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Exam 2 Fiscal Policy - Flashcards

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Class:ECON 104 - Principles of Macroeconomics
Subject:Economics
University:University of Wisconsin - Milwaukee
Term:Spring 2011
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The relationship between consumption and disposable income is such that as disposable income rises, consumption rises
If you produce a graph with consumption spending on the vertical axis and disposable income on the horizontal axis, the relationship between consumption and income will be direct
The difference between disposable income and consumption spending is personal saving
the federal governments principal tool in altering consumer spending is changing personal income tax rates
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if an economist wants to make a prediction about the effects of a change in disposable income on the change in consumption spending based on historical data, she must assume that the future will closely resemble the past
if personal taxes are increased by $10 billion, and as a result we can expect spending by less than $10 billion
The nations disposable income increases by $400 billion, and as a result, consumer spending increases .80
The marginal propensity to consume (MPC) is calculated by change in C / change in DI
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In 1963, government economists assumed that MPC for the United States was approximately .90. If taxes were cut by $9 billion, then consumer expenditures would be expected to increase by $81 billion
If the MPC increases in value, what will happen to the slope of the consumption function? the slope will increase and the consumption function will become steeper
For each $1 of a tax cut, economists expect consumption to increase by less than $1
A movement from one point to another point on the same consumption function could be caused due to changes in disposable income
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Because of recent corporate downsizing, Chuck loses his job. The most likely effect on his consumption function is a movement downward along the function
After years of hard work in the field of macroeconomics, you win the Nobel Prize in economics (currently $1 million). What is the most likely effect of this prize on your consumption function? it will shift upward permently
Which of the following is an example of wealth? a mutual fund balance of $1,000
Households can finance their consumer spending from current income and current wealth
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Which of the following would be most likely to shift the consumption function downward? a stock market crash
The main reason that the 1975 and 2001 tax cuts did not have a large effect on GDP is that it was a temporary tax cut rather than a permanent tax cut
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 The relationship between consumption and disposable income is such that asdisposable income rises, consumption rises
 If you produce a graph with consumption spending on the vertical axis and disposable income on the horizontal axis, the relationship between consumption and income willbe direct
 The difference between disposable income and consumption spending ispersonal saving
 the federal governments principal tool in altering consumer spending is changingpersonal income tax rates
 if an economist wants to make a prediction about the effects of a change in disposable income on the change in consumption spending based on historical data, she must assume thatthe future will closely resemble the past
 if personal taxes are increased by $10 billion, and as a result we can expectspending by less than $10 billion
 The nations disposable income increases by $400 billion, and as a result, consumer spending increases.80
 The marginal propensity to consume (MPC) is calculated bychange in C / change in DI
 In 1963, government economists assumed that MPC for the United States was approximately .90. If taxes were cut by $9 billion, then consumer expenditures would be expected to increase by $81 billion
 If the MPC increases in value, what will happen to the slope of the consumption function?the slope will increase and the consumption function will become steeper
 For each $1 of a tax cut, economists expect consumption toincrease by less than $1
 A movement from one point to another point on the same consumption function could be caused due tochanges in disposable income
 Because of recent corporate downsizing, Chuck loses his job. The most likely effect on his consumption function is a movement downward along the function
 After years of hard work in the field of macroeconomics, you win the Nobel Prize in economics (currently $1 million). What is the most likely effect of this prize on your consumption function?it will shift upward permently
 Which of the following is an example of wealth?a mutual fund balance of $1,000
 Households can finance their consumer spending from currentincome and current wealth
 Which of the following would be most likely to shift the consumption function downward?a stock market crash
 The main reason that the 1975 and 2001 tax cuts did not have a large effect on GDP is that it was a temporary tax cut rather than a permanent tax cut
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