Question : 31) Suppose real GDP $13 trillion, potential real GDP $13.5 : 1244879

31) Suppose real GDP is $13 trillion, potential real GDP is $13.5 trillion, and Congress and the president plan to use fiscal policy to restore the economy to potential real GDP. Assuming a constant price level, Congress and the president would need to decrease taxes by

A) $500 billion.

B) less than $500 billion.

C) more than $500 billion.

D) None of the above are correct. Congress should raise taxes in this case.

32) Suppose real GDP is $14 trillion and potential real GDP is $14.4 trillion. An increase in government purchases of $400 billion would cause real GDP to ________ potential real GDP (assuming a constant price level).

A) equal

B) be less than

C) be more than

D) There is insufficient information given here to draw a conclusion.

33) If the government purchases multiplier equals 2, and real GDP is $14 trillion with potential real GDP $14.5 trillion, then government purchases would need to increase by ________ to restore the economy to potential real GDP.

A) $7.25 trillion

B) $1 trillion

C) $500 billion

D) $250 billion

34) If the absolute value of the tax multiplier equals 1.6, real GDP is $13 trillion, and potential real GDP is $13.4 trillion, then taxes would need to be cut by ________ to restore the economy to potential real GDP.

A) $250 billion

B) $400 billion

C) $640 billion

D) None of the above are correct. Taxes should be increased in this case.

35) A tax rebate by the government would

A) increase your pretax income, but not your disposable income.

B) increase your disposable income, but not your pretax income.

C) decrease your pretax income, but not your disposable income.

D) decrease your disposable income, but not your pretax income.

36) A government tax rebate of $1,000 would ________ your disposable income by ________.

A) increase; less than $1,000

B) increase; $1,000

C) decrease; less than $1,000

D) decrease; $1,000

37) A one-time tax rebate, which is not expected to be extended in future years, will

A) have a small positive effect on consumption and aggregate demand.

B) have no effect on consumption and aggregate demand.

C) have a significant positive effect on consumption and aggregate demand, with aggregate demand growing by a multiple of the tax rebate.

D) increase aggregate supply and aggregate demand.

38) A tax rebate, which is expected to be offered in this and all future years, will

A) have a small positive effect on consumption and aggregate demand.

B) have no effect on consumption and aggregate demand.

C) will have a significant positive effect on consumption and aggregate demand, with aggregate demand growing by a multiple of the tax rebate.

D) increase aggregate supply and aggregate demand.

39) The multiplier effect following an increase in expenditure is generated by induced increases in consumption expenditure as income rises.

40) In absolute value, the tax multiplier is greater than the government purchases multiplier.