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dynamic macroeconomics

Macroeconomics For Today 9th Edition Irvin B. Tucker - Solutions

Distinguish between M1 and M2. What are near monies?
What are the components of the most narrowly defined money supply in the United States?
What backs the U.S. dollar? Include the distinction between commodity money and fiat money in your answer.
Consider each of the items in Question 2 in terms of scarcity, portability, divisibility, and uniformity.
Could each of the following items potentially serve as money? Consider each as (1) a medium of exchange,(2) a unit of account, and (3) a store of value.a. Visa credit card.b. Federal Reserve note.c. Dog.d. Beer mug.
Discuss this statement: “A man with a million dollars who is lost in the desert learns the meaning of money.”
Supply-side economists argue that less government spendinga. will contract the productive side of the economy.b. will result in more crowding out.c. causes higher rates of unemployment and inflation.d. would cause interest rates to increase dramatically.e. would make more investment capital
The national debt is unlikely to cause national bankruptcy because thea. national debt can be refinanced by issuing new bonds.b. interest on the public debt equals GDP.c. national debt cannot be shifted to future generations for repayment.d. federal government cannot repudiate the outstanding
When measured as a percentage of GDP, the U.S.national debt reached its highest levels as a result ofa. World War II.b. the Vietnam War.c. the Reagan defense buildup and tax cuts.d. the Obama economic recovery program.
“Crowding in” refers to federal government deficitsa. used for public infrastructure, which will offset any decline in business investment.b. which reduce private business and consumption spending.c. which reduce future rates of economic growth.d. All of the answers above are correct.
Which of the following statements about crowding out is true?a. It can completely offset the multiplier.b. It is caused by a budget deficit.c. It is not caused by a budget surplus.d. All of the answers above are correct.
Which of the following statements about crowding out is true?a. It is caused by a budget surplus.b. It is not caused by a budget deficit.c. It cannot completely offset the multiplier effect of deficit government spending.d. It affects interest rates and, in turn, consumption and investment spending.
The portion of the U.S. national debt held by foreignersa. represents a burden because it transfers purchasing power from U.S. taxpayers to other countries.b. is an accounting entry that represents no real burden.c. decreased as a proportion of the total debt during the 2000s.d. has been constant
Which of the following own a portion of the national debt?a. Federal, state, and local governments.b. Private U.S. citizens.c. Banks.d. Foreigners.e. All of the answers above are correct.
Currently, approximately what percentage of the U.S. national debt is owed to foreigners?a. About 20 percent.b. About 25 percent.c. About 30 percent.d. About 60 percent.
Which of the following is false?a. The national debt’s size increased sharply after World War II.b. The national debt increases in size whenever the federal government has a budget surplus.c. The national debt is currently about the same size as it was during World War II.d. All of the answers
Which of the following countries has the smallest national debt as a percentage of GDP?a. Italy.b. Canada.c. Australia.d. Japan.e. France.
Currently, the national debt as a percentage of GDP isa. about seven times its size in 1982.b. twice as large in 2000.c. approximately the same size in 1945.d. approximately the same size in 1950.
Currently, the national debt is approximatelya. $10 trillion.b. $13 trillion.c. $20 trillion.d. $25 trillion.
The federal government finances a budget deficit bya. taxing businesses and households.b. selling Treasury securities.c. printing more money.d. reducing its purchases of goods and services.
During 1998–2001, 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.
As the size of a nation’s outstanding debt gets larger and larger relative to the size of the economya. eventually it will become difficult for the country to borrow in global credit markets.b. the country will have to pay higher real interest rates in order to induce investors to purchase its
As the national debt grows as a percentage of the U.S. economy, which of the following is (are) true?a. Future U.S. citizens will be forced to spend a larger percentage of their tax revenues on servicing the national debt, limiting the money that is available for health care, education, and
If the federal government runs a budget , then the national debt becomes .a. surplus, largerb. deficit, smallerc. surplus, smallerd. None of the answers above are correct.
If the national debt rises to the debt ceiling and there is currently a budget , the Congress and the President must agree to the debt ceiling or else the federal government will have insufficient funds to pay its bills and will be forced to shut down.a. surplus, lowerb. deficit, raisec. surplus,
Which of the following correctly describes the national debt?a. The excess of annual federal expenditures over annual federal tax revenues.b. Federal expenditures less annual federal tax revenues plus foreign U.S. annual bonds purchases.c. The total amount of money owed by the federal government.d.
Suppose you are the economic policy adviser to the president and are asked what should be done to eliminate a federal deficit. What would you recommend?
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
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 public choice theory, why might government policy benefit only a narrow interest group?a. If the benefits to the narrow interest group are relatively large, they have an incentive to invest a lot of money and effort in lobbying government.b. If the costs of this policy are spread out
Which of the following represents the basic principle of public choice theory?a. Politicians act consistently in the public’s interest.b. Politicians follow their own self-interest and seek to maximize their reelection chances, rather than promote the best interests of society.c. Politicians act
According to the shortsightedness effect, politicians 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.
Suppose that society had been using a progressive income tax, but shifted to a proportional or true flat tax. If total tax revenues to government were the same under the two plans, who would be made better off and who would be made worse off?a. Those with low incomes would be made better off, and
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 ofa. 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 income 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 correct?a. A sales tax on food is a regressive tax.b. A flat tax is also a proportional tax.c. Social Security is a regressive tax.d. All the above are true statements.
Which of the following statements is true?a. The most important source of tax revenue to the federal government is individual income taxes.b. Corporate income taxes are about percent of total federal government receipts.c. The taxation burden, measured by taxes as a percentage of GDP, is lighter in
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 contribution.b. Benefits received.c. Inexpensive to collect.d. Ability to pay.
Which of the following country(countries)devote(s) about the same percentage of its GDP to taxes as the United States?a. Sweden.b. Italy.c. United Kingdom.d. Japan.
Which of the following contributed the second largest percentage of total federal government expenditures in recent years?a. Interest on the national debt.b. Education and health.c. National defense.d. Income security.
Which of the following accounted for the second largest percentage of total federal government expenditures in recent years?a. Income security.b. National defense.c. Interest on the national debt.d. Education and health.
Suppose fairness is defined as those with the highest incomes can afford to pay a greater proportion of their income in taxes. Then which of the following taxation systems would be consistent with this notion of fairness?a. A true flat tax.b. A flat sales tax on consumption purchases.c. A
Suppose fairness is defined as those who receive the greatest benefits from government should pay the most in taxes, then which of the following taxation systems would be consistent with this notion of fairness?a. User fees for national parks.b. Gasoline taxes to fund highway maintenance.c. A tax
Total U.S. government expenditures as a percentage of GDP were largest during which of the following periods of time?a. The Great Depression.b. World War II.c. The Vietnam War.d. The Energy Crisis of the mid- and late-1970s.
Compare “dollar voting” in private markets with“majority voting” in the political decision-making system.
Calculate the average and 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 $ 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.Income Total spending Sales tax paid Sales tax paid as a percentage of income$ 1,000 $ 1,000 $ 100 %5,000 3,500 350 10,000
Explain why each of the following taxes is progressive or regressive.a. A $1 per pack federal excise tax on cigarettes.b. The federal individual income tax.c. 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 tax.b. Federal income tax.c. 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 about 40 percent of GDP, but total government spending (G in GDP) is only about 20 percent of GDP.
Beginning at equilibrium E1 in Exhibit 12, suppose the marginal propensity to consume (MPC)is 0.75, and the government wishes to lower the price level form 170 to 150 while maintaining a balanced budget. The government should reduce both spending and taxes bya. $20 billion.b. $100 billion.c. $133
Suppose the economy in Exhibit 12 is in equilibrium at point E1 and the marginal propensity to consume (MPC) is 0.75. Following Keynesian economics, to lower the price level from 170 to 150, the government should reduce its spending bya. $20 billion.b. $100 billion.c. $133 billion.d. $400 billion.
Beginning at equilibrium E1 in Exhibit 12 assume the marginal propensity to consume(MPC) is 0.90 and the government increases taxes by $100 billion. The aggregate demand curve will shift to thea. left by $1,000 billion.b. right by $1,000 billion.c. right by $900 billion.d. left by $900 billion.
Suppose the economy in Exhibit 11 is in equilibrium at point E1, and the marginal propensity to consume (MPC) is 0.80. Following Keynesian economics, to restore full employment, the government should cut taxes bya. $0.20 trillion.b. $250 billion.c. $0.50 trillion.d. $1 trillion.
The result of the balanced budget multiplier is that aggregate demand changes by the amount of the initial change ina. government spending.b. tax revenue.c. government spending plus tax revenue.d. government spending minus tax revenue.
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 spending.b. Unemployment compensation benefits.c. Personal income taxes.d. Welfare payments.
If no fiscal policy changes are implemented, suppose the future aggregate demand curve will shift and exceed (MPC) the current aggregate demand curve by $900 billion at any level of prices. Assuming the marginal propensity to consume is 0.90, this increase in aggregate demand could be prevented
Suppose inflation is a threat because the current aggregate demand curve will increase by $600 billion at any price level. If the marginal propensity to consume (MPC) is 0.75, federal policymakers could follow Keynesian economics and restrain inflation bya. decreasing taxes by $600 billion.b.
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 no fiscal policy changes are made, suppose the current aggregate demand curve will increase horizontally by $1,000 billion and cause inflation. If the marginal propensity to consume(MPC) is 0.80, federal policymakers could follow Keynesian economics and restrain inflation by decreasinga.
Assume the marginal propensity to consume(MPC) is 0.75 and the government increases taxes by $250 billion. The aggregate demand curve will shift to thea. left by $1,000 billion.b. right by $1,000 billion.c. left by $750 billion.d. right by $750 billion.
Mathematically, the value of the tax multiplier in terms of the marginal propensity to consume(MPC) is given by the formulaa. MPC 1.b. (MPC 1) MPC.c. 1/MPC.d. 1 [1/(1 MPC)].
Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC) is 0.80, and the government increases spending by $500 billion. As a result, aggregate demand will rise bya. zero.b. $2,500 billion.c. more than $2,500 billion.d. less than $2,500
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 þmarginal 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?
Consider an economy that is operating at the full-employment level of real GDP. Assuming the MPC is 0.90, predict the effect on the economy of a $50 billion increase in government spending balanced by a $50 billion increase in taxes.
Suppose you are an economic adviser to the president and the economy needs a real GDP increase of $500 billion to reach full-employment equilibrium. If the marginal propensity to consume (MPC) is 0.75 and you are a Keynesian, by how much do you believe Congress must increase government spending to
Why does a reduction in taxes have a smaller multiplier effect than an increase in government spending of an equal amount?
In each of the following cases, explain whether the fiscal policy is expansionary, contractionary, or neutral.a. The government decreases government spending.b. The government increases taxes.c. The government increases spending and taxes by an equal amount.
How does each of the following affect the aggregate demand curve?a. Government spending increases.b. The amount of taxes collected decreases.
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

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