budget deficit and the U.S. trade deficit during the 1980s?

a. High U.S. interest rates led to a rise in the relative value of the dollar

b. High U.S. interest rates led to a decrease in the relative value of the dollar

c. U.S. interest rates fell relative to foreign rates and thus the dollar appreciated

d. The U.S. price level declined relative to that of foreign countries, causing U.S. interest rates to fall

e. The recessions of 1980 and 1981-1982 were the key links; recession widened the budget deficit and this caused the U.S. price level to fall, enabling foreigners to invest in U.S. assets

A continuing resolution provides authorization for continuing agency operation even after its budge has expired.

a. True b. false

The federal government spends more for a national defense than for anything else

a. True b. false

One explanation for persistent federal budget deficits is that officials are not required to

a. Honor the constitution

b. Balance the budget

c. Raise taxes

d. Run for reelection

e. None of the answers are correct

If the government increased defense spending by $1 million and laid off enough justice department employees to decrease the department of justice budget by $1 million, we should expect the net effect to be

a. An increase in the budget deficit and in transfer payments

b. An increase in the budget deficit and in net taxes

c. An increase in the budget deficit and in government spending

d. No change in the budget deficit because there is no net change in government spending

e. No change in the budget deficit because neither defense spending nor the department of justice is included in government spending

If you returned a $5 Federal Reserve note to Fed, you could receive

a. $5 in silver

b. $5 in gold

c. 5 one-dollar bills

d. 10 one-dollar bills

e. A small gold bar

If the reserve requirement is constant, it is impossible for a bank’s excess reserves to fall if its total reserves have not fallen

a. True b. False

If the required reserve ratio is 20 percent and a bank has $100,000 in checkable deposits, then its

a. Required reserves are $500,000

b. Required reserves are $20000

c. Assets are $500000

d. Liabilities are $500,000

e. Liabilities plus its net worth are $500,000

M1, the money supply narrowly defined, consists of coins, paper currency, checkable deposits, travelers checks, and certificates of deposits (CDs)

a. True b. False

In financial markets, asymmetric information exists when

a. One party to a transaction has more knowledge of the relevant details than the other does

b. Both parties to a transaction has less knowledge of relevant details than the Fed does

c. Lenders know more about the borrowers than the borrowers know about themselves

d. All parties to a transaction have exactly the same information

e. All the information which the parties have is inaccurate

Suppose the required reserve ratio is .1 and Linda deposits $4,000 in cash at the College State Bank. If the bank held no excess reserves before Linda’s deposit and now increases its reserves by $500, which of the following is true?

a. The bank must have lent out an additional $4000

b. The $500 are required reserves

c. The bank has excess reserves of $100

d. Both the bank’s assets and its liabilities rise by $500

e. The bank has $500 in excess reserves

Most of the assets of the Fed are held in the form of

a. Gold

b. U.S. government securities

c. Loans to member banks

Banks are permitted to lend all of their excess reserves

a. True b. False

Which of the following would most likely lower the velocity of money?