Question 1

From a Keynesian perspective,the way out of recession is to

Accepted Answer

A) Wait for the economy to fix itself. 
B) Use monetary restraint. 
C) Get consumers to spend less on goods and services. 
D) Get consumers to spend more on goods and services. 
A) Wait for the economy to fix itself. 
B) Use monetary restraint. 
C) Get consumers to spend less on goods and services. 
D) Get consumers to spend more on goods and services. D

Question 2

A tax cut intended to increase aggregate demand is an example of

Accepted Answer

A) Fiscal restraint. 
B) Monetary restraint. 
C) Fiscal stimulus. 
D) Fiscal targeting. 
A) Fiscal restraint. 
B) Monetary restraint. 
C) Fiscal stimulus. 
D) Fiscal targeting. C

Question 3

Which of the following gave the U.S.federal government the power to tax income?

Accepted Answer

A) The Sixteenth Amendment to the Constitution. 
B) The Full Employment and Balanced Growth Act of 1978. 
C) The Social Security Act. 
D) The capital gains tax of the Bush administration. 
A) The Sixteenth Amendment to the Constitution. 
B) The Full Employment and Balanced Growth Act of 1978. 
C) The Social Security Act. 
D) The capital gains tax of the Bush administration. A

Question 4

To eliminate an AD shortfall of $100 billion when the economy has an MPC of 0.50,the government should increase spending by

Accepted Answer

A) $200 billion. 
B) $100 billion. 
C) $50 billion. 
D) $500 billion. 
A) $200 billion. 
B) $100 billion. 
C) $50 billion. 
D) $500 billion.

Question 5

According to Keynes,the level of economic activity is predominantly determined by the level of

Accepted Answer

A) Aggregate supply. 
B) Aggregate demand. 
C) Unemployment. 
D) Interest rates. 
A) Aggregate supply. 
B) Aggregate demand. 
C) Unemployment. 
D) Interest rates.

Question 6

If the MPC is 0.75,a $200 million transfer payment decrease ultimately

Accepted Answer

A) Reduces spending by $150 million. 
B) Increases spending by $600 million. 
C) Reduces spending by $600 million. 
D) Increases spending by $150 million. 
A) Reduces spending by $150 million. 
B) Increases spending by $600 million. 
C) Reduces spending by $600 million. 
D) Increases spending by $150 million.

Question 7

A limitation on fiscal policy is time.Which of the following does not impact the timeliness of fiscal policy?

Accepted Answer

A) It takes time to recognize that the economy is in trouble. 
B) It will take time to develop a policy strategy and for Congress to pass it. 
C) All of these impact the timeliness of fiscal policy. 
D) It will take time for the policy to be implemented and for the many steps in the multiplier process to unfold. 
A) It takes time to recognize that the economy is in trouble. 
B) It will take time to develop a policy strategy and for Congress to pass it. 
C) All of these impact the timeliness of fiscal policy. 
D) It will take time for the policy to be implemented and for the many steps in the multiplier process to unfold.

Question 8

Which of the following would cause the level of income to change by the greatest amount,ceteris paribus?

Accepted Answer

A) An increase in Social Security payments of $10 billion. 
B) A reduction in personal income taxes of $10 billion. 
C) An increase in defense spending of $10 billion. 
D) All of the other choices have equal impacts on the level of income. 
A) An increase in Social Security payments of $10 billion. 
B) A reduction in personal income taxes of $10 billion. 
C) An increase in defense spending of $10 billion. 
D) All of the other choices have equal impacts on the level of income.

Question 9

Nearly half of the federal government's tax revenues come from

Accepted Answer

A) Social Security payroll taxes. 
B) Customs,whiskey,and tobacco taxes. 
C) Individual income taxes. 
D) Corporate income taxes. 
A) Social Security payroll taxes. 
B) Customs,whiskey,and tobacco taxes. 
C) Individual income taxes. 
D) Corporate income taxes.

Question 10

The impact of fiscal stimulus on aggregate demand includes both new government spending and all subsequent induced increases in consumer spending triggered by the initial government outlays.

Accepted Answer

A) True 
 B)False

Question 11

With an upward-sloping AS curve,a decrease in transfer payments can lead to a decrease in inflation.

Accepted Answer

A) True 
 B)False

Question 12

To eliminate an AD shortfall of $100 billion when the economy has an MPC of 0.80,the government should increase transfer payments by

Accepted Answer

A) $25 billion. 
B) $100 billion. 
C) $80 billion. 
D) $20 billion. 
A) $25 billion. 
B) $100 billion. 
C) $80 billion. 
D) $20 billion.

Question 13

Suppose economic conditions call for a tax increase but Congress does not implement this measure because an election is approaching.This is an example of which of the real-world problems associated with fiscal policy?

Accepted Answer

A) Pork barrel politics. 
B) Time lags. 
C) Crowding out. 
D) Balancing the budget on the backs of the poor. 
A) Pork barrel politics. 
B) Time lags. 
C) Crowding out. 
D) Balancing the budget on the backs of the poor.

Question 14

From a Keynesian perspective,the way out of a recession includes an increase in government spending,a tax cut,or an increase in transfer payments.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following formulas is used to find the cumulative increase in AD from a particular fiscal stimulus?

Accepted Answer

A) Fiscal stimulus ÷ the multiplier. 
B) Fiscal stimulus ÷ MPC. 
C) The multiplier × fiscal stimulus. 
D) MPC × fiscal stimulus. 
A) Fiscal stimulus ÷ the multiplier. 
B) Fiscal stimulus ÷ MPC. 
C) The multiplier × fiscal stimulus. 
D) MPC × fiscal stimulus.

Question 16

A decrease in transfer payments works like a tax hike because it reduces the level of disposable income.

Accepted Answer

A) True 
 B)False

Question 17

The statement "balancing the budget on the backs of the poor" refers to

Accepted Answer

A) Transfer payment cuts in order to reduce government expenditures. 
B) Tax increases on the poor in order to increase government revenues. 
C) Government spending increases in order to increase aggregate expenditures. 
D) Government spending cuts on public parks in order to reduce government expenditures. 
A) Transfer payment cuts in order to reduce government expenditures. 
B) Tax increases on the poor in order to increase government revenues. 
C) Government spending increases in order to increase aggregate expenditures. 
D) Government spending cuts on public parks in order to reduce government expenditures.

Question 18

Tax cuts and increased income transfers have the same fiscal stimulus,dollar for dollar.

Accepted Answer

A) True 
 B)False

Question 19

Joan Robinson,author of The Second Crisis of Economic Theory,is quoted as saying,"Keynes did not want anyone to dig holes and fill them." She is pointing out that

Accepted Answer

A) The content of fiscal policy is as important as its aggregate impact on the economy. 
B) The government should not be interfering in the economy because the jobs created are usually unproductive. 
C) As far as stabilization objectives are concerned,the level of spending is the only thing that counts. 
D) Keynesian economic policies do not work. 
A) The content of fiscal policy is as important as its aggregate impact on the economy. 
B) The government should not be interfering in the economy because the jobs created are usually unproductive. 
C) As far as stabilization objectives are concerned,the level of spending is the only thing that counts. 
D) Keynesian economic policies do not work.

Question 20

If the government cuts taxes by $200 million and simultaneously decreases government spending by $200 million,then

Accepted Answer

A) Aggregate demand will rise because the government decrease in purchases occurs so slowly. 
B) Aggregate demand in the economy will remain unchanged. 
C) People will spend only part of their tax cut,so aggregate demand will eventually rise by $200 million. 
D) Aggregate demand will decrease by $200 million. 
A) Aggregate demand will rise because the government decrease in purchases occurs so slowly. 
B) Aggregate demand in the economy will remain unchanged. 
C) People will spend only part of their tax cut,so aggregate demand will eventually rise by $200 million. 
D) Aggregate demand will decrease by $200 million.

Exam 11: Fiscal Policy

From a Keynesian perspective,the way out of recession is to

A tax cut intended to increase aggregate demand is an example of

Which of the following gave the U.S.federal government the power to tax income?

To eliminate an AD shortfall of $100 billion when the economy has an MPC of 0.50,the government should increase spending by

According to Keynes,the level of economic activity is predominantly determined by the level of

If the MPC is 0.75,a $200 million transfer payment decrease ultimately

A limitation on fiscal policy is time.Which of the following does not impact the timeliness of fiscal policy?

Which of the following would cause the level of income to change by the greatest amount,ceteris paribus?

Nearly half of the federal government's tax revenues come from

The impact of fiscal stimulus on aggregate demand includes both new government spending and all subsequent induced increases in consumer spending triggered by the initial government outlays.

With an upward-sloping AS curve,a decrease in transfer payments can lead to a decrease in inflation.

To eliminate an AD shortfall of $100 billion when the economy has an MPC of 0.80,the government should increase transfer payments by

Suppose economic conditions call for a tax increase but Congress does not implement this measure because an election is approaching.This is an example of which of the real-world problems associated with fiscal policy?

From a Keynesian perspective,the way out of a recession includes an increase in government spending,a tax cut,or an increase in transfer payments.

Which of the following formulas is used to find the cumulative increase in AD from a particular fiscal stimulus?

A decrease in transfer payments works like a tax hike because it reduces the level of disposable income.

The statement "balancing the budget on the backs of the poor" refers to

Tax cuts and increased income transfers have the same fiscal stimulus,dollar for dollar.

Joan Robinson,author of The Second Crisis of Economic Theory,is quoted as saying,"Keynes did not want anyone to dig holes and fill them." She is pointing out that

If the government cuts taxes by $200 million and simultaneously decreases government spending by $200 million,then

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Aggregate Demand

Self-Adjustment or Instability

Deficits and Debt

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

Elasticity

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Financial Markets

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

International Trade

International Finance

Global Poverty

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