ECON 214 quiz 9 solutions complete answers

ECON 214 quiz 9 solutions complete answers 

 

Fiscal policy is:

           

Monetary policy is:

           

The use of the money supply to influence the economy is:

           

The use of government spending and taxes to influence the economy is:

           

 When the economy falters, people often look to the government to help push the economy forward again. In fact, the government uses many different tools to try to affect the economy. Economists classify these tools on the basis of two different types of policy:

 

Monetary policy is conducted by the Federal Reserve. Fiscal policy is:

           

When the government increases spending or decreases taxes to stimulate the economy toward expansion, the government is conducting:

           

 Fiscal policy includes:

           

An example of expansionary fiscal policy is:

           

Expansionary fiscal policy occurs when:

           

Which of the following would be the theoretical outcome of expansionary fiscal policy in the following aggregate demand–aggregate supply model?

           

If the economy begins to fall into a recession, one would expect Congress and the president to conduct:

           

Congress and the president would conduct expansionary fiscal policy in order to:

           

The goal of expansionary fiscal policy is to shift the _________ curve to the _________.

           

During which of the following situations would you advise for expansionary fiscal policy?

 

 When aggregate demand is low enough to drive unemployment above the natural rate:

           

Why would a government want to use expansionary fiscal policy to help stimulate aggregate demand if, in the long run, we would expect prices to adjust and the economy to return to its long-run equilibrium on its own?

           

As part of the Economic Stimulus Act of 2008, the typical family of four received:

           

The first of two significant fiscal policy initiatives enacted by the government during the Great Recession, signed in February 2008 by President George W. Bush, was the:

           

 The second of two significant fiscal policy initiatives enacted by the government during the Great Recession, signed in February 2009 by President Barack Obama, was the:

           

The Economic Stimulus Act of 2008 focused on _________, whereas the American Recovery and Reinvestment Act of 2009 focused on _________.

           

 The Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009 are both examples of:

           

Assume that the government is currently balancing the national budget so that outlays equal tax revenue. Then the economy slips into recession, and the government decides to increase government spending by $50 billion. The government must pay for this by borrowing; it must sell $50 billion worth of Treasury bonds. As a result:

           

Assume that the government is currently balancing the national budget so that outlays equal tax revenue. Then the economy starts into an expansion, and the government decides to decrease government spending by $50 billion. As a result:

           

Expansionary fiscal policy leads to:

           

During recessionary periods:

 

 During economic expansions:

           

Contractionary fiscal policy occurs when:

 

When the government decreases spending or increases taxes to slow economic expansion, the government is conducting:

           

Which of the following would be the theoretical outcome of contractionary fiscal policy in the following aggregate demand–aggregate supply model, where LRAS is long-run aggregate supply and SRAS is short-run aggregate supply?

 

If the economy starting at full-employment output begins to enter into an expansion, one would expect Congress and the president to conduct:

           

Congress and the president would conduct contractionary fiscal policy in order to:

           

The goal of contractionary fiscal policy is to shift the __________ curve to the __________.

           

 An increase in taxes or a decrease in spending during an economic expansion can:

           

A government might want to reduce aggregate demand if it believes that:

           

If the unemployment rate falls below the natural rate of unemployment (u*):

           

When aggregate demand is high enough to drive unemployment below the natural rate:

 

 All else being equal, people generally prefer __________ in their financial affairs.

           

Countercyclical fiscal policy:

           

Fiscal policy that seeks to counteract business-cycle fluctuations is:

           

Countercyclical fiscal policy consists of:

           

 Countercyclical fiscal policy attempts to:

           

Marginal propensity to consume is:

           

The portion of additional income that is spent on consumption is:

           

An initial increase in government spending of $100 billion can create more than $100 billion through what economists call:

           

The spending multiplier is:

           

To determine the total impact on spending from an initial change of a given amount, you could use:

           

Where MPC is the marginal propensity to consume, the formula for the spending multiplier is:

           

If your marginal propensity to consume is 0.75 and you get an additional $400 in income, you would spend ___________ on consumption.

           

If your income increases by $1,500 and you only consume $900 of it, your marginal propensity to consume would be equal to:

 

 If the marginal propensity to consume is equal to 0.75, the spending multiplier is equal to:

           

If the spending multiplier is 5, what is the marginal propensity to consume in the economy?

           

If an initial increase in government spending of $100 billion leads to a total increase of $400 billion in income, the marginal propensity to consume in the economy is:

           

According to the figure, and assuming the marginal propensity to consume is 0.75, to shift aggregate demand enough to be back at long-run equilibrium, the government would have to increase government spending by:

           

According to the figure, if the government increases spending by only $4 billion in an effort to shift aggregate demand enough to return to long-run equilibrium, the marginal propensity to consume must be equal to:

           

An example of the multiplier effect is when:

           

Three issues that arise in the application of activist fiscal policy are:

           

Time lags, crowding-out, and savings shifts are all:

           

Recognition lag, implementation lag, and impact lag are all examples of:

           

The three time lags that accompany policy decisions are:

           

An implementation lag happens because:

           

An impact lag happens because:

           

It is difficult to determine when the economy is turning up or down. This is because there is ___________ that delays the effects of changes in fiscal policy.

           

In most nations, one or more governing bodies must approve government spending or new tax policies. This causes ___________ between setting fiscal policy and seeing its effects.

           

It takes time for the complete effects of monetary and fiscal policy to materialize. This is because there is ___________ between setting fiscal policy and seeing its effects.

           

A recognition lag happens because:

           

If the effects of expansionary fiscal policy hit when the economy is already expanding:

           

If the effects of contractionary fiscal policy hit when the economy is already contracting:

           

 If lags cause the effects of fiscal policy to be delayed for a long period of time:

           

 Automatic stabilizers:

           

Government programs that automatically implement countercyclical fiscal policy in response to economic conditions are called:

           

 ___________ is an example of an automatic stabilizer.

           

___________ can eliminate recognition lags and implementation lags and thereby alleviate some concerns of destabilizing fiscal policy.

           

Progressive tax rates, taxes on corporate profits, unemployment compensation, and welfare programs are all examples of:

           

Automatic stabilizers try to solve the problem of:

           

Complete crowding-out is when:

           

Crowding-out occurs when:

           

The “crowding-out” critique is based on the idea that:

           

When the government borrows, the ___________ loanable funds shifts to the right, causing the interest rate to ___________, which causes private investment to ___________.

           

Which of the following figures illustrates what happens when the government enters the loanable funds market in order to borrow?

           

According to the figure, the amount of private savings after government borrowing is:

           

According to the figure, the amount of private investment after government borrowing is:

           

According to the figure, private investment ___________ by ___________ billion, illustrating crowding-out.

           

Which of the following is an example of crowding-out?

           

If the government starts a new program where it buys every family that lives in Florida a new air conditioner, one may argue this could lead to:

           

The assertion that increases in government spending and decreases in taxes are largely offset by increases in savings is called:

           

The new classical critique of fiscal policy asserts that:

           

If current savings increases the same amount as the federal stimulus:

           

 Depending on how fiscal policy is implemented, it can affect:

           

Typical fiscal policy focuses squarely on:

           

A technological advancement allows for:

           

Supply-side fiscal policy explains how taxes and government spending can affect:

           

Supply-side fiscal policy involves the use of:

           

Which of the following diagrams shows what supply-side fiscal policy initiatives try to do to the long-run aggregate supply curve?

           

Supply-side fiscal policy will lead to:

           

Long-run aggregate supply shifts are caused by:

           

Which of the following fiscal policy initiatives focuses on the supply side of the economy?

           

 Lowering marginal income tax rates for individuals:

           

 Research and development (R&D) tax credits:

           

Policies that focus on education:

           

Supply-side fiscal policy:

           

Lower corporate profit tax rates:

           

Supply-side fiscal policy initiatives take a long time to shift the aggregate supply curve to the right. As a result:

           

 The relationship between tax rates and tax revenue:

           

Politicians who always advocate for tax rate cuts, no matter how large the budget deficit is, claim that:

           

In 1962, the marginal tax rates were as high as:

           

One argument for tax cuts when the government is running a budget deficit is:

           

 At ___________ tax rates, ___________ in those tax rates lead to ___________ in total tax revenue.

           

Income tax revenue is calculated by:

           

 An illustration of the relationship between tax rates and tax revenues is called:

           

The Laffer curve is:

           

Which of the following diagrams represents a Laffer curve?

           

The x axis for the Laffer curve represents:

           

The y axis for the Laffer curve represents:

           

Considering all U.S. taxpayers, average tax revenue (adjusted for both inflation and the number of returns) went from $6,954 to $6,202 between 1980 and 1991. Many analysts point to these figures and claim them as proof that:

           

The Laffer curve shows that:

           

Generally, _____________ public figures tend to stress Region II of the Laffer curve, where tax rate reductions lead to _____________ tax revenue. _____________ emphasize Region I, where rate increases lead to _____________ tax revenue. Both regions are important for economic policy.

           

A marginal tax rate of 91% means that:

           

According to the figure, which point(s) would see tax revenues increase if the tax rate increased?

           

According to the figure, which point(s) would see tax revenues decrease if the tax rate decreased?