Question 1

A transfer payment that rises automatically during a recession is

Accepted Answer

A)  interest payments on the national debt. 
B)  unemployment compensation. 
C)  Social Security payments to retired persons. 
D)  government payments to war veterans. 
A)  interest payments on the national debt. 
B)  unemployment compensation. 
C)  Social Security payments to retired persons. 
D)  government payments to war veterans.

Question 2

Some economists argue that

Accepted Answer

A)  discretionary monetary policy is ineffective because of its long identification lag. 
B)  discretionary fiscal policy is ineffective because of its long recognition lag. 
C)  discretionary monetary policy is ineffective because of its long implementation lag. 
D)  discretionary fiscal policy is ineffective because of its long implementation lag. 
A)  discretionary monetary policy is ineffective because of its long identification lag. 
B)  discretionary fiscal policy is ineffective because of its long recognition lag. 
C)  discretionary monetary policy is ineffective because of its long implementation lag. 
D)  discretionary fiscal policy is ineffective because of its long implementation lag.

Question 3

During an expansion, which of the following occur because of automatic stabilizers? 
I. Income tax revenues tend to rise.
II. Government transfer payments tend to rise.
III. The government's budget deficit tends to fall or its budget surplus tends to rise.
IV. They tend to amplify the rise in real GDP.

Accepted Answer

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

Question 4

When contractionary fiscal policy leads to

Accepted Answer

A)  less private investment because of higher interest rates, the change in investment is called crowding in by economists. 
B)  more private investment because of lower interest rates, the change in investment is called crowding in by economists. 
C)  less private investment because of lower interest rates, the change in investment is called crowding in by economists. 
D)  less private investment because of higher interest rates, the change in investment is called crowding out by economists. 
A)  less private investment because of higher interest rates, the change in investment is called crowding in by economists. 
B)  more private investment because of lower interest rates, the change in investment is called crowding in by economists. 
C)  less private investment because of lower interest rates, the change in investment is called crowding in by economists. 
D)  less private investment because of higher interest rates, the change in investment is called crowding out by economists.

Question 5

A contractionary fiscal policy negates some of the leftward shift of the aggregate demand curve because the resulting fall in interest rates

Accepted Answer

A)  increases the quantity of investment, raises the exchange rate and boosts net exports. 
B)  discourages savings, decreases the quantity of investment, raises the exchange rate, and reduces net exports. 
C)  increases the quantity of investment, lowers the exchange rate, and boosts net exports. 
D)  discourages savings, increases consumption, and reduces the quantity of investment and imports. 
A)  increases the quantity of investment, raises the exchange rate and boosts net exports. 
B)  discourages savings, decreases the quantity of investment, raises the exchange rate, and reduces net exports. 
C)  increases the quantity of investment, lowers the exchange rate, and boosts net exports. 
D)  discourages savings, increases consumption, and reduces the quantity of investment and imports.

Question 6

The government purchases component of aggregate demand includes 
I. all purchases by government agencies of goods and services produced by firms.
II. direct production by government agencies themselves.
III. government expenditures on transfer payments.

Accepted Answer

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

Question 7

The term "crowding out" refers to the phenomenon that occurs when increased government Jspending

Accepted Answer

A)  raises the price level and reduces consumption. 
B)  leads to higher interest rates which reduces private investments. 
C)  leads to higher bond prices which decreases the demand for Treasury bonds. 
D)  leads to increased budget deficits that ultimately warrant increases in income taxes. 
A)  raises the price level and reduces consumption. 
B)  leads to higher interest rates which reduces private investments. 
C)  leads to higher bond prices which decreases the demand for Treasury bonds. 
D)  leads to increased budget deficits that ultimately warrant increases in income taxes.

Question 8

The impact of fiscal policy is

Accepted Answer

A)  magnified because of crowding out and weakened because of crowding in. 
B)  magnified because of crowding in and weakened because of crowding out. 
C)  magnified because of crowding out and crowding in. 
D)  weakened because of crowding out and crowding in. 
A)  magnified because of crowding out and weakened because of crowding in. 
B)  magnified because of crowding in and weakened because of crowding out. 
C)  magnified because of crowding out and crowding in. 
D)  weakened because of crowding out and crowding in.

Question 9

Recognition lags in fiscal policy stem largely from

Accepted Answer

A)  the fact that it takes time before a fiscal policy, such as a change in government purchases or a change in taxes, is agreed to and put into effect. 
B)  the fact that it takes time for a policy action to have its full effect on aggregate demand. 
C)  the difficulty of collecting economic data in a timely and accurate fashion. 
D)  households and businesses may not respond to fiscal policy to the extent that policy makers had hoped, for example, they may not be as responsive to a tax cut . 
A)  the fact that it takes time before a fiscal policy, such as a change in government purchases or a change in taxes, is agreed to and put into effect. 
B)  the fact that it takes time for a policy action to have its full effect on aggregate demand. 
C)  the difficulty of collecting economic data in a timely and accurate fashion. 
D)  households and businesses may not respond to fiscal policy to the extent that policy makers had hoped, for example, they may not be as responsive to a tax cut .

Question 10

Figure 12-4  
-Refer to Figure 12-4. If the economy's long-run aggregate supply curve is LRAS1, and if the Jeconomy is in equilibrium at Y1, supply-side economists would advocate

Accepted Answer

A)  tax increases to stimulate investment and work effort. 
B)  tax cuts to stimulate LRAS and SRAS and move them to LRAS2 and SRAS2. 
C)  tax cuts to shift aggregate demand from AD2 to AD1. 
D)  tax increases to reduce inflationary pressure in the economy. 
A)  tax increases to stimulate investment and work effort. 
B)  tax cuts to stimulate LRAS and SRAS and move them to LRAS2 and SRAS2. 
C)  tax cuts to shift aggregate demand from AD2 to AD1. 
D)  tax increases to reduce inflationary pressure in the economy.

Question 11

Figure 12-4  
-Refer to Figure 12-4. At income level Y1, there is a(n)

Accepted Answer

A)  inflationary gap, and expansionary policies may be initiated. 
B)  recessionary gap, and contractionary policies may be initiated. 
C)  recessionary gap. 
D)  recessionary gap, and the Fed is likely to decrease the money supply. 
A)  inflationary gap, and expansionary policies may be initiated. 
B)  recessionary gap, and contractionary policies may be initiated. 
C)  recessionary gap. 
D)  recessionary gap, and the Fed is likely to decrease the money supply.

Question 12

Suppose that income taxes are reduced by $400 billion and households increase consumption by J80% of the resulting change in disposable income. Suppose also that the multiplier is 2.
JWhat is the marginal propensity to consume?

Accepted Answer

A)  0.2 
B)  0.4 
C)  0.8 
D)  1.6 
A)  0.2 
B)  0.4 
C)  0.8 
D)  1.6

Question 13

Selling Treasury bonds to finance a federal deficit crowds out private investment by driving
Jinterest rates down.

Accepted Answer

A) True 
 B)False

Question 14

If there is a recessionary gap in the economy, discretionary fiscal policy would likely involve Jan action to

Accepted Answer

A)  shift the aggregate demand curve to the right. 
B)  shift the aggregate demand curve to the left. 
C)  shift both the aggregate demand curve and aggregate supply curve to the right. 
D)  shift both the aggregate demand curve and aggregate supply curve to the left. 
A)  shift the aggregate demand curve to the right. 
B)  shift the aggregate demand curve to the left. 
C)  shift both the aggregate demand curve and aggregate supply curve to the right. 
D)  shift both the aggregate demand curve and aggregate supply curve to the left.

Question 15

Expansionary fiscal policy leads to

Accepted Answer

A)  lower interest rates which reduce the demand for a nation's currency, and causes its exchange rate to fall. 
B)  higher interest rates which increase the demand for a nation's currency, and causes its exchange rate to rise. 
C)  higher interest rates which reduce the demand for a nation's currency, and causes its exchange rate to rise. 
D)  lower interest rates which increase the demand for a nation's currency, and causes its exchange rate to rise. 
A)  lower interest rates which reduce the demand for a nation's currency, and causes its exchange rate to fall. 
B)  higher interest rates which increase the demand for a nation's currency, and causes its exchange rate to rise. 
C)  higher interest rates which reduce the demand for a nation's currency, and causes its exchange rate to rise. 
D)  lower interest rates which increase the demand for a nation's currency, and causes its exchange rate to rise.

Question 16

An expansionary fiscal policy will result in the Treasury selling more bonds, the price of bonds falling, and interest rates rising.

Accepted Answer

A) True 
 B)False

Question 17

During a recession, unemployment insurance ensures that

Accepted Answer

A)  firms layoff fewer of its employees than it would if there is no unemployment insurance. 
B)  disposable income increases as GDP falls. 
C)  disposable income does not fall by as much as GDP decreases. 
D)  the marginal propensity to consume increases. 
A)  firms layoff fewer of its employees than it would if there is no unemployment insurance. 
B)  disposable income increases as GDP falls. 
C)  disposable income does not fall by as much as GDP decreases. 
D)  the marginal propensity to consume increases.

Question 18

Contractionary fiscal policy will lead to a fall in interest rates.

Accepted Answer

A) True 
 B)False

Question 19

An expansionary fiscal policy is likely to

Accepted Answer

A)  decrease a government budget surplus (or increase a budget deficit) and increase borrowing by the Treasury which will sell more bonds. 
B)  increase a government budget surplus (or increase a budget deficit) and decrease borrowing by the Treasury which will buy more bonds. 
C)  increase a government budget surplus (or increase a budget deficit) and increase borrowing by the Treasury which will sell more bonds. 
D)  decrease a government budget surplus (or increase a budget deficit) and decrease borrowing by the Treasury which will buy more bonds. 
A)  decrease a government budget surplus (or increase a budget deficit) and increase borrowing by the Treasury which will sell more bonds. 
B)  increase a government budget surplus (or increase a budget deficit) and decrease borrowing by the Treasury which will buy more bonds. 
C)  increase a government budget surplus (or increase a budget deficit) and increase borrowing by the Treasury which will sell more bonds. 
D)  decrease a government budget surplus (or increase a budget deficit) and decrease borrowing by the Treasury which will buy more bonds.

Question 20

According to Professor Baotai Wang who examined the crowding out phenomenon in JCanada between 1961-2000, as discussed in the Case in Point, expenditures for protection of persons and property

Accepted Answer

A)  involve no crowding out. 
B)  may involve some crowding out, but they also stimulated private investment by firms winning government contracts for defense purchases. 
C)  stimulate aggregate demand and aggregate supply. 
D)  may involve some crowding out, which is offset by the strong supply-side effects they generate. 
A)  involve no crowding out. 
B)  may involve some crowding out, but they also stimulated private investment by firms winning government contracts for defense purchases. 
C)  stimulate aggregate demand and aggregate supply. 
D)  may involve some crowding out, which is offset by the strong supply-side effects they generate.

A transfer payment that rises automatically during a recession is

Some economists argue that

When contractionary fiscal policy leads to

A contractionary fiscal policy negates some of the leftward shift of the aggregate demand curve because the resulting fall in interest rates

The government purchases component of aggregate demand includes I. all purchases by government agencies of goods and services produced by firms. II. direct production by government agencies themselves. III. government expenditures on transfer payments.

The term "crowding out" refers to the phenomenon that occurs when increased government Jspending

The impact of fiscal policy is

Recognition lags in fiscal policy stem largely from

Figure 12-4 -Refer to Figure 12-4. If the economy's long-run aggregate supply curve is LRAS₁, and if the Jeconomy is in equilibrium at Y₁, supply-side economists would advocate

Figure 12-4 -Refer to Figure 12-4. At income level Y₁, there is a(n)

Suppose that income taxes are reduced by $400 billion and households increase consumption by J80% of the resulting change in disposable income. Suppose also that the multiplier is 2. JWhat is the marginal propensity to consume?

Selling Treasury bonds to finance a federal deficit crowds out private investment by driving Jinterest rates down.

If there is a recessionary gap in the economy, discretionary fiscal policy would likely involve Jan action to

Expansionary fiscal policy leads to

An expansionary fiscal policy will result in the Treasury selling more bonds, the price of bonds falling, and interest rates rising.

During a recession, unemployment insurance ensures that

Contractionary fiscal policy will lead to a fall in interest rates.

An expansionary fiscal policy is likely to

According to Professor Baotai Wang who examined the crowding out phenomenon in JCanada between 1961-2000, as discussed in the Case in Point, expenditures for protection of persons and property

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

A transfer payment that rises automatically during a recession is

Some economists argue that

When contractionary fiscal policy leads to

A contractionary fiscal policy negates some of the leftward shift of the aggregate demand curve because the resulting fall in interest rates

The government purchases component of aggregate demand includes I. all purchases by government agencies of goods and services produced by firms. II. direct production by government agencies themselves. III. government expenditures on transfer payments.

The term "crowding out" refers to the phenomenon that occurs when increased government Jspending

The impact of fiscal policy is

Recognition lags in fiscal policy stem largely from

Figure 12-4 -Refer to Figure 12-4. If the economy's long-run aggregate supply curve is LRAS1, and if the Jeconomy is in equilibrium at Y1, supply-side economists would advocate

Figure 12-4 -Refer to Figure 12-4. At income level Y1, there is a(n)

Suppose that income taxes are reduced by $400 billion and households increase consumption by J80% of the resulting change in disposable income. Suppose also that the multiplier is 2. JWhat is the marginal propensity to consume?

Selling Treasury bonds to finance a federal deficit crowds out private investment by driving Jinterest rates down.

If there is a recessionary gap in the economy, discretionary fiscal policy would likely involve Jan action to

Expansionary fiscal policy leads to

An expansionary fiscal policy will result in the Treasury selling more bonds, the price of bonds falling, and interest rates rising.

During a recession, unemployment insurance ensures that

Contractionary fiscal policy will lead to a fall in interest rates.

An expansionary fiscal policy is likely to

According to Professor Baotai Wang who examined the crowding out phenomenon in JCanada between 1961-2000, as discussed in the Case in Point, expenditures for protection of persons and property

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 12-4 -Refer to Figure 12-4. If the economy's long-run aggregate supply curve is LRAS₁, and if the Jeconomy is in equilibrium at Y₁, supply-side economists would advocate

Figure 12-4 -Refer to Figure 12-4. At income level Y₁, there is a(n)