Exam 9: The Government and Fiscal Policy

Refer to the information provided in Figure 9.5 below to answer the questions that follow. Figure 9.5 -Refer to Figure 9.5.At aggregate output of $2,400 billion,unplanned inventories equal $________ billion.

Assume that the MPC is 0.75.If government spending increases by $400,equilibrium output ________;and if taxes increase by $400,equilibrium output ________.

If the MPS is 0.5,the tax multiplier is

The economy of Bananaland can be characterized by Equation 9.3. EQUATION 9.3: C = 2,000 + 0.75Yd T = 200 G = 400 I = 500 -Refer to Equation 9.3.The equilibrium level of income in Bananaland is

A government's debt is reduced when it

Refer to the information provided in Figure 9.3 below to answer the questions that follow. Figure 9.3 -Refer to Figure 9.3.If autonomous planned expenditure increases by $20 billion,equilibrium aggregate output ________ to $________ billion.

Refer to the information provided in Figure 9.4 below to answer the questions that follow. Figure 9.4 -Refer to Figure 9.4.Along AE1,injections equal leakages when aggregate output equals $________ billion.

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

When the tax rate increases,the absolute value of the tax multiplier falls.

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?

The balanced-budget multiplier

If government spending is increased by $300,taxes are reduced by $300,and the MPS is 0.5,equilibrium output will change by

Taxes are reduced by $70 billion and income increases by $280 billion.The value of the tax multiplier is

If the MPC is 0.9,the tax multiplier is

Refer to the information provided in Table 9.2 below to answer the questions that follow. Table 9.2 -Refer to Table 9.2.At an output level of $2,500,the level of aggregate expenditure is ________ billion.

Refer to the information provided in Table 9.2 below to answer the questions that follow. Table 9.2 -Refer to Table 9.2.At an output level of $1,500,disposable income

In an expansion the U.S.federal government deficit automatically grows.

If the government increases taxes by $4 billion and increases spending by $4 billion,equilibrium output increases by $4 billion.

Refer to the information provided in Figure 9.3 below to answer the questions that follow. Figure 9.3 -Refer to Figure 9.3.The expenditure multiplier is

The economy of Bananaland can be characterized by Equation 9.3. EQUATION 9.3: C = 2,000 + 0.75Yd T = 200 G = 400 I = 500 -Refer to Equation 9.3.If government spending in Bananaland increases by $50,equilibrium output increases by