Question 1

The impact of expansionary fiscal policy is weakened because of crowding out.

Accepted Answer

A) True 
 B)False

Question 2

Suppose that income taxes are increased by $600 billion. If the marginal propensity to consume is 0.75 and the spending multiplier is 4, by how much will the aggregate demand curve shift at a given price level?

Accepted Answer

A)  $2,400 billion 
B)  $1,800 billion 
C)  $600 billion 
D)  $450 billion 
A)  $2,400 billion 
B)  $1,800 billion 
C)  $600 billion 
D)  $450 billion

Question 3

Figure 12-2  
-Refer to Figure 12-2. If real GDP is equal to Yr, 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 4

Personal income taxes and transfer payments are examples of automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 5

An expansionary fiscal policy increases a government budget deficit or reduces a government budget surplus, increases borrowing by the Treasury, which will sell more bonds.

Accepted Answer

A) True 
 B)False

Question 6

Personal income and payroll taxes are the largest sources of revenue for the federal
Jgovernment.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following describes a discretionary fiscal policy action/program?

Accepted Answer

A)  the progressive income tax system 
B)  The government increases funding for the Dislocated Worker Program, a federal initiative that provides retraining and career counseling. 
C)  the unemployment compensation program 
D)  the system of welfare programs 
A)  the progressive income tax system 
B)  The government increases funding for the Dislocated Worker Program, a federal initiative that provides retraining and career counseling. 
C)  the unemployment compensation program 
D)  the system of welfare programs

Question 8

The sum of all past federal deficits minus any surpluses is called the

Accepted Answer

A)  transfer balance. 
B)  national deficit. 
C)  national debt. 
D)  national budget. 
A)  transfer balance. 
B)  national deficit. 
C)  national debt. 
D)  national budget.

Question 9

Suppose the economy experiences an inflationary gap. Policymakers who believe that Jgovernment is too big would favor which of the following policies to close the gap?

Accepted Answer

A)  reduction in government spending 
B)  increases in income tax rates 
C)  increases in corporate tax rates 
D)  increases in interest rates 
A)  reduction in government spending 
B)  increases in income tax rates 
C)  increases in corporate tax rates 
D)  increases in interest rates

Question 10

An inflationary gap can be closed with

Accepted Answer

A)  using an expansionary monetary policy. 
B)  using a policy action such as a reduction in taxes. 
C)  using a policy action such as a reduction in government purchases. 
D)  imposing price controls to prevent prices from rising. 
A)  using an expansionary monetary policy. 
B)  using a policy action such as a reduction in taxes. 
C)  using a policy action such as a reduction in government purchases. 
D)  imposing price controls to prevent prices from rising.

Question 11

Expansionary fiscal policy includes

Accepted Answer

A)  increasing taxes and increasing government purchases. 
B)  lowering interest rates, decreasing taxes and increasing transfer payments. 
C)  decreasing taxes and increasing government expenditures. 
D)  lowering the interest rates, decreasing taxes and decreasing government spending. 
A)  increasing taxes and increasing government purchases. 
B)  lowering interest rates, decreasing taxes and increasing transfer payments. 
C)  decreasing taxes and increasing government expenditures. 
D)  lowering the interest rates, decreasing taxes and decreasing government spending.

Question 12

The government has a budget deficit 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 13

As discussed in the Case in Point on the degree of crowding out of Canadian private investment as a result of government expenditures from 1961-2000, Professor Baotai Wang concluded that

Accepted Answer

A)  all types of government spending-spending on health and education, on infrastructure and capital, on defense, on debt services, and on government and social services-lead to crowding out. 
B)  government expenditures that increased human capital, such as spending on health and education, are more likely to lead to crowding out than other types of government expenditures. 
C)  crowding out depends on the nature of spending done by the government. 
D)  government expenditures, on infrastructure and capital are more likely to lead to crowding in because they expand a nation's capital stock. 
A)  all types of government spending-spending on health and education, on infrastructure and capital, on defense, on debt services, and on government and social services-lead to crowding out. 
B)  government expenditures that increased human capital, such as spending on health and education, are more likely to lead to crowding out than other types of government expenditures. 
C)  crowding out depends on the nature of spending done by the government. 
D)  government expenditures, on infrastructure and capital are more likely to lead to crowding in because they expand a nation's capital stock.

Question 14

The government has a budget surplus 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 15

Suppose the government increases the corporate income tax rate. This is

Accepted Answer

A)  an expansionary fiscal policy that will shift the aggregate demand curve to the right by an amount equal to the initial change in corporate income tax revenue times the spending multiplier. 
B)  a contractionary fiscal policy that will shift the aggregate demand curve to the left by an amount equal to the initial change in investment times the spending multiplier. 
C)  a contractionary fiscal policy that will shift the aggregate demand curve to the left by an amount equal to the initial change in the corporate income tax rate times the spending multiplier. 
D)  an automatic fiscal policy that will shift the aggregate demand curve to the left by an amount equal to the initial change in investment times the spending multiplier. 
A)  an expansionary fiscal policy that will shift the aggregate demand curve to the right by an amount equal to the initial change in corporate income tax revenue times the spending multiplier. 
B)  a contractionary fiscal policy that will shift the aggregate demand curve to the left by an amount equal to the initial change in investment times the spending multiplier. 
C)  a contractionary fiscal policy that will shift the aggregate demand curve to the left by an amount equal to the initial change in the corporate income tax rate times the spending multiplier. 
D)  an automatic fiscal policy that will shift the aggregate demand curve to the left by an amount equal to the initial change in investment times the spending multiplier.

Question 16

If private sector investment does not respond much to interest rate changes, then

Accepted Answer

A)  there will be more crowding out when expansionary policies are undertaken. 
B)  there will be less crowding out when expansionary policies are undertaken. 
C)  fiscal policy will be less effective than monetary policy. 
D)  monetary policy will be more effective than fiscal policy. 
A)  there will be more crowding out when expansionary policies are undertaken. 
B)  there will be less crowding out when expansionary policies are undertaken. 
C)  fiscal policy will be less effective than monetary policy. 
D)  monetary policy will be more effective than fiscal policy.

Question 17

A contractionary fiscal policy will reduce a government budget deficit or increase a government budget surplus and lower the quantity of bonds the government must sell.

Accepted Answer

A) True 
 B)False

Question 18

Automatic stabilizers are an example of discretionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 19

According to Professor Baotai Wang who examined the crowding out phenomenon in Canada between 1961-2000, as discussed in the Case in Point, which of the following categories of government expenditures are most likely to lead to crowding out?

Accepted Answer

A)  expenditures for health and education 
B)  expenditures for infrastructure and capital 
C)  expenditures for the protection of persons and property, including defense spending 
D)  expenditures for government and social services 
A)  expenditures for health and education 
B)  expenditures for infrastructure and capital 
C)  expenditures for the protection of persons and property, including defense spending 
D)  expenditures for government and social services

Question 20

Suppose the economy is in long-run equilibrium. If the federal government cuts government Jspending, which of the following is likely to result?

Accepted Answer

A)  an increase in real GDP and an increase in the price level 
B)  an increase in unemployment and an increase in the price level 
C)  a decrease in unemployment and a decrease in the price level 
D)  a decrease in the price level and an increase in unemployment 
A)  an increase in real GDP and an increase in the price level 
B)  an increase in unemployment and an increase in the price level 
C)  a decrease in unemployment and a decrease in the price level 
D)  a decrease in the price level and an increase in unemployment

The impact of expansionary fiscal policy is weakened because of crowding out.

Suppose that income taxes are increased by $600 billion. If the marginal propensity to consume is 0.75 and the spending multiplier is 4, by how much will the aggregate demand curve shift at a given price level?

Figure 12-2 -Refer to Figure 12-2. If real GDP is equal to Y_r, there is

Personal income taxes and transfer payments are examples of automatic stabilizers.

An expansionary fiscal policy increases a government budget deficit or reduces a government budget surplus, increases borrowing by the Treasury, which will sell more bonds.

Personal income and payroll taxes are the largest sources of revenue for the federal Jgovernment.

Which of the following describes a discretionary fiscal policy action/program?

The sum of all past federal deficits minus any surpluses is called the

Suppose the economy experiences an inflationary gap. Policymakers who believe that Jgovernment is too big would favor which of the following policies to close the gap?

An inflationary gap can be closed with

Expansionary fiscal policy includes

The government has a budget deficit if

As discussed in the Case in Point on the degree of crowding out of Canadian private investment as a result of government expenditures from 1961-2000, Professor Baotai Wang concluded that

The government has a budget surplus if

Suppose the government increases the corporate income tax rate. This is

If private sector investment does not respond much to interest rate changes, then

A contractionary fiscal policy will reduce a government budget deficit or increase a government budget surplus and lower the quantity of bonds the government must sell.

Automatic stabilizers are an example of discretionary fiscal policy.

According to Professor Baotai Wang who examined the crowding out phenomenon in Canada between 1961-2000, as discussed in the Case in Point, which of the following categories of government expenditures are most likely to lead to crowding out?

Suppose the economy is in long-run equilibrium. If the federal government cuts government Jspending, which of the following is likely to result?

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 impact of expansionary fiscal policy is weakened because of crowding out.

Suppose that income taxes are increased by $600 billion. If the marginal propensity to consume is 0.75 and the spending multiplier is 4, by how much will the aggregate demand curve shift at a given price level?

Figure 12-2 -Refer to Figure 12-2. If real GDP is equal to Yr, there is

Personal income taxes and transfer payments are examples of automatic stabilizers.

An expansionary fiscal policy increases a government budget deficit or reduces a government budget surplus, increases borrowing by the Treasury, which will sell more bonds.

Personal income and payroll taxes are the largest sources of revenue for the federal Jgovernment.

Which of the following describes a discretionary fiscal policy action/program?

The sum of all past federal deficits minus any surpluses is called the

Suppose the economy experiences an inflationary gap. Policymakers who believe that Jgovernment is too big would favor which of the following policies to close the gap?

An inflationary gap can be closed with

Expansionary fiscal policy includes

The government has a budget deficit if

As discussed in the Case in Point on the degree of crowding out of Canadian private investment as a result of government expenditures from 1961-2000, Professor Baotai Wang concluded that

The government has a budget surplus if

Suppose the government increases the corporate income tax rate. This is

If private sector investment does not respond much to interest rate changes, then

A contractionary fiscal policy will reduce a government budget deficit or increase a government budget surplus and lower the quantity of bonds the government must sell.

Automatic stabilizers are an example of discretionary fiscal policy.

According to Professor Baotai Wang who examined the crowding out phenomenon in Canada between 1961-2000, as discussed in the Case in Point, which of the following categories of government expenditures are most likely to lead to crowding out?

Suppose the economy is in long-run equilibrium. If the federal government cuts government Jspending, which of the following is likely to result?

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 12-2 -Refer to Figure 12-2. If real GDP is equal to Y_r, there is