How does the government finance budget

How does the government finance budget

Question

1.

How does the government finance budget deficits?

The Federal Reserve creates new money

It issues debt to government agencies, private institutions, and private investors

It is primarily financed by foreign investors

It does nothing to finance budget deficits

2.

According to the crowding-out effect, if the federal, if the federal government borrows to finance deficit spending,

the demand for money will decrease, driving interest rates down

the demand for money will increase, driving interest rates up

the supply of money will increase, driving interest rate up

the supply of money will decrease, driving interest rates down

3.

If the government wanted to offset the effect of a boom in consumer and investor confidence on AD, it might

decrease government purchases

decrease taxes

increase taxes

do either (a) or (c)

4.

If government policy makers were worried about the inflationary potential of the economy, which of the following would be a correct fiscal policy change?

increase taxes

reduce transfer payments

reduce government purchases

all the above

5.

Traditionally, government has used—————to influence———————

Taxing and spending; the demand side of the economy

Spending; the supply side of the economy

Supply management; the demand side of the economy

demand management; the supply side of the economy

6.

AD will shift to the right, other things being equal, when

the government budget deficit increases because government purchases rose

the government budget deficit increases because taxes fell

the government budget deficit increases because transfer payment rose

any of the above circumstances exists

7.

When the crowing-out effect of an increase in government purchases is included in the analysis,

AD shifts left

AD doesn’t change

AD shifts right, but by more than the simple multiplier analysis would imply

AD shifts right, but by less than the simple multiplier analysis would imply

8.

The expenditure multiplier is

1/MPC

1/(1-MPC)

(1-MPC)/1

1/ change MPC

9.

If the marginal propensity to consume is two-thirds, the multiplier is

30

66

1.5

3

10.

When taxes are increased, disposable income_________, and hence consumption_________________

increases; increases

increases; decreases

decreases; increases

decreases; decreases

11.

Question 11

The multiplier effect is based on the fact that ————– by one person is (are)————————-to another

income; income

expenditures; expenditures

expenditures; incomes

income; expenditures

12.

The federal government buys $20 million worth of computers from Dell. If the MPC is 0.60, what will be the impact on aggregate demand, other things being equal?

Aggregate demand will increase $12 million.

Aggregate demand will increase $13.33

Aggregate demand will increase $50 million

Aggregate demand will increase $20 million

13.

If the government wanted to move the economy out of a current recession, which of the following might be an appropriate policy action?

Decrease taxes

Increase government purchases of goods and services

increase transfer payments

any of the above

14.

If the economy was in a recessionary gap, in order to return to RGDP (NR), the government could

decrease taxes and increase government purchases

increase taxes and increase government purchases

decrease taxes and decrease government purchases

decrease taxes and increase government purchases

15.

Contractionary Fiscal policy consists of

Increased government spending and increased taxes

decreased government spending and decreased taxes

decreased government spending and increased taxes

Increased government spending and decreased taxes

16.

Contractionary Fiscal policy consists of

Increased government spending and increased taxes

decreased government spending and decreased taxes

decreased government spending and increased taxes

Increased government spending and decreased taxes

17.

An increase in taxes combined with a decrease in government purchases would

increase AD

decrease AD

leave AD unchanged

have an indeterminate effect on AD