SOLVED

11) A tax rebate, like the one issued in 2008, is likely to ________ consumption spending ________ than would a permanent tax cut. A) increase; more B) increase; less C) decrease; more D) decrease; less 12) When President Obama took office in January 2009, he pledged to pursue an expansionary fiscal policy to try to pull the economy out of the recession. The next month, Congress passed the American Recovery and Reinvestment Act of 2009, a $787 billion package of spending increases and tax cuts that was A) the largest fiscal policy action in U.S. history. B) second in size only to the fiscal policy action taken during the Great Depression. C) small in comparison to the actions taken during the recession of 1974-1975 D) roughly equal to the spending increases and tax cuts implemented during the recession of 1980-1982. 13) Of the $825 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009, approximately ________ took the form of tax cuts and ________ took the form of increases in government expenditures. A) one-half; one-half B) three-fourths; one-fourth C) one-tenth; nine-tenths D) one-third; two-thirds 14) Of the $825 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009, the largest spending increase occurred in which category? A) energy and the environment B) military, veterans, and homeland security C) health care, social services, and education D) transportation and housing 15) In preparing their estimates of the stimulus package’s effect on GDP, Obama administration economists estimated a government purchases multiplier of 1.57. Economist Robert Barro argues that during wartime, the government purchases multiplier would be ________ the administration’s estimate, and economists Lawrence Christiano, Martin Eichenbaum, and Sergio Rebelo argued that when short-term interest rates are near zero, the multiplier would be ________ the administration’s estimate. A) higher than; lower than B) lower than; higher than C) higher than; equal to D) equal to; lower than 16) In preparing their estimates of the stimulus package’s effect on GDP, Obama administration economists estimated a government purchases multiplier of 1.57. This indicates that a $1 billion increase in government purchases would increase equilibrium real GDP by A) $1 billion. B) $1.57 billion. C) $15.7 billion. D) $157 billion. 17) Crowding out refers to a decrease in government purchases as a result of an increase in private expenditures. 18) As spending on government purchases increases, income rises and money demand falls. 19) The Congressional Budget Office estimates of the effects of the 2009 stimulus package indicate that the stimulus package caused real GDP to equal potential GDP in 2011. 20) Why will there be less crowding out of private spending by government spending the less sensitive consumption, investment, and net exports are to changes in interest rates? 21) If Congress and the president pursue an expansionary fiscal policy at the same time as the Federal Reserve pursues an expansionary monetary policy, how might the expansionary monetary policy affect the extent of crowding out in the short run?