Econ Ch.16 Book Questions

Which of the following formulas represents the expression for equilibrium real​ GDP?

Which of the following is the formula for the government purchases​ multiplier?

Which of the following is the formula for the tax​ multiplier?

Expansionary fiscal policy can return real GDP to potential​ GDP, but only at the expense of ___ in the inflation rate.

An increase

The balanced budget multiplier is always equal to 1.

True

Decreasing the tax rate decreases the value of the government purchases multiplier.

False

Countries with a higher marginal propensity to import (MPI​) will have smaller multipliers than countries with a lower marginal propensity to import.

True

Slow growth in aggregate demand leads to

higher unemployment and lower inflation.

Which of the following are categories of federal government​ expenditures?

interest on the national debt

grants to state and local governments

transfer payments

The largest and​ fastest-growing category of federal expenditures is

transfer payments

The federal​ government's day-to-day activities include running federal agencies like the Environmental Protection​ Agency, the​ FBI, the National Park​ Service, and the Immigration and Customs Enforcement.

Spending on these types of activities make up

less than 10 percent of federal government expenditures.

The goal of expansionary fiscal policy is

to increase aggregate demand.

Over​ time, potential GDP​ ________, which is shown by the​ ________ curve shifting to the right.

​increases; long-run aggregate supply

The higher the tax​ rate, the larger the multiplier effect.

False

The actual change in real GDP resulting from an increase in government purchases or a cut in taxes will be less than the simple multiplier effect indicates.

Final

Crowding out refers to

the decline in private expenditures that result from an increase in government purchases.

What is the​ long-run effect of a permanent increase in government​ spending?

The decline in​ investment, consumption, and net exports exactly offsets the increase in government​ spending; therefore, real GDP remains unchanged.

About​ ________ of the American Recovery and Reinvestment Act stimulus package took the form of increases in government​ expenditures, and about​ ________ took the form of tax cuts.

​two-thirds; one-third

Between the beginning of 2009 and the end of​ 2010, real GDP​ ________, while employment​ ________.

increased by 4.0​ percent; declined by 3.3 million

Budget deficits automatically​ __________ during recessions and​ __________ during expansions.

​increase; decrease

The cyclically adjusted budget deficit

is measured as if the economy were at potential real GDP.

Few economists believe the federal government should attempt to balance its budget every year.

True

The national debt is best measured as

the total value of U.S. Treasury securities outstanding.

Which of the following statements about the federal debt is​ correct?

If the debt becomes very large relative to the​ economy, then the government may have to raise taxes to high levels or reduce other types of spending to make the interest payments on the debt.

The​ long-run growth rate of real GDP depends primarily on

the growth rate of labor productivity as measured by the growth in real GDP per hour worked, and the growth in the number of hours worked.

A simplified tax code would reduce economic efficiency by increasing the number of decisions households and firms make solely to reduce their tax payments.

False

The effect on the economy of tax reduction and simplification is

an increase in the quantity of real GDP supplied at every price​ level, and a shift in the​ long-run aggregate supply curve.

If a tax cut has​ supply-side effects, then

it will affect both aggregate demand and aggregate supply.