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dynamic macroeconomics
Macroeconomics For Today 6th Edition Irvin B. Tucker - Solutions
Which of the following countries had the smallest national debt as a percentage of GDP in 2007?a. Italyb. Canadac. Australiad. Japane. France
The national debt in 2007a. was about four times larger than in 1980.b. was twice as large in 1980.c. was approximately the same size in 1980.d. was none of the above.
In 2007, the national debt was approximatelya. $90 billion.b. $900 billion.c. $9 trillion.d. $8 trillion.
The federal government finances a budget bya. taxing businesses and households.b. selling Treasury securities.c. printing more money.d. reducing its purchases of goods and services.
During the late 1990s, federal government budget deficitsa. were completely removed.b. dropped significantly from a high of $300 billion.c. remained fairly stable at about $150 billion per year.d. exceeded $200 billion in each year.
Consider this statement: “Our grandchildren may not suffer the entire burden of a federal deficit.”Do you agree or disagree? Explain.
During the presidential campaign of 1932 in the depth of the Great Depression, candidates Herbert Hoover and Franklin D. Roosevelt both advocated reducing the budget deficit, using tax hikes and/or expenditure reductions. Evaluate this fiscal policy.
Suppose the media report that the federal deficit this year is $200 billion. The national debt was$5,000 billion last year, and it is $5,200 billion this year. The price level this year is 3 percent higher than it was last year. What is the real deficit?
Suppose the federal government has no national debt and spends $100 billion, while raising only$50 billion in taxes.a. What amount of government bonds will the U.S. Treasury issue to finance the deficit?b. Next year, assume tax revenues remain at$50 billion. If the government pays a 10 percent rate
Explain the theory that crowding out can weaken or nullify the effect of expansionary fiscal policy financed by federal government borrowing.
Suppose the percentage of the federal debt owned by foreigners increases sharply. Would this trend concern you? Why or why not?
Explain this statement: “The most unlikely problem of the national debt is that the government will go bankrupt.”
Explain this statement: “The national debt is like taking money out of your left pocket and putting it into your right pocket.”
Discuss various ways of measuring the size of the national debt.
Explain the relationship between budget deficits and the national debt.
According to the shortsightedness effect, politicians tend to favor projects witha. short-run benefits and short-run costs.b. short-run benefits and long-run costs.c. long-run benefits and short-run costs.d. long-run benefits and long-run costs.
Which of the following statements relating to public choice is true?a. A low voter turnout may result when voters perceive that the marginal cost of voting exceeds its marginal benefit.b. If the marginal cost of voting exceeds its marginal benefit, the vote is unimportant.c. Special-interest groups
Margaret pays a local income tax of 2 percent, regardless of the size of her income. This tax isa. proportional.b. regressive.c. progressive.d. a mix of (a) and (b).
A 5 percent sales tax on food is an example of aa. flat tax.b. progressive tax.c. proportional tax.d. regressive tax.
The federal personal income tax is an example of a (an)a. excise tax.b. proportional tax.c. progressive tax.d. regressive tax.
Generally, most economists feel that a type of income tax is a fairer way to raise government revenue than a sales tax.a. regressiveb. proportionalc. flat-rated. progressive
A tax that is structured so that people with higher incomes pay a larger percentage of their incomes for the tax than do people with smaller incomes is called a (an)a. income tax.b. regressive tax.c. property tax.d. progressive tax.
Which of the following statements is true?a. A sales tax on food is a regressive tax.b. The largest source of federal government tax revenue is individual income taxes.c. The largest source of state and local government tax revenue is sales taxes.d. All of the above are true.
Which of the following statements is true?a. The most important source of tax revenue for the federal government is individual income taxes.b. The most important source of tax revenue for state and local governments is sales taxes.c. The second most important source of revenue for state and local
Some cities finance their airports with a departure tax: every person leaving the city by plane is charged a small fixed dollar amount that is used to help pay for building and running the airport.The departure tax follows thea. benefits-received principle.b. ability-to-pay principle.c. flat-rate
“The poor should not pay income taxes.” This statement reflects which of the following principles of taxation?a. Fairness of contributionb. Benefits-receivedc. Inexpensive-to-collectd. Ability-to-pay
Which of the following countries devotes about the same percentage of its GDP to taxes as the United States?a. Swedenb. Italyc. United Kingdomd. Japan
Which of the following contributed the largest percentage of total federal government expenditures in 2007 (excluding federal grants)?a. Interest on the national debtb. Education and healthc. National defensed. Income security
Which of the following accounted for the second largest percentage of total federal government expenditures in 2007?a. Income securityb. National defensec. Interest on the national debtd. Education and health
Since 1975, total government expenditures as a percentage of GDP in the United States havea. fallen by half.b. remained fairly constant at about one-third.c. grown from one-fourth to one-half.d. grown from one-quarter to one-third.
Compare “dollar voting” in private markets with “majority voting” in the political decisionmaking system.
Calculate the average and the marginal tax rates in the following table, and indicate whether the tax is progressive, proportional, or regressive. What observation can you make concerning the relationship between marginal and average tax rates?Income Tax Paid Average Tax Rate Marginal Tax Rate$ 0 $
Complete the following table, which describes the sales tax paid by individuals at various income levels. Indicate whether the tax is progressive, proportional, or regressive.
Explain why each of the following taxes is progressive or regressive:a. A $1 per pack federal excise tax on cigarettesb. The federal individual income taxc. The federal payroll tax
Ms. Jones has a taxable income of $30,000, and she must pay $3,000 in taxes. Mr. Smith has a taxable income of $60,000. How much tax must Mr. Smith pay for the tax system to bea. progressive?b. regressive?c. proportional?
Explain why a 5 percent sales tax on gasoline is regressive.
What is the difference between the marginal tax rate and the average tax rate?
Which of the following taxes satisfy the benefitsreceived principle, and which satisfy the abilityto-pay principle?a. Gasoline taxb. Federal income taxc. Tax on Social Security benefits
What are the primary tax revenue sources at the federal, state, and local levels of government?
Identify the major differences between federal government outlays and spending by state and local governments.
Explain why federal, state, and local expenditures account for more than 30 percent of GDP, but total government spending (G in GDP) is only about 20 percent of GDP.
The marginal propensity to save isa. the change in saving induced by a change in consumption.b. (change in S) / (change in Y).c. 1 MPC / MPC.d. (change in Y bY) / (change in Y).e. 1 MPC.
The sum of the marginal propensity to consume(MPC) and the marginal propensity to save(MPS) always equalsa. 1.b. 0.c. the interest rate.d. the marginal propensity to invest (MPI).
Which of the following statements is true?a. A reduction in tax rates along the downwardsloping portion of the Laffer curve would increase tax revenues.b. According to supply-side fiscal policy, lower tax rates would shift the aggregate demand curve to the right, expanding the economy and creating
Supply-side economics is most closely associated witha. Karl Marx.b. John Maynard Keynes.c. Milton Friedman.d. Ronald Reagan.
Which of the following is not an automatic stabilizer?a. Defense spendingb. Unemployment compensation benefitsc. Personal income taxesd. Welfare payments
If no fiscal policy changes are implemented, suppose the future aggregate demand curve will shift and exceed the current aggregate demand curve by $900 billion at any level of prices. Assuming the marginal propensity to consume (MPC) is 0.90, this increase in aggregate demand could be prevented
If no fiscal policy changes are implemented, suppose the future aggregate demand curve will exceed the current aggregate demand curve by$500 billion at any level of prices. Assuming the marginal propensity to consume (MPC) is 0.80, this increase in aggregate demand could be prevented bya.
If the marginal propensity to consume (MPC) is 0.60, the value of the spending multiplier isa. 0.4.b. 0.6.c. 1.5.d. 2.5.
The spending multiplier is defined asa. 1/(1 marginal propensity to consume).b. 1/(marginal propensity to consume).c. 1/(1 marginal propensity to save).d. 1/(marginal propensity to consume þ marginal propensity to save).
Contractionary fiscal policy is deliberate government action to influence aggregate demand and the level of real GDP througha. expanding and contracting the money supply.b. encouraging business to expand or contract investment.c. regulating net exports.d. decreasing government spending or
Indicate how each of the following would change either the aggregate demand curve or the aggregate supply curve.a. Expansionary fiscal policyb. Contractionary fiscal policyc. Supply-side economicsd. Demand-pull inflatione. Cost-push inflation
Suppose Congress enacts a tax reform law and the average federal tax rate drops from 30 percent to 20 percent. Researchers investigate the impact of the tax cut and find that the income subject to the tax increases from $600 billion to$800 billion. The theoretical explanation is that workers have
Assume you are a supply-side economist who is an adviser to the president. If the economy is in recession, what would your fiscal policy prescription be?
What is the difference between discretionary fiscal policy and automatic stabilizers? How are federal budget surpluses and deficits affected by the business cycle?
Why is a $100 billion increase in government spending for goods and services more expansionary than a $100 billion decrease in taxes?
Why does a reduction in taxes have a smaller multiplier effect than an increase in government spending of an equal amount?
Explain how discretionary fiscal policy fights recession and inflation.
Beginning from short-run equilibrium at point E2 in Exhibit A-9, the economy’s movement to a new position of long-run equilibrium would best be described asa. a movement along the AD2 curve with a shift in the SRAS1 curve.b. a movement along the SRAS2 curve with a shift in the AD2 curve.c. a
Beginning from long-run equilibrium at point E1 in Exhibit A-9, the aggregate demand curve shifts to AD2 . The real GDP and price level (CPI) in short-run equilibrium will bea. $12 billion and 200.b. $8 billion and 250.c. $8 billion and 150.d. $12 billion and 250.
As shown in Exhibit A-9, and assuming the aggregate demand curve shifts from AD1 and AD2, the full-employment level of real GDP isa. $12 billion.b. $8 billion.c. $150 billion.d. unable to be determined.
Which of the following is most likely to cause a leftward shift in the long-run aggregate supply curve?a. An increase in laborb. An increase in capitalc. An advance in technologyd. Destruction of resources
In Exhibit A-8, the self-correcting AD-AS model theory is that in the long run the economy willa. remain where SRAS intersects AD1.b. shift to the intersection of AD2 and SRAS.c. shift to the intersection of AD2 and LRAS.d. shift to the intersection of AD2 and a new leftward-shifted SRAS.
In Exhibit A-8, the self-correcting AD-AS model argument is that competitiona. from unemployed workers causes an increase in nominal wages and a rightward shift in SRAS.b. from unemployed workers causes a rightward shift in LRAS.c. among firms for workers increases nominal wages, and this causes a
In Exhibit A-8, the intersection of AD2 with SRAS indicatesa. short-run equilibrium.b. long-run equilibrium.c. that the economy is operating at full employment.d. that prices and wages are inflexible.
An increase in aggregate demand in the long run will result in _____ in full-employment real GDP and _____ in the price level.a. no change; an increaseb. an increase; no changec. a decrease; no changed. no change; a decrease
An increase in nominal incomes of workers results in thea. aggregate demand curve shifting to the left.b. long-run aggregate supply curve shifting to the right.c. short-run aggregate supply curve shifting to the left.d. short-run aggregate supply curve shifting to the right.
In the first quarter of 2001, real GDP was $9.88 trillion, and the price level measured by the GDP chain price index was 101. Real GDP was approximately equal to potential GDP. In the third quarter, aggregate demand decreased to$9.83 trillion, and the price level rose to 103.Draw a graph of this
Use the graph drawn in Question 1 and assume the initial equilibrium is E1. Next, assume aggregate demand increases by $4 trillion. Draw the effect on short-run equilibrium.
Suppose workers become pessimistic about their future employment, which causes them to save more and spend less. If the economy is on the intermediate range of the aggregate supply curve, thena. both real GDP and the price level will fall.b. real GDP will fall and the price level will rise.c. real
An increase in the price level caused by a rightward shift of the aggregate demand curve is calleda. cost-push inflation.b. supply shock inflation.c. demand shock inflation.d. demand-pull inflation.
Assuming a fixed aggregate demand curve, a leftward shift in the aggregate supply curve causes a(an)a. increase in the price level and a decrease in real GDP.b. increase in the price level and an increase in real GDP.c. decrease in the price level and a decrease in real GDP.d. decrease in the price
Other factors held constant, a decrease in resource prices will shift the aggregatea. demand curve leftward.b. demand curve rightward.c. supply curve leftward.d. supply curve rightward.
Along the classical or vertical range of the aggregate supply curve, a decrease in the aggregate demand curve will decreasea. both the price level and real GDP.b. only real GDP.c. only the price level.d. neither real GDP nor the price level.
Macroeconomic equilibrium occurs whena. aggregate supply exceeds aggregate demand.b. the economy is at full employment.c. aggregate demand equals aggregate supply.d. aggregate demand equals the average price level.
Which of the following is not a range on the eclectic or general view of the aggregate supply curve?a. Classical rangeb. Keynesian rangec. Intermediate ranged. Monetary range
Classical economists believed that thea. price system was stable.b. goal of full employment was impossible.c. price system automatically adjusts the economy to full employment in the long run.d. government should attempt to restore full employment.
The popular theory prior to the Great Depression that the economy will automatically adjust to achieve full employment isa. supply-side economics.b. Keynesian economics.c. classical economics.d. mercantilism.
Which of the following will not shift the aggregate demand curve to the left?a. Consumers become more optimistic about the future.b. Government spending decreases.c. Business optimism decreases.d. Consumers become pessimistic about the future.
Which of the following will shift the aggregate demand curve to the left?a. An increase in exportsb. An increase in investmentc. An increase in government spendingd. A decrease in government spending
The net exports effect is the inverse relationship between net exports and the of an economy.a. real GDPb. GDP deflatorc. price leveld. consumption spending
The real balances effect occurs because a higher price level reduces the real value of people’sa. financial assets.b. wages.c. unpaid debt.d. physical investments.
When the supply of credit is fixed, an increase in the price level stimulates the demand for credit, which, in turn, reduces consumption and investment spending. This effect is called thea. real balances effect.b. interest-rate effect.c. net exports effect.d. substitution effect.
The aggregate demand curve is defined as thea. net national product.b. sum of wages, rent, interest, and profits.c. real GDP purchased at different possible price levels.d. total dollar value of household expectations.
Explain demand-pull inflation graphically using aggregate demand and supply analysis. Assess the impact on the price level, real GDP, and employment.
Explain cost-push inflation verbally and graphically, using aggregate demand and aggregate supply analysis. Assess the impact on the price level, real GDP, and employment.
What shifts in aggregate supply or aggregate demand would cause each of the following conditions for an economy?a. The price level rises, and real GDP rises.b. The price level falls, and real GDP rises.c. The price level falls, and real GDP falls.d. The price level rises, and real GDP falls.e. The
Assume an economy operates in the intermediate range of its aggregate supply curve. State the direction of shift for the aggregate demand or aggregate supply curve for each of the following changes in conditions. What is the effect on the price level? On real GDP? On employment?a. The price of
In which direction would each of the following changes in conditions cause the aggregate supply curve to shift? Explain your answers.a. The price of gasoline increases because of a catastrophic oil spill.b. Labor unions and all other workers agree to a cut in wages to stimulate the economy.c. Power
Assume the aggregate demand and aggregate supply curves intersect at a price level of 100.Explain the effect of a shift in the price level to 120 and to 50.
Consider this statement: “Equilibrium GDP is the same as full employment.” Do you agree or disagree? Explain.
Identify the three ranges of the aggregate supply curve. Explain the impact of an increase in aggregate demand curve in each segment.
In which direction would each of the following changes in conditions cause the aggregate demand curve to shift? Explain your answers.a. Consumers expect an economic downturn.b. A new U.S. president is elected, and the profit expectations of business executives rise.c. The federal government
Explain the theory of the classical economists that flexible prices and wages ensure that the economy operates at full employment.
Explain why the aggregate demand curve is downward sloping. How does your explanation differ from the reasons behind the downward-sloping demand curve for an individual product?
Use the aggregate expenditures-output model and assume an economy is in equilibrium at $5 trillion, which is $250 billion below fullemployment GDP. If the marginal propensity to consume (MPC) is 0.60, full-employment GDP can be reached if government spendinga. decreases by $60 billion.b. decreases
Using the aggregate expenditure-output model, assume the aggregate expenditures (AE) line is above the 45-degree line at full-employment GDP.This vertical distance is called a (an)a. inflationary gap.b. recessionary gap.c. negative GDP gap.d. marginal propensity to consume gap.
To close the recessionary gap and achieve fullemployment real GDP shown in Exhibit 9, the government should cut taxes bya. $0.60 trillion.b. $1 trillion.c. $2 trillion.d. $3 trillion.
To close the recessionary gap and achieve fullemployment real GDP as shown in Exhibit 9, the government should increase spending bya. $1 trillion.b. $1.2 trillion.c. $2.0 trillion.d. $2.5 trillion.
In Exhibit 9, the spending multiplier for this economy is equal toa. 1²/³.b. 2¹/².c. 3.d. 5.
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