ECON 1102 Chapter Notes - Chapter 13: Income Distribution, National Debt Of The United States, Money Supply

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4 Apr 2016

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Since 1945, scal policy has been once of the government"s main stabilization policy tools. Active if changes in government spending or taxes are at the option of the government. Combined government spending increases and tax reductions. Combined government spending decreases and tax increases. To expand the size of government (if recession, the increase government spending) (if in ation, then increase taxes) To reduce the size of government (if recession, then decrease taxes) (if in ation, then decrease government spending) Net tax revenues vary with gdp: taxes rise when gdp rises, and vice versa, transfer payments fall when gdp rises, and vice versa. Leads to automatic stabilization over the business cycle. Increases the de cit (reduces surplus) during the recession or increases the surplus (reduces de cit) during the in ation. The stabilizers will automatically restrain economic expansion and cushion economic contraction. Taxes reduce spending and aggregate demand (ad)

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1. Discretionary fiscal policy refers to:

A. Any change in government spending or taxes that destabilizes the economy.

B. The authority that the President has to change personal income tax rates.

C. Intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

D. The changes in taxes and transfers that occur as GDP changes.

2. Countercyclical discretionary fiscal policy calls for:

A. Surpluses during recessions and deficits during periods of demand-pull inflation.

B. Deficits during recessions and surpluses during periods of demand-pull inflation.

C. Surpluses during both recessions and periods of demand-pull inflation.

D. Deficits during both recessions and periods of demand-pull inflation.

3. Contractionary fiscal policy is so named because of it:

A. Involves a contraction of the nation's money supply.

B. Necessarily reduces the size of government.

C. Is aimed at reducing aggregate demand and thus achieving price stability.

D. Is expressly designed to expand real GDP.

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5. Fiscal policy is enacted through changes in

A. interest rates and the price level.

B. the supply of money and foreign exchange.

C. unemployment and inflation

D. taxation and government spending.

6. In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could

A. increase taxes by $16 billion.

B. increase taxes by $24 billion.

C. decrease government spending by $10 billion.

D. decrease government spending by $16 billion.

7. If there is a constitutional requirement to maintain a balanced budget, then during a recession when tax revenues are shrinking, the government will have to implement

A. contractionary fiscal policy.

B. no change in fiscal policy.

C. expansionary fiscal policy.

D. countercyclical fiscal policy.

8. Most economists believe that fiscal policy is:

A. better than the monetary policy for "fine-tuning" the economy.

B. better than the monetary policy for month-to-month stabilization.

C. not as good as the monetary policy for month-to-month stabilization.

D. not very good at pushing the economy in a particular direction.

9. An increase in the legal reserve ratio

A. increases the money supply by increasing excess reserves

B. decreases the money supply by decreasing excess reserves

C. increases the money supply by decreasing excess reserves

D. decreases the money supply by increasing excess reserves

10. The discount rate is the rate of interest at which

A. Federal Reserve Banks lend to commercial banks

B. savings and loan associations lend to some builders

C. Federal Reserve Banks lend to large corporations.

D. commercial banks lend to large corporations

11. Which of the following actions by the Fed most likely increase commercial bank lending?

A. raising the reserve ratio

B. increasing the federal funds rate target

C. reducing the interest paid on excess reserves held at the Fed

D. selling bonds to commercial banks and the public

12. Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ______, which will ______ investment spending.

A. decrease; decrease

B. decrease; increase

C. increase; increase

D. increase; decrease

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Fiscal policy is carried out primarily by

A) the Federal government.

B) state and local governments working together.

C) state governments alone.

D) local governments alone.

Fiscal policy refers to the:

A) manipulation of government spending and taxes to stabilize domestic output, employment, and the price level.

B) manipulation of government spending and taxes to achieve greater equality in the distribution of income.

C) altering the interest rate to change aggregate demand.

D) fact that equal increases in government spending and taxation will be contractionary.

Expansionary fiscal policy is so named because it:

A) involves an expansion of the nation's money supply.

B) necessarily expands the size of government.

C) is aimed at achieving greater price stability.

D) is designed to expand real GDP.

An appropriate fiscal policy for severe demand-pull inflation is:

A) an increase in government spending.

B) depreciation of the dollar.

C) a reduction in interest rates.

D) a tax rate increase.

29. The amount by which government expenditures exceed revenues during a particular year is the:

A) public debt.

B) budget deficit.

C) full-employment.

D) GDP gap.

30. If actual GDP is greater than potential GDP, we have

A) a negative GDP gap

B) a positive GDP gap

C) minimum GDP gap

D) maximum GDP gap

31. Money functions as:

A) a store of value.

B) a unit of account.

C) a medium of exchange

D) all of the choices

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ECON 1102 Chapter Notes - Chapter 13: Income Distribution, National Debt Of The United States, Money Supply

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