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Economics For Today 5th Edition Irvin B. Tucker - Solutions
The __________ directs the buying and selling of U.S. government securities, which is a key method of controlling the money supply.
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 cardb. Federal Reserve notec. Dogd. Beer mug
Discuss this statement: “A man with a million dollars who is lost in the desert learns the meaning of money.”
What does a Federal Reserve bank do?
Is “plastic money” really money?
Why do nations use 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
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 cut.d. The Bush 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 above.
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 above are true.
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
In 2005, approximately what percent of the U.S.national debt was owed to foreigners?a. 2.5 percentb. 22 percentc. 32 percentd. 59 percent
Which of the following is false?a. The national debt decreased steadily after World War II until 1980 and then increased sharply each year.b. The national debt increases whenever the federal government has a budget surplus.c. The national debt is currently about the same size as it was during World
Which of the following countries had the smallest national debt as a percentage of GDP in 2005?a. Italyb. Canadac. Australiad. Japane. France
The national debt in 2005a. 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 2005, the national debt was approximatelya. $70 billion.b. $700 billion.c. $7 trillion.d. $6 trillion.
T F Internal ownership of the debt refers to the portion of the national debt owned by government agencies.
Which of the following statements is true?a. The national debt as a percentage of GDP is greater today than during any other period in our nation’s history.b. A sizeable external national debt will transfer purchasing power away from foreigners to domestic citizens.c. Keynesian theory assumes a
With regard to the national debt, to whom does the federal government owe money?a. Taxpayersb. Federal government workersc. The Treasurer of the United Statesd. Investors who buy U.S. Treasury bills, bonds, and notes
Which of the following is false?a. The national debt’s size decreased steadily after World War II until 1980 and then increased sharply each year.b. The national debt increases whenever the federal government has a surplus budget.c. The size of the national debt currently is about the same size
A burden of the national debt caused by the government borrowing to finance its deficit and causing the interest rate to rise is called the ___________. As the interest rate rises, consumption and business investment fall.
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. According to Eisner, 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
Who owns the national debt?
Are we passing the debt burden to our children?
How does the national debt of the United States compare to the debt of other countries?
Can Uncle Sam go bankrupt?
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
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
Which of the following contributed the second largest percentage of total state and local government revenues in 2005 (excluding federal grants)?a. Corporate income taxesb. Sales and excise taxesc. Individual income taxesd. Property taxes
Which of the following accounted for the second largest percentage of total federal government expenditures in 2005?a. Income securityb. National defensec. Interest on the national debtd. Education and health
T F The three major revenue sources for the federal government, in order of decreasing percentages, are individual income taxes, corporate taxes, and Social Security taxes.
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
The choice of a voter to remain uninformed because the marginal cost of obtaining information is greater than the marginal benefit from obtaining knowledge is calleda. irrational ignorance.b. rational ignorance.c. collective interest.d. choice.
Progressive income taxes follow the ______________ because there is a direct relationship between the average tax rate and income size. Sales, excise, and flat-rate taxes violate this principle since each results in a greater burden on the poor than the rich.
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?
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?
What is the difference between the marginal tax rate and the average tax rate?
Assume the federal government replaces the federal income tax with a national sales tax on all consumption expenditures. Analyze the impact of this tax change on taxation efficiency and equity. Note that the federal government already collects a nationwide consumption tax through excise taxes on
Should we replace the income tax with a national sales tax or a flat tax?
Is a flat tax fair?
How does the Social Security tax favor the upper-income worker?
How does the tax burden in the United States compare to other countries?
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
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
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.
In the U.S. economy, the effect on federal tax revenues and spending of a decrease in employment is toa. cut tax revenues and raise spending.b. cut spending and raise tax revenues.c. raise both tax revenues and spending.d. cut both spending and tax revenues.
Automatic stabilizers tend to “lean against the prevailing wind” of the business cycle becausea. wages are controlled by the minimum wage law.b. federal expenditures and tax revenues change as the level of real GDP changes.c. the spending and tax multiplier are constant.d. special interests
Consider an economy that is operating at the fullemployment 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
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
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 EXHIBIT A-8 AGGREGATE DEMAND AND SUPPLY MODEL
The long-run aggregate supply curve is based on the assumption thata. both the price level and nominal incomes are fixed.b. prices are flexible after one year.c. both the price level and nominal incomes change by the same percentage.d. potential GDP is undetermined.
An assumption for the short-run aggregate supply curve is that it is a period of time in whicha. knowledge is complete.b. wages are fixed.c. wages are constant for under one year.d. prices firms charge for products are fixed.
Beginning from a position of long-run equilibrium at the full-employment level of real GDP, the economy’s short-run response to an increase in the aggregate demand curve would bea. a movement upward along the short-run aggregate supply curve.b. a movement upward along the long-run aggregate
Which of the following causes a leftward shift in the short-run aggregate supply curve?a. An increase in goods prices while nominal incomes are unchangedb. An increase in nominal incomesc. An increase in full-employment real GDPd. An increase in personal consumption expenditures while the price
The economy of Tuckerland has the following aggregate demand and supply schedules, reflecting real GDP in trillions of dollars:a. Graph the aggregate demand curve and the shortrun aggregate supply curve.b. What are short-run equilibrium real GDP and the price level?c. If Tuckerland’s potential
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 in Alaska.b. Labor unions and all other workers agree to a cut in wages to stimulate the
Explain the effect of a shift in the price level to 120 and to 50.
Assume the aggregate demand and aggregate supply curves intersect at a price level of
Using the aggregate expenditures–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. $.60 trillion.b. $1 trillion.c. $2 trillion.d. $3 trillion.
T F In the aggregate expenditures–output model, if aggregate expenditures (AE) equals $7 trillion and GDP equals $8 trillion, then inventory depletion equals $1 trillion.
In the aggregate expenditures–output model, an increase in government spending causes a(n):a. upward shift in the aggregate expenditures curve.b. downward shift in the aggregate expenditures curve.c. shift in the 45-degree line.d. rightward movement along the aggregate expenditures curve.e.
Using C to represent consumption, I to represent investment, G to represent government spending, S to represent saving, X to represent exports, and M to represent imports, aggregate expenditures can be represented bya. C I G (X M) S.b. (C S) G (X M).c. C I G (X M).d. none
The ratio of the change in real GDP to the initial change in any component of aggregate expenditures, including consumption, investment, government purchases, and net exports, is called ______________.
Assume an economy is in recession with a MPC of 0.75 and there is a GDP of $100 billion. How much must government spending increase to eliminate the gap? Instead of increasing government spending by the amount you calculate, what would be the effect of the government cutting taxes by this amount?
First, use the data given in question 1, and assume the level of autonomous investment is $50 billion. If the full-employment level of output is $525 billion, what is the equilibrium level of output and employment? Does a recessionary gap or an inflationary gap exist? Second, assume the level of
Suppose autonomous investment increases by $100 billion and the MPC is 0.75.a. Use the following table to compute four rounds of the spending multiplier effect:b. Use the spending multiplier formula to compute the final cumulative impact on aggregate spending. Round total spending New consumption
How are changes in the MPC, changes in the MPS, and the size of the multiplier related? Answer the following questions:a. What is the multiplier if the MPC is 0? 0.33? 0.90?b. Suppose the equilibrium real GDP is $100 billion and the MPC is 4/5. How much will the equilibrium output change if
Assume the level of autonomous investment is $100 billion and aggregate expenditures equal consumption and investment. Based on the table below, answer the following questions.EMPLOYMENT, OUTPUT, CONSUMPTION, AND UNPLANNED INVENTORYa. Fill in the unplanned inventory column.b. Determine the MPC and
Can the Keynesian model explain an ice cream war?
As shown in Exhibit 5, the marginal propensity to save (MPS) isa. 0.33.b. 0.50.c. 0.67.d. 0.75.
As shown in Exhibit 5, saving occursa. at 0.b. between 0 and $4 trillion.c. where disposable income is greater than$4 trillion.d. at $2 trillion.
In Exhibit 11, aggregate disposable income will equal consumption plus investment (aggregate expenditures), and the economy will be in equilibrium when real disposable income isa. $2.33 trillion.b. $3 trillion.c. $6 trillion.d. $10 trillion.EXHIBIT 12 AGGREGATE EXPENDITURES FUNCTION
T F If firms increase investment, the aggregate expenditures function will shift downward, other things being equal.
Which of the following will shift the consumption function upward?a. An increase in consumer wealth.b. An increase in the interest rate.c. An increase in personal income taxes.d. A decrease in the MPC.e. An increase in disposable income.
The marginal propensity to consume (MPC) is computed as the change in consumption divided by the change ina. GDP.b. disposable personal income.c. saving.d. none of the above.
Autonomous consumption is equal to the level of consumption associated witha. unstable disposable income.b. positive disposable income.c. zero disposable income.d. negative disposable income.
_____________ is the theory that supply creates its own demand.
Use the consumption function data below to answer the following questions:KEYNESIAN CONSUMPTION FUNCTION(BILLIONS OF DOLLARS PER YEAR)a. Calculate the saving schedule.b. Determine the marginal propensities to consume (MPC) and save (MPS).c. Determine the break-even income.d. What is the
Why did Keynes believe that“animal spirits” and government policy were important to maintain full employment?
What are the components of the Keynesian Cross?
Why did economists believe the Great Depression was impossible?
T F If it cost $240 in 2005 to buy the same market basket of goods that cost $120 in the base year of 1985, a consumer price index (CPI) for 2005 would have a value of 200.
During the 1970s, the Organization of Petroleum Exporting Countries (OPEC) sharply increased the price of oil, which triggered higher inflation rates in the United States. This type of inflation is best classified asa. pseudo-inflation.b. demand-pull inflation.c. cost-push inflation.d.
Real income in 2005 is equal to:a. 2005 nominal income CPI.b. 2005 nominal income/2005 real output 100.c. 2005 nominal income/2005 real GDP 100.d. none of the above.
Suppose you earned $100,000 in 2005. Using 1982 as the base year, calculate your real 2005 income measured in 1982 dollars, assuming the CPI is 200 in 2005.
Suppose, in the 1982 base year, a typical market basket purchased by an urban family cost $250. In 2005, the same market basket cost $1,000. What is the consumer price index (CPI) for 2005? If the same market basket cost $950 in 2004, what is the CPI for 2004? What was the 2005 rate of inflation?
Does inflation harm everyone equally?
Can an interest rate be negative?
What would Babe Ruth’s salary be worth today?
Which of the following statements is true?a. The GDP gap is the difference between fullemployment real GDP and actual real GDP.b. We desire economic growth because it increases the nation’s real GDP.c. Economic growth is measured by the annual percentage increase in a nation’s real GDP.d.
T F When actual real GDP output is below fullemployment real GDP, the GDP measures the cost of cyclical unemployment.
Which of the following is true?a. The GDP gap is the difference between fullemployment real GDP and actual real GDP.b. We desire economic growth because it increases the nation’s standard of living.c. Economic growth is measured by the annual percentage increase in a nation’s real GDP.d.
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