When calculating the effect of a tax cut on equilibrium GDP, the tax multiplier is always
a. 2.0 smaller than the spending multiplier
b. 1.0 smaller than the spending multiplier and negative in sign
c. positive
d. positive and larger than the spending multiplier
e. negative and larger than the spending multiplier
B
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An inflationary gap is created when
A) real GDP is greater than potential GDP. B) real GDP equal to potential GDP. C) the inflation rate is less than potential inflation. D) the price level exceeds the equilibrium price level. E) potential GDP is greater than real GDP.
A government ban on a good that suffers from overconsumption may be ineffective if the:
A. likelihood of being caught breaking the ban is very low. B. punishment for breaking the ban is severe. C. likelihood of being caught breaking the ban is sufficiently high. D. public did not participate in setting the punishments.
Under the existing system of partially-flexible exchange rates, a country experiencing what it believes is a long-term balance of payments deficit might be expected to:
A. let its currency lose value. B. buy its own currency in the foreign exchange market. C. sell its own currency in the foreign exchange market. D. let its currency gain value.
When government outlays are less than tax revenues, the government has
A) a budget with a negative debt. B) a budget deficit. C) a budget with a positive balance. D) an illegal budget because outlays must exceed tax revenues. E) a budget surplus.