Question 1

A simultaneous increase of government purchases by $50 billion and a tax hike of $50 billion should stimulate the economy by $50 billion.

Accepted Answer

A) True 
 B)False

Question 2

The Sixteenth Amendment to the Constitution in 1913 made it possible for the federal government to tax imports.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is the best choice to eliminate a recessionary gap if the desired fiscal stimulus is $10 billion and the aggregate demand shortfall is $100 billion,while the MPC is 0.90?

Accepted Answer

A) Tax hike of $11.11 billion. 
B) Tax cut of $11.11 billion. 
C) Tax hike of $10 billion. 
D) Tax cut of $10 billion. 
A) Tax hike of $11.11 billion. 
B) Tax cut of $11.11 billion. 
C) Tax hike of $10 billion. 
D) Tax cut of $10 billion.

Question 4

Why is the tax cut multiplier different from the purchases multiplier?

Accepted Answer

When the government spends money to buy

Question 5

Which of the following is true when the government attempts to move the economy to full employment by increasing spending?

Accepted Answer

A) The desired stimulus should be set by the AD shortfall multiplied by the multiplier. 
B) It must initially spend more than the GDP gap if the aggregate supply curve is upward-sloping. 
C) The total change in spending includes both the new government spending and the subsequent increases in consumer spending. 
D) The desired stimulus should be set by the multiplier divided by the AD shortfall. 
A) The desired stimulus should be set by the AD shortfall multiplied by the multiplier. 
B) It must initially spend more than the GDP gap if the aggregate supply curve is upward-sloping. 
C) The total change in spending includes both the new government spending and the subsequent increases in consumer spending. 
D) The desired stimulus should be set by the multiplier divided by the AD shortfall.

Question 6

If the MPC equals 0.75,a $100 billion transfer payment decrease will decrease consumption in the first round by

Accepted Answer

A) $25 billion. 
B) $75 billion. 
C) $100 billion. 
D) $400 billion. 
A) $25 billion. 
B) $75 billion. 
C) $100 billion. 
D) $400 billion.

Question 7

Balancing new government purchases with an equivalent increase in taxes will avoid stimulus to the economy.

Accepted Answer

A) True 
 B)False

Question 8

Fiscal policy works primarily through

Accepted Answer

A) Shifts of the AS curve. 
B) Shifts of the AD curve. 
C) The improvement of worker skills through subsidized training programs. 
D) Shifts of both AD and AS,as a result of changes in the interest rate. 
A) Shifts of the AS curve. 
B) Shifts of the AD curve. 
C) The improvement of worker skills through subsidized training programs. 
D) Shifts of both AD and AS,as a result of changes in the interest rate.

Question 9

The desired tax cut to close a GDP gap is given by

Accepted Answer

A) AD shortfall × MPS. 
B) Desired fiscal stimulus ÷ MPC. 
C) AD shortfall ÷ MPC. 
D) Desired fiscal stimulus × MPC. 
A) AD shortfall × MPS. 
B) Desired fiscal stimulus ÷ MPC. 
C) AD shortfall ÷ MPC. 
D) Desired fiscal stimulus × MPC.

Question 10

Which of the following is a fiscal policy tool used to stimulate the economy?

Accepted Answer

A) Lower interest rates. 
B) Increased imports. 
C) Reducing inefficient employment of resources. 
D) Increased government purchases. 
A) Lower interest rates. 
B) Increased imports. 
C) Reducing inefficient employment of resources. 
D) Increased government purchases.

Question 11

If the MPC equals 0.80,a $200 billion tax decrease will increase consumption in the first round by

Accepted Answer

A) $40 billion. 
B) $160 billion. 
C) $200 billion. 
D) $100 billion. 
A) $40 billion. 
B) $160 billion. 
C) $200 billion. 
D) $100 billion.

Question 12

The multiplier ensures that equilibrium GDP equals full-employment GDP.

Accepted Answer

A) True 
 B)False

Question 13

If the MPC is 0.80 and the government increases transfer payments by $45 billion,then the initial fiscal stimulus will equal

Accepted Answer

A) $9 billion. 
B) $56.25 billion. 
C) $36 billion. 
D) $225 billion. 
A) $9 billion. 
B) $56.25 billion. 
C) $36 billion. 
D) $225 billion.

Question 14

Ceteris paribus,if income was transferred from individuals with a low MPC to those with a high MPC,aggregate demand would

Accepted Answer

A) Increase. 
B) Decrease. 
C) Stay the same. 
D) Increase or decrease,but not because of the MPC. 
A) Increase. 
B) Decrease. 
C) Stay the same. 
D) Increase or decrease,but not because of the MPC.

Question 15

Disposable income refers to

Accepted Answer

A) Personal income before personal taxes. 
B) Personal income after personal taxes. 
C) The corporate tax paid from income. 
D) None of the choices are correct. 
A) Personal income before personal taxes. 
B) Personal income after personal taxes. 
C) The corporate tax paid from income. 
D) None of the choices are correct.

Question 16

Fiscal policy changes in government spending and taxes primarily target the aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 17

A tax cut

Accepted Answer

A) Directly decreases the disposable income of consumers. 
B) Contains less fiscal stimulus than an increase in government spending of the same size. 
C) Shifts the AD curve to the left. 
D) Indirectly increases the disposable income of consumers. 
A) Directly decreases the disposable income of consumers. 
B) Contains less fiscal stimulus than an increase in government spending of the same size. 
C) Shifts the AD curve to the left. 
D) Indirectly increases the disposable income of consumers.

Question 18

Assume the AS curve is upward-sloping.If the multiplier is 4 and the government increases transfer payments by $10 billion,then real output will increase by

Accepted Answer

A) Less than $30 billion. 
B) Exactly $30 billion. 
C) Exactly $40 billion. 
D) Exactly $50 billion. 
A) Less than $30 billion. 
B) Exactly $30 billion. 
C) Exactly $40 billion. 
D) Exactly $50 billion.

Question 19

Refer to Figure 11.3.Assume aggregate demand is represented by AD1 and full-employment output is $6.0 trillion.The aggregate demand shortfall is equal to the distance between

Accepted Answer

A) Point a and point e. 
B) Point a and point d. 
C) Point a and point b. 
D) Point b and point e. 
A) Point a and point e. 
B) Point a and point d. 
C) Point a and point b. 
D) Point b and point e.

Question 20

Assume the economy is operating below full employment.Which of the following policy actions will allow aggregate spending to increase but will not increase the size of the government in the process?

Accepted Answer

A) Increase government spending and leave tax rates unchanged. 
B) Decrease tax rates and leave government spending unchanged. 
C) Increase government spending and taxes by the same amount. 
D) Decrease government spending by more than an increase in taxes. 
A) Increase government spending and leave tax rates unchanged. 
B) Decrease tax rates and leave government spending unchanged. 
C) Increase government spending and taxes by the same amount. 
D) Decrease government spending by more than an increase in taxes.

Exam 11: Fiscal Policy

A simultaneous increase of government purchases by $50 billion and a tax hike of $50 billion should stimulate the economy by $50 billion.

The Sixteenth Amendment to the Constitution in 1913 made it possible for the federal government to tax imports.

Which of the following is the best choice to eliminate a recessionary gap if the desired fiscal stimulus is $10 billion and the aggregate demand shortfall is $100 billion,while the MPC is 0.90?

Why is the tax cut multiplier different from the purchases multiplier?

Which of the following is true when the government attempts to move the economy to full employment by increasing spending?

If the MPC equals 0.75,a $100 billion transfer payment decrease will decrease consumption in the first round by

Balancing new government purchases with an equivalent increase in taxes will avoid stimulus to the economy.

Fiscal policy works primarily through

The desired tax cut to close a GDP gap is given by

Which of the following is a fiscal policy tool used to stimulate the economy?

If the MPC equals 0.80,a $200 billion tax decrease will increase consumption in the first round by

The multiplier ensures that equilibrium GDP equals full-employment GDP.

If the MPC is 0.80 and the government increases transfer payments by $45 billion,then the initial fiscal stimulus will equal

Ceteris paribus,if income was transferred from individuals with a low MPC to those with a high MPC,aggregate demand would

Disposable income refers to

Fiscal policy changes in government spending and taxes primarily target the aggregate supply curve.

A tax cut

Assume the AS curve is upward-sloping.If the multiplier is 4 and the government increases transfer payments by $10 billion,then real output will increase by

Refer to Figure 11.3.Assume aggregate demand is represented by AD1 and full-employment output is $6.0 trillion.The aggregate demand shortfall is equal to the distance between

Assume the economy is operating below full employment.Which of the following policy actions will allow aggregate spending to increase but will not increase the size of the government in the process?

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 AD₁ and full-employment output is $6.0 trillion.The aggregate demand shortfall is equal to the distance between