Question 1

The government has a balanced budget if

Accepted Answer

A)  its total revenues are equal to its total expenditures. 
B)  its total revenues are less than its total expenditures. 
C)  its total revenues are greater than its total expenditures. 
D)  the money supply is less than total expenditures. 
A)  its total revenues are equal to its total expenditures. 
B)  its total revenues are less than its total expenditures. 
C)  its total revenues are greater than its total expenditures. 
D)  the money supply is less than total expenditures.

Question 2

Figure 12-1  
-Refer to Figure 12-1. The economy is initially at output level Y1 and there is

Accepted Answer

A)  an inflationary gap. 
B)  a recessionary gap. 
C)  equilibrium at full employment. 
D)  a short-run and a long-run equilibrium. 
A)  an inflationary gap. 
B)  a recessionary gap. 
C)  equilibrium at full employment. 
D)  a short-run and a long-run equilibrium.

Question 3

During a contraction,

Accepted Answer

A)  higher income tax revenues tend to automatically increase a budget deficit or reduce a budget surplus. 
B)  higher income tax revenues tend to automatically increase a budget surplus or reduce a budget deficit. 
C)  lower income tax revenues tend to automatically increase a budget deficit or reduce a budget surplus. 
D)  lower income tax revenues tend to automatically increase a budget surplus or reduce a budget deficit. 
A)  higher income tax revenues tend to automatically increase a budget deficit or reduce a budget surplus. 
B)  higher income tax revenues tend to automatically increase a budget surplus or reduce a budget deficit. 
C)  lower income tax revenues tend to automatically increase a budget deficit or reduce a budget surplus. 
D)  lower income tax revenues tend to automatically increase a budget surplus or reduce a budget deficit.

Question 4

Which of the following contributes to implementation lag for discretionary fiscal policy?

Accepted Answer

A)  the time it takes to secure legislative approval for policy actions 
B)  the time it takes for economic agents to respond to policy actions 
C)  the difficulty of collecting economic data in a timely manner 
D)  the time it takes to borrow funds to finance the fiscal policy 
A)  the time it takes to secure legislative approval for policy actions 
B)  the time it takes for economic agents to respond to policy actions 
C)  the difficulty of collecting economic data in a timely manner 
D)  the time it takes to borrow funds to finance the fiscal policy

Question 5

An increase in business taxes is likely to reduce aggregate demand because of a decrease in private investment.

Accepted Answer

A) True 
 B)False

Question 6

Payments to households that do not require anything in exchange are called

Accepted Answer

A)  transfer payments. 
B)  government purchases. 
C)  consumption expenditures. 
D)  investment expenditures. 
A)  transfer payments. 
B)  government purchases. 
C)  consumption expenditures. 
D)  investment expenditures.

Question 7

Consider two fiscal policy actions. JI. a $400 billion reduction in income taxes
JII) a $400 billion increase in government purchases
JWhich policy will have a bigger impact on aggregate demand?

Accepted Answer

A)  Both policies will have the exact same impact. 
B)  Policy II because it affects aggregate demand directly. 
C)  Policy I because it affects disposable income directly. 
D)  Policy I because it works through consumption which is the largest component of aggregate demand. 
A)  Both policies will have the exact same impact. 
B)  Policy II because it affects aggregate demand directly. 
C)  Policy I because it affects disposable income directly. 
D)  Policy I because it works through consumption which is the largest component of aggregate demand.

Question 8

Figure 12-1  
-Refer to Figure 12-1. At output level Y1,

Accepted Answer

A)  potential output is greater than actual output. 
B)  the economy is operating at a point outside its production possibilities curve. 
C)  the actual unemployment rate is less than the natural rate of unemployment. 
D)  aggregate demand will fall to restore equilibrium. 
A)  potential output is greater than actual output. 
B)  the economy is operating at a point outside its production possibilities curve. 
C)  the actual unemployment rate is less than the natural rate of unemployment. 
D)  aggregate demand will fall to restore equilibrium.

Question 9

Taxes assessed on firms and employees on wages and salaries earned are called

Accepted Answer

A)  dividend taxes. 
B)  payroll taxes. 
C)  corporate profits taxes. 
D)  earned income taxes. 
A)  dividend taxes. 
B)  payroll taxes. 
C)  corporate profits taxes. 
D)  earned income taxes.

Question 10

An increase in government transfer payments will shift the aggregate demand curve to the right

Accepted Answer

A)  by the initial change in consumption arising from the change in transfer payment × the spending multiplier. 
B)  by the initial change in income arising from the change in transfer payment × the spending multiplier. 
C)  by the change in transfer payments × times the spending multiplier. 
D)  by the change in transfer payments × times the marginal propensity to consume. 
A)  by the initial change in consumption arising from the change in transfer payment × the spending multiplier. 
B)  by the initial change in income arising from the change in transfer payment × the spending multiplier. 
C)  by the change in transfer payments × times the spending multiplier. 
D)  by the change in transfer payments × times the marginal propensity to consume.

Question 11

The use of government expenditures and taxes to influence the level of economic activity is Jcalled

Accepted Answer

A)  deficit management policy. 
B)  debt management policy. 
C)  financial policy. 
D)  fiscal policy. 
A)  deficit management policy. 
B)  debt management policy. 
C)  financial policy. 
D)  fiscal policy.

Question 12

In late 2008, the U.S. government extended unemployment insurance benefits for seven additional weeks, in recognition of the growing unemployment problem. This extension is an example of

Accepted Answer

A)  automatic fiscal policy. 
B)  discretionary fiscal policy. 
C)  expansionary monetary policy. 
D)  supply-side fiscal policy. 
A)  automatic fiscal policy. 
B)  discretionary fiscal policy. 
C)  expansionary monetary policy. 
D)  supply-side fiscal policy.

Question 13

Suppose a country has a national debt of $2,000 billion, a GDP of $28,000 billion, and a Jbudget deficit of $115 billion. How much will its new national debt be?

Accepted Answer

A)  $2,115 billion 
B)  $1,885 billion 
C)  $28,115 billion 
D)  $25,885 billion 
A)  $2,115 billion 
B)  $1,885 billion 
C)  $28,115 billion 
D)  $25,885 billion

Question 14

Transfer payments tend to rise automatically during a recession and fall automatically during
Jan expansion.

Accepted Answer

A) True 
 B)False

Question 15

Suppose that when income taxes are reduced by $400 billion, households increase consumption Jby 80% of the resulting change in disposable income. Suppose also that the multiplier is 2. At a given price level, the aggregate demand curve shifts to the right by

Accepted Answer

A)  $320 billion. 
B)  $400 billion. 
C)  $640 billion. 
D)  $800 billion. 
A)  $320 billion. 
B)  $400 billion. 
C)  $640 billion. 
D)  $800 billion.

Question 16

In 2003, Congress passed a substantial cut in income taxes. The Federal Reserve also lowered interest rates. How can these two actions be categorized?

Accepted Answer

A)  Both actions can be categorized as fiscal policy. 
B)  Both actions can be categorized as monetary policy. 
C)  The tax cut can be categorized as monetary policy and the lowering of interest rates can be categorized as fiscal policy. 
D)  The tax cut can be categorized as fiscal policy and the lowering of interest rates can be categorized as monetary policy. 
A)  Both actions can be categorized as fiscal policy. 
B)  Both actions can be categorized as monetary policy. 
C)  The tax cut can be categorized as monetary policy and the lowering of interest rates can be categorized as fiscal policy. 
D)  The tax cut can be categorized as fiscal policy and the lowering of interest rates can be categorized as monetary policy.

Question 17

Which of the following is an automatic stabilizer? 
I. inheritance taxes
II. government payments to war veterans
III. aid to families with dependent children
IV. sales taxes

Accepted Answer

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

Question 18

Suppose a country's debt rises by 6% and its GDP rises by 8%. What happens to the debt-GDP ratio?

Accepted Answer

A)  It rises if there is a budget deficit that period. 
B)  It falls. 
C)  It rises. 
D)  There is insufficient information to answer the question. 
A)  It rises if there is a budget deficit that period. 
B)  It falls. 
C)  It rises. 
D)  There is insufficient information to answer the question.

Question 19

Suppose a country decreases government purchases by $400 billion. Suppose the government spending multiplier is 1.5 and the economy's real GDP is $8,000 billion. This contractionary policy action shifts the aggregate demand curve to the left by

Accepted Answer

A)  $12,000 billion. 
B)  $600 billion. 
C)  $533.3 billion. 
D)  $266.6 billion. 
A)  $12,000 billion. 
B)  $600 billion. 
C)  $533.3 billion. 
D)  $266.6 billion.

Question 20

The impact of instituting investment tax credits is

Accepted Answer

A)  to stimulate private sector investments and increase aggregate demand. 
B)  to stimulate private production and increase aggregate supply. 
C)  to encourage individuals to save in an effort to increase funds available for investment. 
D)  to curtail in excessive lending by financial institutions. 
A)  to stimulate private sector investments and increase aggregate demand. 
B)  to stimulate private production and increase aggregate supply. 
C)  to encourage individuals to save in an effort to increase funds available for investment. 
D)  to curtail in excessive lending by financial institutions.

The government has a balanced budget if

Figure 12-1 -Refer to Figure 12-1. The economy is initially at output level Y₁ and there is

During a contraction,

Which of the following contributes to implementation lag for discretionary fiscal policy?

An increase in business taxes is likely to reduce aggregate demand because of a decrease in private investment.

Payments to households that do not require anything in exchange are called

Consider two fiscal policy actions. JI. a $400 billion reduction in income taxes JII) a $400 billion increase in government purchases JWhich policy will have a bigger impact on aggregate demand?

Figure 12-1 -Refer to Figure 12-1. At output level Y₁,

Taxes assessed on firms and employees on wages and salaries earned are called

An increase in government transfer payments will shift the aggregate demand curve to the right

The use of government expenditures and taxes to influence the level of economic activity is Jcalled

In late 2008, the U.S. government extended unemployment insurance benefits for seven additional weeks, in recognition of the growing unemployment problem. This extension is an example of

Suppose a country has a national debt of $2,000 billion, a GDP of $28,000 billion, and a Jbudget deficit of $115 billion. How much will its new national debt be?

Transfer payments tend to rise automatically during a recession and fall automatically during Jan expansion.

Suppose that when income taxes are reduced by $400 billion, households increase consumption Jby 80% of the resulting change in disposable income. Suppose also that the multiplier is 2. At a given price level, the aggregate demand curve shifts to the right by

In 2003, Congress passed a substantial cut in income taxes. The Federal Reserve also lowered interest rates. How can these two actions be categorized?

Which of the following is an automatic stabilizer? I. inheritance taxes II. government payments to war veterans III. aid to families with dependent children IV. sales taxes

Suppose a country's debt rises by 6% and its GDP rises by 8%. What happens to the debt-GDP ratio?

Suppose a country decreases government purchases by $400 billion. Suppose the government spending multiplier is 1.5 and the economy's real GDP is $8,000 billion. This contractionary policy action shifts the aggregate demand curve to the left by

The impact of instituting investment tax credits is

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

The government has a balanced budget if

Figure 12-1 -Refer to Figure 12-1. The economy is initially at output level Y1 and there is

During a contraction,

Which of the following contributes to implementation lag for discretionary fiscal policy?

An increase in business taxes is likely to reduce aggregate demand because of a decrease in private investment.

Payments to households that do not require anything in exchange are called

Consider two fiscal policy actions. JI. a $400 billion reduction in income taxes JII) a $400 billion increase in government purchases JWhich policy will have a bigger impact on aggregate demand?

Figure 12-1 -Refer to Figure 12-1. At output level Y1,

Taxes assessed on firms and employees on wages and salaries earned are called

An increase in government transfer payments will shift the aggregate demand curve to the right

The use of government expenditures and taxes to influence the level of economic activity is Jcalled

In late 2008, the U.S. government extended unemployment insurance benefits for seven additional weeks, in recognition of the growing unemployment problem. This extension is an example of

Suppose a country has a national debt of $2,000 billion, a GDP of $28,000 billion, and a Jbudget deficit of $115 billion. How much will its new national debt be?

Transfer payments tend to rise automatically during a recession and fall automatically during Jan expansion.

Suppose that when income taxes are reduced by $400 billion, households increase consumption Jby 80% of the resulting change in disposable income. Suppose also that the multiplier is 2. At a given price level, the aggregate demand curve shifts to the right by

In 2003, Congress passed a substantial cut in income taxes. The Federal Reserve also lowered interest rates. How can these two actions be categorized?

Which of the following is an automatic stabilizer? I. inheritance taxes II. government payments to war veterans III. aid to families with dependent children IV. sales taxes

Suppose a country's debt rises by 6% and its GDP rises by 8%. What happens to the debt-GDP ratio?

Suppose a country decreases government purchases by $400 billion. Suppose the government spending multiplier is 1.5 and the economy's real GDP is $8,000 billion. This contractionary policy action shifts the aggregate demand curve to the left by

The impact of instituting investment tax credits is

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 12-1 -Refer to Figure 12-1. The economy is initially at output level Y₁ and there is

Figure 12-1 -Refer to Figure 12-1. At output level Y₁,