Question 1

If the government purchases multiplier is 4 and a change in government spending leads to a $500 million decrease in aggregate demand,we can conclude that

Accepted Answer

A) Government spending decreased by $125 million. 
B) Taxes increased by $500 million. 
C) Taxes decreased by $100 million. 
D) Government spending decreased by $100 million. 
A) Government spending decreased by $125 million. 
B) Taxes increased by $500 million. 
C) Taxes decreased by $100 million. 
D) Government spending decreased by $100 million.

Question 2

Payments to individuals for which no current goods or services are exchanged are known as

Accepted Answer

A) Social Security payroll taxes. 
B) Income transfers. 
C) AD shortfalls. 
D) AD excesses. 
A) Social Security payroll taxes. 
B) Income transfers. 
C) AD shortfalls. 
D) AD excesses.

Question 3

The AD shortfall is the amount of additional aggregate demand needed to achieve full employment after allowing for

Accepted Answer

A) Multiplier effects. 
B) Price level changes. 
C) Feedback effects. 
D) Fiscal stimulus. 
A) Multiplier effects. 
B) Price level changes. 
C) Feedback effects. 
D) Fiscal stimulus.

Question 4

If the desired fiscal restraint is $80 billion and the AD excess is $160 billion,we can conclude that

Accepted Answer

A) The MPS is 0.50. 
B) The multiplier is 0.50. 
C) There is a recessionary gap. 
D) The MPC is 2.0. 
A) The MPS is 0.50. 
B) The multiplier is 0.50. 
C) There is a recessionary gap. 
D) The MPC is 2.0.

Question 5

If the MPC equals 0.75,$100 billion tax increase will decrease consumption in the first round by

Accepted Answer

A) $100 billion. 
B) $300 billion. 
C) $400 billion. 
D) $75 billion. 
A) $100 billion. 
B) $300 billion. 
C) $400 billion. 
D) $75 billion.

Question 6

Which of the following is an income transfer?

Accepted Answer

A) Free medical care made available to the poor by a private physician. 
B) Unemployment benefits paid to a factory worker who was laid off. 
C) A new highway built by the federal government. 
D) A gift of money from a parent to a child. 
A) Free medical care made available to the poor by a private physician. 
B) Unemployment benefits paid to a factory worker who was laid off. 
C) A new highway built by the federal government. 
D) A gift of money from a parent to a child.

Question 7

It is impossible for the government to maintain a balanced budget while using fiscal policy to eliminate a recessionary gap.

Accepted Answer

A) True 
 B)False

Question 8

An example of fiscal policy occurs when the government decreases corporate income taxes.

Accepted Answer

A) True 
 B)False

Question 9

The balanced budget multiplier is equal to

Accepted Answer

A) 0. 
B) 1. 
C) 1 times the change in taxes. 
D) The change in government spending minus the change in taxes. 
A) 0. 
B) 1. 
C) 1 times the change in taxes. 
D) The change in government spending minus the change in taxes.

Question 10

How can a tax cut increase investment,and what is the impact on the economy?

Accepted Answer

The level of investment is affected by e

Question 11

An example of fiscal policy occurs when the government purchases fighter planes from a U.S.manufacturer.

Accepted Answer

A) True 
 B)False

Question 12

Assume the MPC is 0.80.The change in total spending for the economy due to a $200 billion government spending increase is

Accepted Answer

A) $160 billion. 
B) $200 billion. 
C) $800 billion. 
D) $1 trillion. 
A) $160 billion. 
B) $200 billion. 
C) $800 billion. 
D) $1 trillion.

Question 13

The desired fiscal restraint is equal to

Accepted Answer

A) Excess AD times the multiplier. 
B) Excess AD divided by the multiplier. 
C) Desired AD reduction. 
D) GDP gap divided by the multiplier. 
A) Excess AD times the multiplier. 
B) Excess AD divided by the multiplier. 
C) Desired AD reduction. 
D) GDP gap divided by the multiplier.

Question 14

Today the federal government collects nearly

Accepted Answer

A) $1 billion a year in tax revenues. 
B) $500 billion a year in tax revenues. 
C) $1 trillion a year in tax revenues. 
D) $4 trillion a year in tax revenues. 
A) $1 billion a year in tax revenues. 
B) $500 billion a year in tax revenues. 
C) $1 trillion a year in tax revenues. 
D) $4 trillion a year in tax revenues.

Question 15

The fiscal policy target for achieving full employment when an inflationary gap exists is known as the

Accepted Answer

A) AD shortfall. 
B) Fiscal stimulus. 
C) AD excess. 
D) Fiscal restraint. 
A) AD shortfall. 
B) Fiscal stimulus. 
C) AD excess. 
D) Fiscal restraint.

Question 16

When the macro equilibrium is above full employment,fiscal policy should be used to shift aggregate demand by the amount of

Accepted Answer

A) The difference between saving and investment. 
B) The difference between desired saving and desired investment. 
C) The AD excess,which also allows for price level changes. 
D) None of the choices are correct. 
A) The difference between saving and investment. 
B) The difference between desired saving and desired investment. 
C) The AD excess,which also allows for price level changes. 
D) None of the choices are correct.

Question 17

Fiscal policy works principally through shifts of the aggregate demand curve.

Accepted Answer

A) True 
 B)False

Question 18

If the economy has an inflationary GDP gap,one possible solution is to increase government expenditures.

Accepted Answer

A) True 
 B)False

Question 19

If the federal government balanced its budget,its tax revenues would be equal to government expenditures.

Accepted Answer

A) True 
 B)False

Question 20

Which of the two fiscal stimulus tools will ultimately have the same impact on aggregate spending?

Accepted Answer

A) $100 billion tax cut and $100 billion increase in government spending. 
B) $100 billion increase in government spending and $100 billion increase in transfer payments. 
C) $100 billion increase in transfer payments and $100 billion in tax cuts. 
D) All of the choices are correct. 
A) $100 billion tax cut and $100 billion increase in government spending. 
B) $100 billion increase in government spending and $100 billion increase in transfer payments. 
C) $100 billion increase in transfer payments and $100 billion in tax cuts. 
D) All of the choices are correct.

Exam 11: Fiscal Policy

If the government purchases multiplier is 4 and a change in government spending leads to a $500 million decrease in aggregate demand,we can conclude that

Payments to individuals for which no current goods or services are exchanged are known as

The AD shortfall is the amount of additional aggregate demand needed to achieve full employment after allowing for

If the desired fiscal restraint is $80 billion and the AD excess is $160 billion,we can conclude that

If the MPC equals 0.75,$100 billion tax increase will decrease consumption in the first round by

Which of the following is an income transfer?

It is impossible for the government to maintain a balanced budget while using fiscal policy to eliminate a recessionary gap.

An example of fiscal policy occurs when the government decreases corporate income taxes.

The balanced budget multiplier is equal to

How can a tax cut increase investment,and what is the impact on the economy?

An example of fiscal policy occurs when the government purchases fighter planes from a U.S.manufacturer.

Assume the MPC is 0.80.The change in total spending for the economy due to a $200 billion government spending increase is

The desired fiscal restraint is equal to

Today the federal government collects nearly

The fiscal policy target for achieving full employment when an inflationary gap exists is known as the

When the macro equilibrium is above full employment,fiscal policy should be used to shift aggregate demand by the amount of

Fiscal policy works principally through shifts of the aggregate demand curve.

If the economy has an inflationary GDP gap,one possible solution is to increase government expenditures.

If the federal government balanced its budget,its tax revenues would be equal to government expenditures.

Which of the two fiscal stimulus tools will ultimately have the same impact on aggregate spending?

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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