ECON 203 Exam 3 (Pakhotina) || with 100% Errorless Answers.
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ECON 203
Multiplier effect correct answers The increase in consumer spending that occurs when spending by one person causes others to spend more too
Disposable income correct answers Income left after paying taxes
-consumption is based on the amount of disposable income
-people usually consume part of ...
ECON 203 Exam 3 (Pakhotina) || with 100% Errorless
Answers.
Multiplier effect correct answers The increase in consumer spending that occurs when spending
by one person causes others to spend more too
Disposable income correct answers Income left after paying taxes
-consumption is based on the amount of disposable income
-people usually consume part of their disposable income and save the rest
MPC correct answers Marginal propensity to consume
-the amount consumption increases when disposable income increases by $1
-the MPC is a number between 0 and 1
Government spending multiplier correct answers The amount that GDP increases when
government spending increases by $1
(1)/(1-MPC)
-the multiplier models suggest that government spending is a stronger instrument then tax cuts
Taxation multiplier correct answers The amount that GDP decreases by when taxes increase by
$1
-tax cuts boost GDP indirectly through an effect on consumption
(-MPC)/(1-MPC)
-the multiplier effect of tax cuts is smaller than the effect of government spending
Crowding out effect correct answers Increase in government spending crowds out private
investments
2 things that the government's budget contain correct answers 1. tax revenues as a source of
income
2. government purchases and transfer payments as expenditures
Transfer payments correct answers Payments from the government to individuals for programs
that dont involve a purchase of goods or services
-spending is when the government buys something in the marketplace
-a transfer is when money is moved from one group to another
Budget deficit correct answers The amount of money a government spends beyond its revenue
-expenditures > revenues
-receipts - outlays
Budget surplus correct answers The amount of revenue a government brings in beyond what it
spends
-expenditures < revenues
-receipts - outlays
, Outlays correct answers Government spending + transfer payments
Mandatory outlays correct answers -determined by ongoing programs such as social security and
medicare
-cannot be altered during the budget process
-altering requires long run changes to existing laws
Discretionary outlays correct answers -can be altered when the annual budget is set
-bridges, roads, payments to government workers, defense spending
Main reason why SS and Medicare currently make up such a large portion of the budget correct
answers Demographic changes
-people are living longer today than ever before and draw post-retirement benefits longer
-those who paid into the programs for many years are ow retired and drawing benefits
-the baby-boom generation is now entering retirement age
Government revenues correct answers -generally raised through taxes
-other small fees (national park admittance)
Public debt correct answers The total amount of money that a government owes at a point in time
Deficit correct answers A shortfall in revenue for a particular year's budget
The national debt correct answers Total of all accumulated and unpaid deficits
-part of the debt is owed to the public
-part of the debt is owed to government agencies (one branch of government can owe another
branch)
Benefits of government debt correct answers -it allows the government to be flexible when
something unexpected happens
-government debt can pay for investments that lead to economic growth and prosperity
Financial market correct answers A market in which people trade future claims on funds or
goods
-matches buyers (borrowers) and sellers (savers) who can both gain from trade
Examples of "future claims" correct answers -loan: the bank gives money now in return for
repayment in the future
-stocks: buying a company stock today gives you a right to a share of profits in the future
-insurance: you pay premiums now in return for the right to submit a claim for compensation in
the future
Buyers correct answers Borrowers - want to spend funds on something valuable now
-families buying houses
-students taking loans to go to college
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