Question 1

An example of an automatic stabilizer is

Accepted Answer

A)  personal income taxes. 
B)  inheritance taxes. 
C)  veterans' benefits. 
D)  corporate dividends. 
A)  personal income taxes. 
B)  inheritance taxes. 
C)  veterans' benefits. 
D)  corporate dividends.

Question 2

If there is a recessionary gap, the appropriate fiscal policy would be contractionary.

Accepted Answer

A) True 
 B)False

Question 3

Suppose fiscal authorities raise state income tax rates. As a result, disposable income falls, thereby

Accepted Answer

A)  decreasing consumption spending, and causing the aggregate demand curve to shift to the left. 
B)  decreasing consumption spending, and causing a movement along a given aggregate demand curve. 
C)  increasing saving, and causing the aggregate demand curve to shift to the left. 
D)  increasing saving, and causing a movement along a given aggregate demand curve. 
A)  decreasing consumption spending, and causing the aggregate demand curve to shift to the left. 
B)  decreasing consumption spending, and causing a movement along a given aggregate demand curve. 
C)  increasing saving, and causing the aggregate demand curve to shift to the left. 
D)  increasing saving, and causing a movement along a given aggregate demand curve.

Question 4

Contractionary fiscal policy will lead to an increase in government borrowing.

Accepted Answer

A) True 
 B)False

Question 5

Suppose in the beginning of 2013, a country has a national debt of $5,000 billion. Its GDP in J2013 is $20,000 billion and its budget surplus of $130 billion. Compute its debt-GDP ratio at the end of the year.

Accepted Answer

A)  2.6% 
B)  25.0% 
C)  24.4% 
D)  6.5% 
A)  2.6% 
B)  25.0% 
C)  24.4% 
D)  6.5%

Question 6

Generational accounting is useful for

Accepted Answer

A)  assessing the effect of current monetary policy decisions on generations yet unborn. 
B)  assessing the effect of current fiscal policy decisions on generations yet unborn. 
C)  comparing local, state, and federal fiscal policies. 
D)  assessing the effect of government budget deficits on generations yet unborn. 
A)  assessing the effect of current monetary policy decisions on generations yet unborn. 
B)  assessing the effect of current fiscal policy decisions on generations yet unborn. 
C)  comparing local, state, and federal fiscal policies. 
D)  assessing the effect of government budget deficits on generations yet unborn.

Question 7

In the United States, most of the government's taxing and spending is

Accepted Answer

A)  to stabilize the economy and move it to its potential output. 
B)  to bring about greater income equality. 
C)  to keep inflation at a moderate level. 
D)  for purposes other than economic stabilization. 
A)  to stabilize the economy and move it to its potential output. 
B)  to bring about greater income equality. 
C)  to keep inflation at a moderate level. 
D)  for purposes other than economic stabilization.

Question 8

Generational accounting estimates for the United States for the year 2004 show that

Accepted Answer

A)  the net burden on males is much lower than for females. 
B)  the net burden on females is much lower than for males. 
C)  the net burden on minorities is much greater than for Caucasians. 
D)  the net burden on college-educated Americans is lower than for those without a college education. 
A)  the net burden on males is much lower than for females. 
B)  the net burden on females is much lower than for males. 
C)  the net burden on minorities is much greater than for Caucasians. 
D)  the net burden on college-educated Americans is lower than for those without a college education.

Question 9

A contractionary fiscal policy shifts the aggregate demand curve

Accepted Answer

A)  to the right and is used to close an inflationary gap. 
B)  to the right and is used to close a recessionary gap. 
C)  to the left and is used to close an inflationary gap. 
D)  to the left and is used to close a recessionary gap. 
A)  to the right and is used to close an inflationary gap. 
B)  to the right and is used to close a recessionary gap. 
C)  to the left and is used to close an inflationary gap. 
D)  to the left and is used to close a recessionary gap.

Question 10

Suppose the economy experiences a recessionary gap. Policymakers who believe that the Jprivate sector has failed to provide adequately, a host of services that would benefit society would favor which of the following policies to close the gap?

Accepted Answer

A)  subsidies to private firms to spur production 
B)  decreases in income tax rates 
C)  increases in government purchases 
D)  decreases in interest rates 
A)  subsidies to private firms to spur production 
B)  decreases in income tax rates 
C)  increases in government purchases 
D)  decreases in interest rates

Question 11

Supply-side economics is the school of thought that advocates the use of

Accepted Answer

A)  monetary policy to stimulate long-run aggregate supply. 
B)  fiscal policy to stimulate long-run aggregate demand. 
C)  monetary policy to stimulate short-run aggregate demand. 
D)  fiscal policy to stimulate long-run aggregate supply. 
A)  monetary policy to stimulate long-run aggregate supply. 
B)  fiscal policy to stimulate long-run aggregate demand. 
C)  monetary policy to stimulate short-run aggregate demand. 
D)  fiscal policy to stimulate long-run aggregate supply.

Question 12

Which of the following would supply-side economists advocate? 
I. reducing tax rates in order to encourage people to work more
II. providing investment tax credits to stimulate capital formation spending
III. increasing government spending
IV. increasing transfer payments to those who want to be retrained for employment

Accepted Answer

A)  I, II, III, and IV 
B)  I, II, and III only 
C)  I, II, and IV only 
D)  I and II only 
A)  I, II, III, and IV 
B)  I, II, and III only 
C)  I, II, and IV only 
D)  I and II only

Question 13

Figure 12-3  
-Refer to Figure 12-3. If the aggregate demand curve is AD1, which of the following is the most Jappropriate discretionary fiscal policy to pursue?

Accepted Answer

A)  a contractionary fiscal policy involving reductions in government spending and increases in income tax rates 
B)  a contractionary fiscal policy involving reductions in government spending and decreases in income tax rates 
C)  an expansionary fiscal policy involving increases in government spending and increases in investment tax credits 
D)  an expansionary fiscal policy involving increases in government spending and decreases in investment tax credits 
A)  a contractionary fiscal policy involving reductions in government spending and increases in income tax rates 
B)  a contractionary fiscal policy involving reductions in government spending and decreases in income tax rates 
C)  an expansionary fiscal policy involving increases in government spending and increases in investment tax credits 
D)  an expansionary fiscal policy involving increases in government spending and decreases in investment tax credits

Question 14

Fiscal policy is concerned with government's manipulation of taxing, spending, and the money supply to encourage full employment at stable prices.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is true regarding expansionary fiscal policy?

Accepted Answer

A)  It leads to an increase in the supply of bonds by the Treasury. 
B)  It leads to a fall in interest rates. 
C)  It leads to an increase in net exports. 
D)  It tends to reduce to size of government. 
A)  It leads to an increase in the supply of bonds by the Treasury. 
B)  It leads to a fall in interest rates. 
C)  It leads to an increase in net exports. 
D)  It tends to reduce to size of government.

Question 16

All of the following are examples of automatic stabilizers except

Accepted Answer

A)  personal income taxes. 
B)  means-tested federal transfer payments. 
C)  welfare benefits. 
D)  government emergency spending. 
A)  personal income taxes. 
B)  means-tested federal transfer payments. 
C)  welfare benefits. 
D)  government emergency spending.

Question 17

All of the following are instruments of fiscal policy except

Accepted Answer

A)  rebate on payroll taxes. 
B)  education tax credits. 
C)  unemployment insurance benefits. 
D)  an interest rate cut. 
A)  rebate on payroll taxes. 
B)  education tax credits. 
C)  unemployment insurance benefits. 
D)  an interest rate cut.

Question 18

Figure 12-3  
-Refer to Figure 12-3. Suppose the aggregate demand curve is AD1. All of the following events Jwould more likely bring the economy back to the natural rate of unemployment except

Accepted Answer

A)  The government orders a one-time surcharge of 10% to be added to individual income tax liabilities. 
B)  Businesses increase investment in response to tax breaks for businesses. 
C)  The Federal Reserve buys bonds on the open market. 
D)  The government orders a cut in withholding rates designed to increase disposable income and boost consumption. 
A)  The government orders a one-time surcharge of 10% to be added to individual income tax liabilities. 
B)  Businesses increase investment in response to tax breaks for businesses. 
C)  The Federal Reserve buys bonds on the open market. 
D)  The government orders a cut in withholding rates designed to increase disposable income and boost consumption.

Question 19

Figure 12-1  
-Refer to Figure 12-1. In this situation, if policymakers want to close the output gap with fiscal policies that will stimulate aggregate demand, what should they do?

Accepted Answer

A)  establish a consumption tax to encourage savings 
B)  increase government spending 
C)  loosen environmental regulations to lower businesses cost of production 
D)  raise interest rates 
A)  establish a consumption tax to encourage savings 
B)  increase government spending 
C)  loosen environmental regulations to lower businesses cost of production 
D)  raise interest rates

Question 20

Figure 12-1  
-Refer to Figure 12-1. Assume that the economy is initially at Y1. A nonintervention policy Jwould result in the restoration of potential output by allowing the

Accepted Answer

A)  the aggregate demand curve to shift to the right. 
B)  the short-run aggregate supply curve to shift to the right. 
C)  the aggregate demand curve to shift to the left. 
D)  the short-run aggregate supply curve to shift to the left. 
A)  the aggregate demand curve to shift to the right. 
B)  the short-run aggregate supply curve to shift to the right. 
C)  the aggregate demand curve to shift to the left. 
D)  the short-run aggregate supply curve to shift to the left.

An example of an automatic stabilizer is

If there is a recessionary gap, the appropriate fiscal policy would be contractionary.

Suppose fiscal authorities raise state income tax rates. As a result, disposable income falls, thereby

Contractionary fiscal policy will lead to an increase in government borrowing.

Suppose in the beginning of 2013, a country has a national debt of $5,000 billion. Its GDP in J2013 is $20,000 billion and its budget surplus of $130 billion. Compute its debt-GDP ratio at the end of the year.

Generational accounting is useful for

In the United States, most of the government's taxing and spending is

Generational accounting estimates for the United States for the year 2004 show that

A contractionary fiscal policy shifts the aggregate demand curve

Suppose the economy experiences a recessionary gap. Policymakers who believe that the Jprivate sector has failed to provide adequately, a host of services that would benefit society would favor which of the following policies to close the gap?

Supply-side economics is the school of thought that advocates the use of

Figure 12-3 -Refer to Figure 12-3. If the aggregate demand curve is AD₁, which of the following is the most Jappropriate discretionary fiscal policy to pursue?

Fiscal policy is concerned with government's manipulation of taxing, spending, and the money supply to encourage full employment at stable prices.

Which of the following statements is true regarding expansionary fiscal policy?

All of the following are examples of automatic stabilizers except

All of the following are instruments of fiscal policy except

Figure 12-3 -Refer to Figure 12-3. Suppose the aggregate demand curve is AD₁.All of the following events Jwould more likely bring the economy back to the natural rate of unemployment except

Figure 12-1 -Refer to Figure 12-1. In this situation, if policymakers want to close the output gap with fiscal policies that will stimulate aggregate demand, what should they do?

Figure 12-1 -Refer to Figure 12-1. Assume that the economy is initially at Y₁. A nonintervention policy Jwould result in the restoration of potential output by allowing the

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters

Exam 12: Government and Fiscal Policy

An example of an automatic stabilizer is

If there is a recessionary gap, the appropriate fiscal policy would be contractionary.

Suppose fiscal authorities raise state income tax rates. As a result, disposable income falls, thereby

Contractionary fiscal policy will lead to an increase in government borrowing.

Suppose in the beginning of 2013, a country has a national debt of $5,000 billion. Its GDP in J2013 is $20,000 billion and its budget surplus of $130 billion. Compute its debt-GDP ratio at the end of the year.

Generational accounting is useful for

In the United States, most of the government's taxing and spending is

Generational accounting estimates for the United States for the year 2004 show that

A contractionary fiscal policy shifts the aggregate demand curve

Suppose the economy experiences a recessionary gap. Policymakers who believe that the Jprivate sector has failed to provide adequately, a host of services that would benefit society would favor which of the following policies to close the gap?

Supply-side economics is the school of thought that advocates the use of

Figure 12-3 -Refer to Figure 12-3. If the aggregate demand curve is AD1, which of the following is the most Jappropriate discretionary fiscal policy to pursue?

Fiscal policy is concerned with government's manipulation of taxing, spending, and the money supply to encourage full employment at stable prices.

Which of the following statements is true regarding expansionary fiscal policy?

All of the following are examples of automatic stabilizers except

All of the following are instruments of fiscal policy except

Figure 12-3 -Refer to Figure 12-3. Suppose the aggregate demand curve is AD1. All of the following events Jwould more likely bring the economy back to the natural rate of unemployment except

Figure 12-1 -Refer to Figure 12-1. In this situation, if policymakers want to close the output gap with fiscal policies that will stimulate aggregate demand, what should they do?

Figure 12-1 -Refer to Figure 12-1. Assume that the economy is initially at Y1. A nonintervention policy Jwould result in the restoration of potential output by allowing the

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters

Figure 12-3 -Refer to Figure 12-3. If the aggregate demand curve is AD₁, which of the following is the most Jappropriate discretionary fiscal policy to pursue?

Figure 12-3 -Refer to Figure 12-3. Suppose the aggregate demand curve is AD₁.All of the following events Jwould more likely bring the economy back to the natural rate of unemployment except

Figure 12-1 -Refer to Figure 12-1. Assume that the economy is initially at Y₁. A nonintervention policy Jwould result in the restoration of potential output by allowing the