Question

Government outlays consist of

Question 6 options:

	all governmental purchases resulting from contracts with the private sector and foreign organizations
	government purchases, transfer payments, and interest on the national debt
	government purchases and transfer payments minus the interest on the national debt
	total receipts from all organizations doing business with any level of government

Question 7 (1 point)

If tax revenue is $400 billion and outlays are $600 billion, then

Question 7 options:

	there is a budget surplus of $200 billion
	there is a budget surplus of $1000 billion
	there is a budget deficit of $200 billion
	there is a budget deficit of $1000 billion

Question 8 (1 point)

The government can safely take on more debt

Question 8 options:

	as long as the debt involves no interest payments
	if GDP is growing faster than the debt is growing
	if the interest rate is below 3%
	as long as the debt is growing by less than 3% per year

Question 9 (1 point)

If the MPC is 0.8 and taxes increase by $100 billion, what is the effect on equilibrium RGDP?

Question 9 options:

	equilibrium RGDP will fall by $80 billion
	equilibrium RGDP will fall by $125 billion
	equilibrium RGDP will fall by $400 billion
	equilibrium RGDP will fall by $500 billion

Question 10 (1 point)

If equilibrium RGDP is $10000 billion and full employment GDP is $9000 billion, and the MPC = 0.75, what is the appropriate fiscal policy to return the economy to full employment GDP

Question 10 options:

	reduce taxes by $250 billion
	reduce taxes by $333.33 billion
	raise taxes by $250 billion
	raise taxes by $333.33 billion

Answer 1

Answer to question 6 is option b) government purchases , transfer payments , and interest on the national debt.

This because , government expenditure includes expenditure on investments , consumption of goods and services , interest on the debt amount , transfer payments and expenditure on fixed assets.

Answer to question 7 is option c) there is a budget deficit of $200 billion.

This is because , budget surplus = tax revenue - outlays

Since , here outlays are greater than tax revenue then the budget surplus is negative therefore there is a deficit of $200 billion ($400 - $600 = $200).

Answer to question 8 is option b) if GDP is growing faster than the debt is growing.

This is because , debt to GDP ratio should be less than 1 always for a nation to grow and have the best results for the economy. Government should take on debt as long as GDP is growing faster than the debt is growing.

Answer to question 9 is option c) equilibrium RGDP will fall by $400 billion.

This is because , tax multiplier is calculated as :-

Tax multiplier = - ( MPC / MPS )

Here , MPC = 0.8 and MPS = 1- MPC = 0.2

So therefore , equilibrium RGDP = - (0.8/0.2) * $100

Equilibrium RGDP = - $400 billion

Answer to question 10 is option d) raise taxes by $333.33 billion

This is because , to return the economy to full employment level of GDP that is to reduce GDP level taxes should be increased (as tax multiplier is negative). To reduce the GDP level from $10000 to $9000 that is to reduce it by $1000 , taxes should be increased by :-

- (MPC/MPS) * taxes = - $1000

- (.75/.25) * taxes = - $1000

Taxes = $1000 * (.25/.75)

Taxes = $333.33 billion

That is , taxes should be increased by $333.33 billion.