EU24L2

  • 1

    •

    A government that currently has a budget deficit can balance its budget by ____________________.

    increasing tax revenues by more than it increases expenditures
    increasing both tax revenues and expenditures by the same amount
    decreasing tax revenues by more than it decreases expenditures
    decreasing tax revenues by more than it increases expenditures

  • 2

    •

    Since 1988, the largest item of government expenditure has been ___________.

    debt reduction
    transfer payments
    debt interest
    purchases of goods and services

  • 3

    •

    In a closed economy in which all taxes are lump-sum taxes and the price level is fixed, the lump-sum tax multiplier is equal to __________________________.

    MPC/(1 + MPC)
    -MPC/(1 - MPC)
    MPC/(1 - MPC)
    -MPC/(1 + MPC)

  • 4

    •

    The _____________ determines the extent to which an additional pound of real GDP is spent on imports.

    propensity to import and export
    marginal propensity to import
    current account balance
    foreign exchange rate

  • 5

    •

    An automatic stabilizer is at work if as real GDP increases, _____________.

    transfer payments increase and tax revenues decrease
    tax revenues increase and transfer payments decrease
    tax revenues decrease and interest rates increase
    transfer payments decrease and interest rates decrease

  • 6

    •

    A cyclical deficit is a deficit that exists ___________.

    only during a recession
    only because real GDP is less than potential GDP
    during a business cycle expansion
    even if the economy is at full employment

  • 7

    •

    When an economy is below full-employment and the government has a budget deficit, that deficit ___________.

    is equal to the cyclical deficit minus the structural deficit
    is equal to the structural deficit
    is equal to the structural deficit minus the cyclical deficit
    exceeds the structural deficit

  • 8

    •

    An increase in government purchases of goods and services is an example of _____________.

    increasing induced taxes
    contractionary fiscal policy
    increasing structural deficit
    expansionary fiscal policy

  • 9

    •

    Contractionary fiscal policy _______ aggregate demand and in the short run _______________ real GDP.

    increases; decreases
    decreases; decreases
    increases; increases
    decreases; increases

  • 10

    •

    If the supply-side effect of a cut in taxes is less than the demand-side effect, then real GDP ___________ and the price level ___________.

    decreases; increases
    increases; decreases
    increases; increases
    decreases; decreases