Question 1

Ceteris paribus,if the AD shortfall equals $600 billion,then the federal government can close it by increasing

Accepted Answer

A) Government spending by exactly $600 billion. 
B) Government spending by less than $600 billion. 
C) Taxes by more than $600 billion. 
D) Taxes by exactly $600 billion. 
A) Government spending by exactly $600 billion. 
B) Government spending by less than $600 billion. 
C) Taxes by more than $600 billion. 
D) Taxes by exactly $600 billion.

Question 2

What are the fiscal policy options to reduce an inflationary gap? Do these policies have the same impact?

Accepted Answer

The government can reduce its spending o

Question 3

Time lags in the design,authorization,and implementation of fiscal policy reduce its effectiveness.

Accepted Answer

A) True 
 B)False

Question 4

The total change in aggregate spending generated by increased government spending depends on the

Accepted Answer

A) Marginal propensity to consume. 
B) Size of the recessionary GDP gap. 
C) AD shortfall. 
D) AD excess. 
A) Marginal propensity to consume. 
B) Size of the recessionary GDP gap. 
C) AD shortfall. 
D) AD excess.

Question 5

Refer to Figure 11.3.Assume aggregate demand is represented by AD3 and full-employment output is $5.8 trillion.To restore price stability,the AD curve must shift

Accepted Answer

A) Leftward by less than $200 billion. 
B) Leftward by more than $200 billion. 
C) Rightward by $400 billion. 
D) Rightward by $800 billion. 
A) Leftward by less than $200 billion. 
B) Leftward by more than $200 billion. 
C) Rightward by $400 billion. 
D) Rightward by $800 billion.

Question 6

What happens to aggregate demand when government spending and the taxes to pay for it both rise by the same amount?

Accepted Answer

A) Aggregate demand falls by the amount of the government spending. 
B) There is no effect. 
C) Aggregate demand rises by the amount of the government spending. 
D) Aggregate demand rises by the amount of the government spending times the multiplier. 
A) Aggregate demand falls by the amount of the government spending. 
B) There is no effect. 
C) Aggregate demand rises by the amount of the government spending. 
D) Aggregate demand rises by the amount of the government spending times the multiplier.

Question 7

The second crisis of economic theory refers to

Accepted Answer

A) The typical fiscal policy trade-off between unemployment and inflation. 
B) The dominance of Keynesian views in fiscal policy to the exclusion of newer,more enlightened viewpoints. 
C) An emphasis on the level of output without concern for the content of output in terms of fiscal policy. 
D) Our inability to maintain full employment output over any significant period of time. 
A) The typical fiscal policy trade-off between unemployment and inflation. 
B) The dominance of Keynesian views in fiscal policy to the exclusion of newer,more enlightened viewpoints. 
C) An emphasis on the level of output without concern for the content of output in terms of fiscal policy. 
D) Our inability to maintain full employment output over any significant period of time.

Question 8

In formulating fiscal policy it is necessary to specify the amount of the desired AD shift.

Accepted Answer

A) True 
 B)False

Question 9

Defense,health,and highway spending are income transfers.

Accepted Answer

A) True 
 B)False

Question 10

In Figure 11.1,assume that QF is full-employment output and the level of aggregate spending is represented by AD1.If AD1 increases to AD2,which of the following statements is correct?

Accepted Answer

A) Full employment will be reached. 
B) Excess AD and inflation will be the result. 
C) Full employment will not be reached because some of the additional spending results in higher prices rather than higher output. 
D) A lower price level will result. 
A) Full employment will be reached. 
B) Excess AD and inflation will be the result. 
C) Full employment will not be reached because some of the additional spending results in higher prices rather than higher output. 
D) A lower price level will result.

Question 11

Crowding out is the idea that an increase in government spending may cause a reduction in private sector spending.

Accepted Answer

A) True 
 B)False

Question 12

In a diagram of aggregate demand and supply curves,the GDP gap is measured as the

Accepted Answer

A) Horizontal distance between the equilibrium output and the full-employment output. 
B) Vertical distance between the equilibrium price and the price at which the aggregate demand would intersect aggregate supply at full employment. 
C) Horizontal distance between the aggregate demand necessary to achieve full employment and the aggregate demand curve at equilibrium output. 
D) Vertical distance between the equilibrium output and the full-employment output. 
A) Horizontal distance between the equilibrium output and the full-employment output. 
B) Vertical distance between the equilibrium price and the price at which the aggregate demand would intersect aggregate supply at full employment. 
C) Horizontal distance between the aggregate demand necessary to achieve full employment and the aggregate demand curve at equilibrium output. 
D) Vertical distance between the equilibrium output and the full-employment output.

Question 13

What will happen in the economy if the government increases spending and increases taxes by equal amounts to pay for that additional government spending?

Accepted Answer

An increase in spending will shift the A

Question 14

The U.S.government was given the power to tax income in the

Accepted Answer

A) Early 1700s. 
B) Early 1800s. 
C) Late 1800s. 
D) Early 1900s. 
A) Early 1700s. 
B) Early 1800s. 
C) Late 1800s. 
D) Early 1900s.

Question 15

Which of the following explains why the government should not increase spending by the entire amount of the AD shortfall to move the economy to full employment?

Accepted Answer

A) Price level changes will make up for the difference between the fiscal stimulus and the AD shortfall. 
B) The multiplier process will contribute to an additional increase in aggregate demand that will cause an inflationary gap. 
C) The government can increase taxes to create an additional increase in aggregate demand. 
D) The price level is constant. 
A) Price level changes will make up for the difference between the fiscal stimulus and the AD shortfall. 
B) The multiplier process will contribute to an additional increase in aggregate demand that will cause an inflationary gap. 
C) The government can increase taxes to create an additional increase in aggregate demand. 
D) The price level is constant.

Question 16

Which of the following would cause both an increase in the price level and an increase in real output?

Accepted Answer

A) A tax hike. 
B) A decrease in production costs. 
C) An increase in transfer payments. 
D) A decrease in government spending. 
A) A tax hike. 
B) A decrease in production costs. 
C) An increase in transfer payments. 
D) A decrease in government spending.

Question 17

Refer to Figure 11.1.Assume aggregate demand is represented by AD1,full-employment output is $6.0 trillion,and the MPC is 0.75.The spending fiscal stimulus needed to reach full-employment equilibrium is

Accepted Answer

A) $1 trillion. 
B) $2 trillion. 
C) $0.4 trillion 
D) $0.1 trillion. 
A) $1 trillion. 
B) $2 trillion. 
C) $0.4 trillion 
D) $0.1 trillion.

Question 18

If the AS curve is upward-sloping,the government alone should raise its purchases by the amount of the AD shortfall in order to reach full-employment equilibrium.

Accepted Answer

A) True 
 B)False

Question 19

The general formula for calculating the desired fiscal stimulus is

Accepted Answer

A) AD shortfall × the multiplier. 
B) 1/(AD shortfall × the multiplier). 
C) AD shortfall ÷ the multiplier. 
D) 1/(AD shortfall ÷ the multiplier). 
A) AD shortfall × the multiplier. 
B) 1/(AD shortfall × the multiplier). 
C) AD shortfall ÷ the multiplier. 
D) 1/(AD shortfall ÷ the multiplier).

Question 20

Which of the following will most likely provide fiscal stimulus to the economy?

Accepted Answer

A) Increasing taxes. 
B) Decreasing government spending on goods and services. 
C) Increasing transfer payments. 
D) Higher interest rates. 
A) Increasing taxes. 
B) Decreasing government spending on goods and services. 
C) Increasing transfer payments. 
D) Higher interest rates.

Exam 11: Fiscal Policy

Ceteris paribus,if the AD shortfall equals $600 billion,then the federal government can close it by increasing

What are the fiscal policy options to reduce an inflationary gap? Do these policies have the same impact?

Time lags in the design,authorization,and implementation of fiscal policy reduce its effectiveness.

The total change in aggregate spending generated by increased government spending depends on the

Refer to Figure 11.3.Assume aggregate demand is represented by AD3 and full-employment output is $5.8 trillion.To restore price stability,the AD curve must shift

What happens to aggregate demand when government spending and the taxes to pay for it both rise by the same amount?

The second crisis of economic theory refers to

In formulating fiscal policy it is necessary to specify the amount of the desired AD shift.

Defense,health,and highway spending are income transfers.

In Figure 11.1,assume that QF is full-employment output and the level of aggregate spending is represented by AD1.If AD1 increases to AD2,which of the following statements is correct?

Crowding out is the idea that an increase in government spending may cause a reduction in private sector spending.

In a diagram of aggregate demand and supply curves,the GDP gap is measured as the

What will happen in the economy if the government increases spending and increases taxes by equal amounts to pay for that additional government spending?

The U.S.government was given the power to tax income in the

Which of the following explains why the government should not increase spending by the entire amount of the AD shortfall to move the economy to full employment?

Which of the following would cause both an increase in the price level and an increase in real output?

Refer to Figure 11.1.Assume aggregate demand is represented by AD1,full-employment output is $6.0 trillion,and the MPC is 0.75.The spending fiscal stimulus needed to reach full-employment equilibrium is

If the AS curve is upward-sloping,the government alone should raise its purchases by the amount of the AD shortfall in order to reach full-employment equilibrium.

The general formula for calculating the desired fiscal stimulus is

Which of the following will most likely provide fiscal stimulus to the economy?

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

Filters

Refer to Figure 11.3.Assume aggregate demand is represented by AD₃ and full-employment output is $5.8 trillion.To restore price stability,the AD curve must shift

In Figure 11.1,assume that Q_F is full-employment output and the level of aggregate spending is represented by AD₁.If AD₁ increases to AD₂,which of the following statements is correct?

Refer to Figure 11.1.Assume aggregate demand is represented by AD₁,full-employment output is $6.0 trillion,and the MPC is 0.75.The spending fiscal stimulus needed to reach full-employment equilibrium is