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Exam 9: The Government and Fiscal Policy

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Question 161

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Refer to the information provided in Figure 9.5 below to answer the questions that follow. Figure 9.5 -Refer to Figure 9.5. If the economy is in equilibrium and the government increases spending by $100 billion and increases taxes by $100 billion, equilibrium aggregate output

A) does not change.
B) increases by $100 billion.
C) increases by less than $100 billion.
D) increases by more than $100 billion.

E) None of the above
F) B) and D)

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Question 162

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Refer to the information provided in Table 9.6 below to answer the questions that follow. Table 9.6 All Figures in Billions of Dollars -Refer to Table 9.6. If taxes are reduced from $100 billion to $50 billion, the new equilibrium level of output is

A) $1,600 billion.
B) $2,100 billion.
C) $3,850 billion.
D) $4,050 billion.

E) B) and C)
F) All of the above

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Question 163

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The Canadian economy can be characterized by Equation 9.2. EQUATION 9.2: C = 500 + 0.5Yd Taxes = 600 Equilibrium Output = $4,000 -Refer to Equation 9.2. At equilibrium, saving in Canada equals

Federal transfer payments and grants-in-aid as a percentage of GDP primarily declined during the

If the economy's full-employment output is $9 trillion, actual output is $9 trillion, and the budget deficit is $20 billion, the deficit in this case is known as a

If taxes depend on income, then the magnitude of the government spending multiplier ________ it would be if taxes were a lump-sum amount.

Automatic stabilizers include those elements of government spending that automatically grow during a recession.

If autonomous spending increases, the aggregate expenditure function becomes steeper.

You are hired by the Council of Economic Advisors (CEA) as an economic consultant. The chairperson of the CEA tells you that she believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. She wants to know what policy to pursue to increase aggregate output by $300 billion. The best estimate she has for the MPC is 0.8. Which of the following policies should you recommend?

If the government spending multiplier is 2 and government purchases increase by $200 billion, output will increase by

Refer to the information provided in Table 9.6 below to answer the questions that follow. Table 9.6 All Figures in Billions of Dollars -Refer to Table 9.6. The economy is at the equilibrium level of output. If government spending decreases by $100 billion, the new equilibrium level of output is

If the MPS is 0.25 and t is 0.4, then the tax multiplier is about -2.96.

Assume that the MPC is 0.8. If government spending increases by $200, equilibrium output ________; and if taxes increase by $200, equilibrium output ________.

Bill's income is $1,000 and his net taxes are $350. His disposable income is

If the tax multiplier is -5.25, then the government purchases multiplier

Disposable income is income less net taxes.

The amount the government owes to the public is the deficit.

If government purchases are increased by $30, taxes are reduced by $30, and the MPC is 0.75, equilibrium output will change by

[Y = C + I + G] when ________ in the income-expenditure model.

Automatic stabilizers work during both economic recessions and economic expansions.