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Exploring Macroeconomics 5th Edition Robert L. Sexton - Solutions
42. Critics of the crowding-out effect argue that an increase in government purchases (or a tax cut), particularly if the economy is in a severe recession, could improve consumer and business expectations and actually encourage private investment spending. True or False.
41. The crowding-out effect does not occur with a tax change. True or False.
40. The crowding-out effect implies that expansionary fiscal policy will tend to reduce private purchases of interest-sensitive goods. True or False.
39. The crowding-out effect will tend to reduce the magnitude of the effects of increases in government purchases. True or False.
38. Starting at full employment, the long-run result of contractionary fiscal policy includes a lower price level and reduced real output. True or False.
37. Starting at full employment, contractionary fiscal policy could cause a recession in the short run. True or False.
36. Starting at a full-employment equilibrium, the gains in employment that result from expansionary fiscal policy will not be sustainable in the long run. True or False.
35. Unemployment compensation and public assistance payments act as automatic stabilizers, stimulating aggregate demand during recessions and reducing aggregate demand during booms. True or False.
34. One of the advantages of automatic stabilizers is that they take place without the necessity for deliberations in Congress or the executive branch of the government. True or False.
33. If tax rates are reduced, it will affect aggregate supply but not aggregate demand. True or False.
32. If greater research and development leads to new technology and knowledge, it will shift the short- and long-run aggregate supply curves to the right. True or False.
31. Higher marginal tax rates will lead investors to spend more scarce resources looking for tax shelters, which harms the economy as high-return but highly taxed investments give way to lower-return tax shelters. True or False.
30. A lower marginal tax rate will raise after-tax earnings, improving productive incentives. True or False.
29. Supply-siders’ primary focus is on stabilizing aggregate demand in the short run. True or False.
28. Supply-siders would encourage government to reduce individual and business taxes, deregulate, and increase spending on research and development. True or False.
27. Savings and money spent on imported goods will each reduce the size of the multiplier because each reduces the fraction of a given increase in income that will go to additional purchases of domestically produced consumption goods. True or False.
26. The multiplier process is virtually instantaneous. True or False.
25. The effect of a $5 billion change in government spending on AD would be greater than that of an equal change in taxes, regardless of the MPC. True or False.
24. If MPC 5 0.67, the effects of a change in taxes on AD would be two-thirds the magnitude of the effects of an equal change in government spending. True or False.
23. The multiplier effect of a reduction in taxes is larger than the multiplier effect of an equal increase in government spending on goods and services. True or False.
22. A person’s MPC and MPS can be equal only if MPC 5 0.5. True or False.
21. The multiplier may be written as 1/(1 2 MPC) or as 1/MPS. True or False.
20. If the MPC were equal to two-thirds, the multiplier would be equal to 3. True or False.
19. The multiplier would be smaller if the marginal propensity to consume were smaller. True or False.
18. The multiplier is equal to 1 divided by the marginal propensity to consume. True or False.
17. If the marginal propensity to consume is two-thirds, a $6 million increase in disposable income to certain households will lead them to increase their consumption spending by $18 million. True or False.
16. When an initial increase in government purchases of goods and services occurs, the ultimate increase in total purchases will tend to be greater than the initial increase. True or False.
15. Contractionary fiscal policy will tend to increase a current government budget deficit. True or False.
14. Contractionary fiscal policy has the potential to offset an overheated, inflationary boom. True or False.
13. An increase in government spending and/or a tax cut will tend to move the economy up along its short-run aggregate supply curve. True or False.
12. Starting from an initial recession equilibrium, a government tax increase would tend to reduce the severity of the recession. True or False.
11. Starting from an initial recession equilibrium, expansionary fiscal policy could potentially increase employment to RGDPNR. True or False.
10. The effect of an increase in aggregate demand depends on the position of the macroeconomic equilibrium prior to the government stimulus. True or False.
9. Expansionary fiscal policy has the potential to move an economy out of recession. True or False.
8. If policymakers are unhappy about the present short-run equilibrium GDP, they can deliberately manipulate the level of government purchases in order to obtain a new short-run equilibrium value. True or False.
7. Real GDP will tend to change anytime the amount of consumption, investment, government purchases, or net exports changes. True or False.
6. Contractionary fiscal policy will tend to reduce a federal budget surplus or increase a federal budget deficit. True or False.
5. An increase in taxes will increase aggregate demand. True or False.
4. An increase in government purchases of goods and services will stimulate the economy by increasing aggregate demand. True or False.
3. A budget surplus is the most common result of government fiscal policy. True or False.
2. When tax revenues are greater than government spending, a budget surplus exists. True or False.
1. The government can use fiscal policy to stimulate the economy out of a recession or to try to bring inflation under control. True or False.
46. Starting at a full-employment equilibrium, once the economy has returned to its long-run equilibrium after an increase in government purchases, employment will be ____________ full employment.
45. Starting at a full-employment equilibrium, the only long-term effect of an increase in aggregate demand will be an increase in the ____________ level.
44. If unemployed resources are put to work by government spending, the opportunity cost of expanded public activity would be ____________ than otherwise.
43. ____________ a federal budget deficit could be an appropriate fiscal policy if the economy were in a recession.
42. Deficit reduction is a(n) ____________ fiscal policy in the short run.
41. Historically, the largest budget deficits have tended to be in ____________ years.
40. If the federal government is running a(n) ____________, the federal debt would be getting smaller.
39. Timed correctly, contractionary fiscal policy could correct a(n) ____________; timed incorrectly, it could cause a(n) ____________.
38. Because of the ____________ in implementing fiscal policy, a fiscal policy designed to deal with a contracting economy may actually take effect during a period of economic expansion.
37. The larger the crowding-out effect, the ____________ the actual effect of a given change in fiscal policy.
36. Expansionary fiscal policy will tend to cause net exports to ____________.
35. Expansionary fiscal policy will tend to ____________ the demand for dollars relative to other currencies.
34. The monetary authorities could ____________ the money supply to offset the ____________ interest rates due to the crowding-out effect of expansionary fiscal policy.
33. The ____________ effect refers to the theory that when the government borrows money to finance a deficit, it drives interest rates up, choking off some private spending on goods and services.
32. When the government borrows money to finance a deficit, it ____________ the overall demand for money in the money market, driving interest rates ____________.
31. Because incomes, earnings, and profits all fall during a recession, the government collects ____________ in taxes. This reduced tax burden partially ____________ any contractionary fall in aggregate demand.
30. Big increases and big decreases in GDP are both ____________ by automatic changes in income tax receipts.
29. The most important automatic stabilizer is the ____________ system.
28. Changes in government transfer payments or tax collections that automatically tend to counter business cycle fluctuations are called ____________.
27. If the demand-side stimulus from reduced tax rates is ____________ than the supply-side effects, the result will be a higher price level and a greater level of real output.
26. The ____________ curve shows that high tax rates could conceivably reduce work incentives to the point that government revenues are lower at high marginal tax rates than they would be at somewhat lower rates.
25. Supply-side economists believe that individuals will save ____________, work ____________, and provide ____________ capital when taxes, government transfer payments (such as welfare), and regulations are too burdensome on productive activities.
24. The multiplier effect of an increase in government purchases implies that the increase in aggregate demand will tend to be ____________ than the initial fiscal stimulus, other things being equal.
23. Savings and money spent on imported goods will each ____________ the size of the multiplier.
22. If your MPC were equal to 0.7, your MPS would equal ____________ .
21. The multiplier effect triggered by an increase in spending arises because of the additional ____________ spending that it leads to.
20. The extent of the multiplier effect visible within a short time period will be ____________ than the total effect indicated by the multiplier formula.
19. If the marginal propensity to consume were smaller, a given increase in government purchases would have a(n)____________ effect on consumption purchases.
18. The larger the marginal propensity to consume, the ____________ the multiplier effect.
17. ____________ is equal to 1/(1 [1] MPC).
16. With each additional round of the multiplier process, the added income generated and the resulting consumer purchases get ____________ because some of each round’s increase in income goes to ____________ and ____________ payments.
15. The additional consumption purchases made as a portion of one’s additional income is measured by the ____________.
14. When people’s incomes rise because of increased government purchases of goods and services, collectively people will spend a substantial part of the additional income on additional ____________ purchases.
13. When the government purchases additional goods and services, not only does it add to the total demand for goods and services directly, but the purchases also add to people’s ____________.
12. The ____________ effect explains why, when an initial increase in purchases of goods or services occurs, the ultimate increase in total purchases will tend to be greater than the initial increase.
11. Contractionary fiscal policy will result in a(n)____________ price level and ____________ employment in the short run.
10. A tax ____________ on consumers will reduce households’disposable incomes and thus their purchases of ____________ goods and services, while higher business taxes will reduce ____________ purchases.
9. If the government wants to use fiscal policy to help“cool off” the economy when it has overheated and inflation has become a serious problem, it will tend to ____________ government purchases and/or ____________ taxes.
8. The result of an expansionary fiscal policy in the short run would be a(n) ____________ in the price level and a(n) ____________ in RGDP.
7. Increased budget ____________ will stimulate the economy when it is operating at less than full capacity.
6. By changing tax rates, the government can alter the amount of ____________ income of households and thereby bring about changes in ____________ purchases.
5. If the government wishes to dampen a boom in the economy, it will ____________ its purchases of goods and services, ____________ taxes, or use some combination of these approaches.
4. Expansionary fiscal policy is associated with ____________ government budget deficits.
3. When the government wishes to stimulate the economy by increasing aggregate demand, it will ____________ government purchases of goods and services, ____________ taxes, or use some combination of these approaches.
2. When government spending (for purchases of goods and services and transfer payments) exceeds tax revenues, the result is a budget ____________.
1. ____________ is the use of government spending and/or taxes to alter real GDP and price levels.
6. If each possible good were indexed to changes in the general price level, would it be easy for relative price changes to signal changing relative scarcities? Why or why not?
5. What are the problems associated with targeting a zero rate on inflation?
4. What are the arguments for and against inflation targeting?
3. How does credibility impact inflation?
2. What is a political business cycle? What are the possibilities for conflict of interest to arise?
1. What impact do lags have on discretionary fiscal and monetary policy?
1. Could indexing reduce the costs of inflation?
1. Should central banks target inflation?
1. Should monetary policy use a rule
1. Are fiscal and monetary policies effective?
10. What does it mean when we say that real business cycle theorists have made us think more about the supply side?
9. According to real business cycle theorists, what happens when a negative productivity shock occurs?
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