Question 1

If the level of government expenditures is given, budget surpluses and deficits depend on tax revenues, which tend to vary directly with GDP.

Accepted Answer

A) True 
 B)False

Question 2

Contractionary fiscal policy will lead to a fall in interest rates.

Accepted Answer

A) True 
 B)False

Question 3

If the federal budget is initially balanced and government expenditures remain constant, then a
Decrease in GDP will

Accepted Answer

A)  decrease tax revenues and create a budget surplus. 
B)  increase tax revenues and create a budget surplus. 
C)  decrease tax revenues and create a budget deficit. 
D)  increase tax revenues and create a budget deficit. 
A)  decrease tax revenues and create a budget surplus. 
B)  increase tax revenues and create a budget surplus. 
C)  decrease tax revenues and create a budget deficit. 
D)  increase tax revenues and create a budget deficit.

Question 4

If there is an inflationary gap in the economy, discretionary fiscal policy would likely involve
An action to

Accepted Answer

A)  shift the aggregate demand curve to the right. 
B)  shift the aggregate demand curve to the left. 
C)  shift both the aggregate demand curve and aggregate supply curve to the right. 
D)  shift both the aggregate demand curve and aggregate supply curve to the left. 
A)  shift the aggregate demand curve to the right. 
B)  shift the aggregate demand curve to the left. 
C)  shift both the aggregate demand curve and aggregate supply curve to the right. 
D)  shift both the aggregate demand curve and aggregate supply curve to the left.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Suppose an economy has a recessionary gap. 
a. Illustrate this using a graph with LRAS, SRAS, and AD curves. Identify the equilibrium price level, real GDP, and the output gap in your diagram. Be sure to label your diagram fully. 
b. Identify two fiscal policy tools which may be used to eliminate the gap. 
c. Explain in words how these tools will affect the aggregate demand, long-run aggregate supply, and short-run aggregate supply curves. 
d. Incorporate into your graph, the relevant shifts in the curves that would take place when expansionary fiscal policy is used to eliminate the recessionary gap.

Accepted Answer

a. To illustrate a recessionary gap usin

Question 7

The national debt

Accepted Answer

A)  is the sum of all past federal deficits plus any surpluses. 
B)  grows when the government runs a deficit. 
C)  grows when government spending increases. 
D)  is a major problem facing the U.S. government. 
A)  is the sum of all past federal deficits plus any surpluses. 
B)  grows when the government runs a deficit. 
C)  grows when government spending increases. 
D)  is a major problem facing the U.S. government.

Question 8

Suppose a country has a national debt of $2,000 billion, a GDP of $28,000 billion, and a
Budget deficit of $115 billion. How much will its new national debt be?

Accepted Answer

A)  $2,115 billion 
B)  $1,885 billion 
C)  $28,115 billion 
D)  $25,885 billion 
A)  $2,115 billion 
B)  $1,885 billion 
C)  $28,115 billion 
D)  $25,885 billion

Question 9

Suppose in the beginning of 2013, a country has a national debt of $5,000 billion. Its GDP in 2013 is $20,000 billion and its budget surplus of $130 billion. Compute its debt-GDP ratio at the end of the year.

Accepted Answer

A)  2.6% 
B)  25.0% 
C)  24.4% 
D)  6.5% 
A)  2.6% 
B)  25.0% 
C)  24.4% 
D)  6.5%

Question 10

Transfer payments typically

Accepted Answer

A)  rise during expansionary periods. 
B)  fall during recessions. 
C)  do not change as the economy expands and contracts during the business cycle. 
D)  fall during expansionary periods and rise during recessionary periods. 
A)  rise during expansionary periods. 
B)  fall during recessions. 
C)  do not change as the economy expands and contracts during the business cycle. 
D)  fall during expansionary periods and rise during recessionary periods.

Question 11

If there is a recessionary gap in the economy, discretionary fiscal policy would likely involve
An action to

Accepted Answer

A)  shift the aggregate demand curve to the right. 
B)  shift the aggregate demand curve to the left. 
C)  shift both the aggregate demand curve and aggregate supply curve to the right. 
D)  shift both the aggregate demand curve and aggregate supply curve to the left. 
A)  shift the aggregate demand curve to the right. 
B)  shift the aggregate demand curve to the left. 
C)  shift both the aggregate demand curve and aggregate supply curve to the right. 
D)  shift both the aggregate demand curve and aggregate supply curve to the left.

Question 12

The three major categories of government spending are

Accepted Answer

A)  government purchases, defense spending, and interest payments. 
B)  defense spending, Medicare and Medicaid, and net interest. 
C)  government purchases, transfer payments, and net interest. 
D)  government purchases, defense spending, and transfer payments. 
A)  government purchases, defense spending, and interest payments. 
B)  defense spending, Medicare and Medicaid, and net interest. 
C)  government purchases, transfer payments, and net interest. 
D)  government purchases, defense spending, and transfer payments.

Question 13

Some economists argue that

Accepted Answer

A)  discretionary monetary policy is ineffective because of its long identification lag. 
B)  discretionary fiscal policy is ineffective because of its long recognition lag. 
C)  discretionary monetary policy is ineffective because of its long implementation lag. 
D)  discretionary fiscal policy is ineffective because of its long implementation lag. 
A)  discretionary monetary policy is ineffective because of its long identification lag. 
B)  discretionary fiscal policy is ineffective because of its long recognition lag. 
C)  discretionary monetary policy is ineffective because of its long implementation lag. 
D)  discretionary fiscal policy is ineffective because of its long implementation lag.

Question 14

Suppose that when income taxes are reduced by $400 billion, households increase consumption
By 80% of the resulting change in disposable income. Suppose also that the multiplier is 2. At a given price level, the aggregate demand curve shifts to the right by

Accepted Answer

A)  $320 billion. 
B)  $400 billion. 
C)  $640 billion. 
D)  $800 billion. 
A)  $320 billion. 
B)  $400 billion. 
C)  $640 billion. 
D)  $800 billion.

Question 15

A contractionary fiscal policy is likely to

Accepted Answer

A)  increase government borrowing, thereby shifting the supply curve for bonds to the right. 
B)  reduce government borrowing, thereby shifting the supply curve for bonds to the left. 
C)  increase government borrowing, thereby shifting the demand curve for bonds to the right. 
D)  reduce government borrowing, thereby shifting the demand curve for bonds to the left. 
A)  increase government borrowing, thereby shifting the supply curve for bonds to the right. 
B)  reduce government borrowing, thereby shifting the supply curve for bonds to the left. 
C)  increase government borrowing, thereby shifting the demand curve for bonds to the right. 
D)  reduce government borrowing, thereby shifting the demand curve for bonds to the left.

Question 16

Use the following to answer questions .
Exhibit: Fiscal Policy Options  
-(Exhibit: Fiscal Policy Options) If the aggregate demand curve is AD1, which of the following is the most appropriate discretionary fiscal policy to pursue?

Accepted Answer

A)  a contractionary fiscal policy involving reductions in government spending and increases in income tax rates 
B)  a contractionary fiscal policy involving reductions in government spending and decreases in income tax rates 
C)  an expansionary fiscal policy involving increases in government spending and increases in investment tax credits 
D)  an expansionary fiscal policy involving increases in government spending and decreases in investment tax credits 
A)  a contractionary fiscal policy involving reductions in government spending and increases in income tax rates 
B)  a contractionary fiscal policy involving reductions in government spending and decreases in income tax rates 
C)  an expansionary fiscal policy involving increases in government spending and increases in investment tax credits 
D)  an expansionary fiscal policy involving increases in government spending and decreases in investment tax credits

Question 17

An expansionary fiscal policy is likely to result in

Accepted Answer

A)  higher interest rates and lower private investment. 
B)  lower interest rates and higher private investment. 
C)  higher interest rates and higher private investment. 
D)  lower interest rates and lower private investment. 
A)  higher interest rates and lower private investment. 
B)  lower interest rates and higher private investment. 
C)  higher interest rates and higher private investment. 
D)  lower interest rates and lower private investment.

Question 18

A transfer payment that rises automatically during a recession is

Accepted Answer

A)  interest payments on the national debt. 
B)  unemployment compensation. 
C)  Social Security payments to retired persons. 
D)  government payments to war veterans. 
A)  interest payments on the national debt. 
B)  unemployment compensation. 
C)  Social Security payments to retired persons. 
D)  government payments to war veterans.

Question 19

An expansionary fiscal policy will result in higher interest rates and will reduce private investment.

Accepted Answer

A) True 
 B)False

Question 20

Use the following to answer questions .
Exhibit: Fiscal Policy 2  
-(Exhibit: Fiscal Policy 2) At output level Yr,

Accepted Answer

A)  potential output is greater than actual output. 
B)  the expected price level equals actual price level. 
C)  the actual unemployment rate is less than the natural rate of unemployment. 
D)  aggregate demand will fall over time to restore equilibrium. 
A)  potential output is greater than actual output. 
B)  the expected price level equals actual price level. 
C)  the actual unemployment rate is less than the natural rate of unemployment. 
D)  aggregate demand will fall over time to restore equilibrium.

If the level of government expenditures is given, budget surpluses and deficits depend on tax revenues, which tend to vary directly with GDP.

Contractionary fiscal policy will lead to a fall in interest rates.

If the federal budget is initially balanced and government expenditures remain constant, then a Decrease in GDP will

If there is an inflationary gap in the economy, discretionary fiscal policy would likely involve An action to

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

The national debt

Suppose a country has a national debt of $2,000 billion, a GDP of $28,000 billion, and a Budget deficit of $115 billion. How much will its new national debt be?

Suppose in the beginning of 2013, a country has a national debt of $5,000 billion. Its GDP in 2013 is $20,000 billion and its budget surplus of $130 billion. Compute its debt-GDP ratio at the end of the year.

Transfer payments typically

If there is a recessionary gap in the economy, discretionary fiscal policy would likely involve An action to

The three major categories of government spending are

Some economists argue that

Suppose that when income taxes are reduced by $400 billion, households increase consumption By 80% of the resulting change in disposable income. Suppose also that the multiplier is 2. At a given price level, the aggregate demand curve shifts to the right by

A contractionary fiscal policy is likely to

Use the following to answer questions . Exhibit: Fiscal Policy Options -(Exhibit: Fiscal Policy Options) If the aggregate demand curve is AD₁, which of the following is the most appropriate discretionary fiscal policy to pursue?

An expansionary fiscal policy is likely to result in

A transfer payment that rises automatically during a recession is

An expansionary fiscal policy will result in higher interest rates and will reduce private investment.

Use the following to answer questions . Exhibit: Fiscal Policy 2 -(Exhibit: Fiscal Policy 2) At output level Y_r,

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

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

Filters

Exam 12: Government and Fiscal Policy

If the level of government expenditures is given, budget surpluses and deficits depend on tax revenues, which tend to vary directly with GDP.

Contractionary fiscal policy will lead to a fall in interest rates.

If the federal budget is initially balanced and government expenditures remain constant, then a Decrease in GDP will

If there is an inflationary gap in the economy, discretionary fiscal policy would likely involve An action to

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

The national debt

Suppose a country has a national debt of $2,000 billion, a GDP of $28,000 billion, and a Budget deficit of $115 billion. How much will its new national debt be?

Suppose in the beginning of 2013, a country has a national debt of $5,000 billion. Its GDP in 2013 is $20,000 billion and its budget surplus of $130 billion. Compute its debt-GDP ratio at the end of the year.

Transfer payments typically

If there is a recessionary gap in the economy, discretionary fiscal policy would likely involve An action to

The three major categories of government spending are

Some economists argue that

Suppose that when income taxes are reduced by $400 billion, households increase consumption By 80% of the resulting change in disposable income. Suppose also that the multiplier is 2. At a given price level, the aggregate demand curve shifts to the right by

A contractionary fiscal policy is likely to

Use the following to answer questions . Exhibit: Fiscal Policy Options -(Exhibit: Fiscal Policy Options) If the aggregate demand curve is AD1, which of the following is the most appropriate discretionary fiscal policy to pursue?

An expansionary fiscal policy is likely to result in

A transfer payment that rises automatically during a recession is

An expansionary fiscal policy will result in higher interest rates and will reduce private investment.

Use the following to answer questions . Exhibit: Fiscal Policy 2 -(Exhibit: Fiscal Policy 2) At output level Yr,

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

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

Filters

Use the following to answer questions . Exhibit: Fiscal Policy Options -(Exhibit: Fiscal Policy Options) If the aggregate demand curve is AD₁, which of the following is the most appropriate discretionary fiscal policy to pursue?

Use the following to answer questions . Exhibit: Fiscal Policy 2 -(Exhibit: Fiscal Policy 2) At output level Y_r,