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Which of the following descriptions is most representative of the mix of revenues and expenditures of a local government?
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Which of the following statements about payroll taxes is false?
A tax is regressive if it
Which of the following is not a government activity that is involved in public finance
Most economists believe that property taxes
A federal budget deficit exists when federal government
To track the public debt over time and understand its significance to the economy, it is best
Which is the most important source of tax revenue for local governments?
Many states in the U.S. acquire significant amounts of funds from the following, except
Which of the following is the largest expenditure item of state governments?
A public debt that is owed to foreigners can be burdensome because
One important reason why the United States government is not likely to go bankrupt even with a large public debt is that it has
Which of the following is not a significant source of revenue for the U.S. federal government?
A budget surplus means that
Public finance is the subdiscipline of economics that studies the various ways in which
How is the public debt calculated
The Social Security tax is regressive because
The circular flow model with government included would show that government
The two largest sources of tax revenue for the U.S. federal government are
Determine the effect on aggregate demand for each of the scenarios described below.
an increase in aggregate demand, shifting the aggregate demand curve to the right.
a decrease in aggregate demand, shifting the aggregate demand curve to the left
The long-run aggregate supply curve is vertical because:
all input prices are flexible in the long run
For each of the following scenarios, determine whether the situation described can be attributed to the real-balances effect, the interest-rate effect, or the foreign-purchases effect.
As a result of an increase in the price level, the cost of borrowing increases, which causes people to buy fewer cars.
Interest-rate effect
Correct
When the price level decreases, restaurants become busier as more people purchase restaurant meals.
Real-balances effect
Correct
a. In the short run, when the price level increases, the quantity of real GDP supplied will increase and
the aggregate supply curve will not shift .
b. In the short run, some input prices are said to be sticky. This means that:
•
some input prices will remain constant even as the price level changes.
Correct
•
all prices will remain constant in the economy.
•
some firms will not be able to change the prices they charge.
Use the graph of Remi’s economy to complete the following statements.
a. Point B is referred to as a trough .
b. The movement from point A to point E is called a business cycle .
For each of the examples below, determine the effect on aggregate demand.
a. In order to reduce the deficit, the government decides to increase the level of taxes in the economy. This causes:
a decrease in aggregate demand, shifting the aggregate demand curve to the left
b. The economy experiences a sustained expansion in stock prices for the majority of companies in the country. This causes:
The foreign purchases, interest rate, and real-balances effects explain why the __.
An increase in productivity will __
increase aggregate supply
If at a particular price level, real output from producers is greater than real output desired by purchasers, then there will be a general _
The long-run aggregate supply analysis assumes that __
both input and product prices are variable
The short-run version of aggregate supply assumes that product prices are _
flexible while resource prices are fixed
The aggregate supply curve (short run) __
A decrease in expected returns on investment will most likely shift the AD curve to the _
The short-run equilibrium for this economy is a
point g
Use the following graph to answer the next question.
A shift from AD2 shifts to AD1 would be consistent with what economic event in U.S. history
Great Recession of 2007-2009
Use the following graph, which shows an aggregate demand, to answer the next question
move the economy to point A
An increase in expected future income will __
Which of the following would not shift the aggregate demand curve
In the diagram, the economy’s short-run AS curve is line _ and its long-run AS curve is line _
2; 1
The economy’s long-run aggregate supply curve __
is vertical
The intersection of the aggregate demand and aggregate supply curves determines the __
equilibrium level of real domestic output and prices
An expected increase in the prices of consumer goods in the near future will _
Which of the following factors does not explain the inverse relationship between the price level and the total demand for output
The upward slope of the short-run aggregate supply curve is based on the assumption that __
wages and other resource prices do not respond to price level changes
If the price level increases from 150 to 250, the real output demanded will __
decrease by $200 billion
A decrease in government spending will cause a(n) _
decrease in aggregate demand
An increase in personal income taxes will cause a(n) _
decrease (or shift left) in aggregate demand
A decrease in labor costs will cause aggregate __
supply to increase
Which of the following events would most likely reduce aggregate demand
If the national incomes of our trading partners increase, then our aggregate demand __
Which of the following transactions best represents the government making a transfer payment to a household or business
The federal government’s Supplemental Nutritional Assistance Program assists low-income families with purchasing food
The Social Security tax is regressive because
no Social Security tax is collected for incomes in excess of a “cap” income level
Which one of the following is not an excise tax of the federal government
Social Security contributions are part of
Which of the following is the largest expenditure item of local governments
The largest proportion of the U.S. public debt is held by
the U.S. public (individuals, businesses, financial institutions, and government).
For each of the following scenarios, determine the effect on aggregate supply.
a. There is an unexpected decrease in oil prices. This causes:
•
a movement along the aggregate supply curve to the left, indicating a decrease in the quantity of real GDP supplied.
•
a decrease in aggregate supply, shifting the aggregate supply curve to the left.
•
a movement along the aggregate supply curve to the right, indicating an increase in the quantity of real GDP supplied.
•
an increase in aggregate supply, shifting the aggregate supply curve to the right.
b. The government increases the amount that all producers are required to contribute to health insurance coverage. This causes:
•
a decrease in aggregate supply, shifting the aggregate supply curve to the left.
•
a movement along the aggregate supply curve to the right, indicating an increase in the quantity of real GDP supplied.
•
an increase in aggregate supply, shifting the aggregate supply curve to the right.
•
a movement along the aggregate supply curve to the left, indicating a decrease in the quantity of real GDP supplied.
Refer to the graph shown.
An economy is in both short- and long-run equilibrium at _.
Use the following graph to answer the next question.
Which of the following factors does NOT explain a movement along the AD curve?
The expenditure multiplier effect
he labels for the axes of an aggregate supply curve should be __
If current output is Q1 and full-employment output is Q3, then in the long run the short aggregate supply schedule is __
AS3
An increase in aggregate demand is most likely to be caused by a(n) _
If aggregate supply shifts from AS1 to AS2, then the price level will _
The long-run aggregate supply curve is _
Vertical
The labels for the axes of the aggregate demand graph should be __
real domestic output on the horizontal axis and the price level on the vertical axis
An aggregate supply curve represents the relationship between the __
When the price level decreases, _
the demand for money falls and the interest rate fall
The aggregate demand curve or schedule shows the relationship between the total demand for output and the __
price level
The economy’s long-run AS curve assumes that wages and other resource prices
If current output is Q1 and full-employment output is Q2, then in the long run the short aggregate supply schedule is _
AS2
If the economy is at point C and the price level increases by 100, then the real balances, interest-rate, and foreign purchases effects will _
Which of the following effects best explains the downward slope of the aggregate demand curve
In the aggregate demand-aggregate supply model, the economy’s price level is assumed to be _
Determine the effect on aggregate demand for each of the scenarios described below.
a. All European countries experience an economic expansion, raising incomes in each of the European countries. This causes
The government decides to decrease the amount it spends on the military. This causes
Aggregate demand is best described as the relationship between the
When output increases from Q1 and the price level decreases from P1, this change will __
be caused by a shift in the aggregate supply curve from AS1 to AS3If the price level decreases from 200 to 100, the real output demanded will _
Which would most likely increase aggregate supply
An increase in productivity
In the diagram, the economy’s relevant aggregate demand and long-run aggregate supply curves, respectively, are lines _
4 and 1
Use the following table which shows the aggregate demand and aggregate supply schedules for a hypothetical economy to answer the next question.
Real Domestic Output Demanded (in billions) Price Level (index value) Real Domestic Output Supplied (in billions)
$3,000 350 $9,000
4,000 300 8,000
5,000 250 7,000
6,000 200 6,000
7,000 150 5,000
8,000 100 4,000
The equilibrium price and output levels will be _
If current output is Q1 and full-employment output is Q2, then in the long run the short aggregate supply schedule is __
Use the following graph to answer the next question.
If AD1 shifts to AD2, then the equilibrium output increases from _.
