Reference no: EM13175736

1.    Briefly define the following terms:

a.    Budget deficit

b.    Contractionary fiscal policy

c.    Structural deficit

2.         How does an increase in income taxes on wage income affect the labor market and potential GDP?

3.         How does an increase in income taxes on interest income affect the capital market and potential GDP?

4.         Using the short-run aggregate supply curve, show the short-run effects of an increase in government purchases.

Answer the following multiple choice questions.

5.         In 2009, U.S. government expenditures exceeded U.S. government tax revenues. As a result, the U.S. government had a budget ____ and U.S. government debt ____.

a.    surplus; increased

b.    surplus; decreased

c.    deficit; increased

d.    deficit; decreased

 

6.         A decrease in income taxes on wages and interest income ____ equilibrium employment, ____ investment, and ____ potential GDP.

a.    increases; does not change; increases

b.    decreases; increases; decreases

c.    increases; increases; increases

d.    increases; decreases; does not change 

 

7.         The government purchases multiplier occurs because

a.    changes in the price level affect people's willingness to invest, consume, import and export.

b.    a change in government purchases induces a change in consumption expenditure.

c.    of government stabilization policies.

d.    of income taxes.

 

8.         Using fiscal policy, the best way to get the economy out of a recession in the short-run is to ____ government purchases of goods and services or ____ tax rates.

a.    increase; increase

b.    increase; decrease

c.    decrease; increase

d.    decrease; decrease

 

9.         The economy is in a recession and the government's budget deficit is $600 billion. We know that the ____ is less than $600 billion.

a.    cyclical deficit

b.    structural deficit

c.    sum of the structural deficit plus cyclical deficit

d.    None of the above answers is correct.