Question 1

The United States has, by far, the largest national debt as a percentage of its GDP among industrialized nations.

Accepted Answer

A) True 
 B)False

Question 2

If the federal budget is initially balanced and government expenditures remain constant, then an
Increase in GDP will _________ tax revenues and create a budget _________.

Accepted Answer

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

Question 3

The government has a budget deficit if

Accepted Answer

A)  its total revenues are equal to its total expenditures. 
B)  its total revenues are less than its total expenditures. 
C)  its total revenues are greater than its total expenditures. 
D)  the money supply is less than total expenditures. 
A)  its total revenues are equal to its total expenditures. 
B)  its total revenues are less than its total expenditures. 
C)  its total revenues are greater than its total expenditures. 
D)  the money supply is less than total expenditures.

Question 4

In general, personal income taxes

Accepted Answer

A)  rise automatically during a recession. 
B)  rise automatically during an expansion. 
C)  rise automatically during a contraction. 
D)  are decreased during a recession through legislative actions of Congress. 
A)  rise automatically during a recession. 
B)  rise automatically during an expansion. 
C)  rise automatically during a contraction. 
D)  are decreased during a recession through legislative actions of Congress.

Question 5

An expansionary fiscal policy is likely to

Accepted Answer

A)  decrease a government budget surplus (or increase a budget deficit) and increase borrowing by the Treasury which will sell more bonds. 
B)  increase a government budget surplus (or increase a budget deficit) and decrease borrowing by the Treasury which will buy more bonds. 
C)  increase a government budget surplus (or increase a budget deficit) and increase borrowing by the Treasury which will sell more bonds. 
D)  decrease a government budget surplus (or increase a budget deficit) and decrease borrowing by the Treasury which will buy more bonds. 
A)  decrease a government budget surplus (or increase a budget deficit) and increase borrowing by the Treasury which will sell more bonds. 
B)  increase a government budget surplus (or increase a budget deficit) and decrease borrowing by the Treasury which will buy more bonds. 
C)  increase a government budget surplus (or increase a budget deficit) and increase borrowing by the Treasury which will sell more bonds. 
D)  decrease a government budget surplus (or increase a budget deficit) and decrease borrowing by the Treasury which will buy more bonds.

Question 6

A contractionary fiscal policy shifts the aggregate demand curve

Accepted Answer

A)  to the right and is used to close an inflationary gap. 
B)  to the right and is used to close a recessionary gap. 
C)  to the left and is used to close an inflationary gap. 
D)  to the left and is used to close a recessionary gap. 
A)  to the right and is used to close an inflationary gap. 
B)  to the right and is used to close a recessionary gap. 
C)  to the left and is used to close an inflationary gap. 
D)  to the left and is used to close a recessionary gap.

Question 7

Personal income and payroll taxes are the largest sources of revenue for the federal government.

Accepted Answer

A) True 
 B)False

Question 8

An expansionary fiscal policy increases a government budget deficit or reduces a government budget surplus.

Accepted Answer

A) True 
 B)False

Question 9

Use the following to answer questions .
Exhibit: Fiscal Policy Options  
-(Exhibit: Fiscal Policy Options) If the aggregate demand curve is AD0, which of the following is the most appropriate discretionary fiscal policy to pursue?

Accepted Answer

A)  increase government spending, increase individual income tax rates, and increase corporate income tax rates 
B)  increase government spending, increase individual income tax rates, and decrease corporate income tax rates 
C)  increase government spending, decrease individual income tax rates, and decrease corporate income tax rates 
D)  maintain existing government spending, individual income tax rates, and corporate income tax rates 
A)  increase government spending, increase individual income tax rates, and increase corporate income tax rates 
B)  increase government spending, increase individual income tax rates, and decrease corporate income tax rates 
C)  increase government spending, decrease individual income tax rates, and decrease corporate income tax rates 
D)  maintain existing government spending, individual income tax rates, and corporate income tax rates

Question 10

In late 2008, the U.S. government extended unemployment insurance benefits for seven additional weeks, in recognition of the growing unemployment problem. This extension is an example of

Accepted Answer

A)  automatic fiscal policy. 
B)  discretionary fiscal policy. 
C)  expansionary monetary policy. 
D)  supply-side fiscal policy. 
A)  automatic fiscal policy. 
B)  discretionary fiscal policy. 
C)  expansionary monetary policy. 
D)  supply-side fiscal policy.

Question 11

The crowding-out effect refers to which of the following?

Accepted Answer

A)  reductions in aggregate demand that occur as the government enacts a fiscal policy that is intended to eliminate an inflationary gap 
B)  price increases that result in less purchasing power for consumers 
C)  increases in consumption spending that leave fewer resources available for the economy to use to create capital 
D)  reductions in private investment spending that offset increases in other spending 
A)  reductions in aggregate demand that occur as the government enacts a fiscal policy that is intended to eliminate an inflationary gap 
B)  price increases that result in less purchasing power for consumers 
C)  increases in consumption spending that leave fewer resources available for the economy to use to create capital 
D)  reductions in private investment spending that offset increases in other spending

Question 12

The various studies of the size of the fiscal multiplier by different economists suggest

Accepted Answer

A)  general agreement that the fiscal multiplier value is relatively high. 
B)  general agreement that the fiscal multiplier value has a range between 0.8 and 1.2. 
C)  general agreement that the fiscal multiplier value is zero. 
D)  there is a wide range of opinion on the size of the fiscal multiplier. 
A)  general agreement that the fiscal multiplier value is relatively high. 
B)  general agreement that the fiscal multiplier value has a range between 0.8 and 1.2. 
C)  general agreement that the fiscal multiplier value is zero. 
D)  there is a wide range of opinion on the size of the fiscal multiplier.

Question 13

Use the following to answer questions .
Exhibit: Fiscal Policy 2  
-(Exhibit: Fiscal Policy 2) Suppose real GDP is equal to Yr. If policymakers want to close the output gap with demand management policies, what should they do?

Accepted Answer

A)  lower corporate profit tax rates to encourage investments 
B)  increase investment tax credits to businesses 
C)  decrease government spending on transfer payments and on final goods and services 
D)  lower interest rates 
A)  lower corporate profit tax rates to encourage investments 
B)  increase investment tax credits to businesses 
C)  decrease government spending on transfer payments and on final goods and services 
D)  lower interest rates

Question 14

All of the following are instruments of fiscal policy except

Accepted Answer

A)  rebate on payroll taxes. 
B)  education tax credits. 
C)  unemployment insurance benefits. 
D)  an interest rate cut. 
A)  rebate on payroll taxes. 
B)  education tax credits. 
C)  unemployment insurance benefits. 
D)  an interest rate cut.

Question 15

If private sector investment does not respond much to interest rate changes, then

Accepted Answer

A)  there will be more crowding out when expansionary policies are undertaken. 
B)  there will be less crowding out when expansionary policies are undertaken. 
C)  fiscal policy will be less effective than monetary policy. 
D)  monetary policy will be more effective than fiscal policy. 
A)  there will be more crowding out when expansionary policies are undertaken. 
B)  there will be less crowding out when expansionary policies are undertaken. 
C)  fiscal policy will be less effective than monetary policy. 
D)  monetary policy will be more effective than fiscal policy.

Question 16

Use the following to answer questions .
Exhibit: Fiscal Policy 2  
-(Exhibit: Fiscal Policy 2) If real GDP is equal to Yr, there is

Accepted Answer

A)  an inflationary gap. 
B)  a recessionary gap. 
C)  equilibrium at full employment. 
D)  a short-run and a long-run equilibrium. 
A)  an inflationary gap. 
B)  a recessionary gap. 
C)  equilibrium at full employment. 
D)  a short-run and a long-run equilibrium.

Question 17

Use the following to answer questions .
Exhibit: Fiscal Policy Options  
-(Exhibit: Fiscal Policy Options) If the aggregate demand curve is AD2, 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 decreases in income tax rates 
B)  a contractionary fiscal policy involving reductions in government spending and increases in income tax rates 
C)  an expansionary fiscal policy involving increases in government spending and increases in income tax rates 
D)  an expansionary fiscal policy involving increases in government spending and decreases in income tax rates 
A)  a contractionary fiscal policy involving reductions in government spending and decreases in income tax rates 
B)  a contractionary fiscal policy involving reductions in government spending and increases in income tax rates 
C)  an expansionary fiscal policy involving increases in government spending and increases in income tax rates 
D)  an expansionary fiscal policy involving increases in government spending and decreases in income tax rates

Question 18

An expansionary fiscal policy will result in the Treasury selling more bonds, the price of bonds falling, and interest rates rising.

Accepted Answer

A) True 
 B)False

Question 19

Use the following to answer questions .
Exhibit: Supply-Side Economics  
-(Exhibit: Supply-Side Economics) Assume that the economy is initially at Y1. If economists advocate
Policies to promote economic growth, such as those which encourage investment and work effort, which of the following would occur?

Accepted Answer

A)  a shift to the left in the long-run aggregate supply (LRAS) and the short-run aggregate supply (SRAS) curves 
B)  a decrease in aggregate demand 
C)  a shift to the right in both SRAS and LRAS 
D)  a shift to the right of SRAS and to the left of LRAS 
A)  a shift to the left in the long-run aggregate supply (LRAS) and the short-run aggregate supply (SRAS) curves 
B)  a decrease in aggregate demand 
C)  a shift to the right in both SRAS and LRAS 
D)  a shift to the right of SRAS and to the left of LRAS

Question 20

A contractionary fiscal policy
I. decreases a government budget deficit or increases a government budget surplus.
II. includes tax cuts.
III. may include discretionary cuts in transfer payments.

Accepted Answer

A)  I, II, and III 
B)  I and II only 
C)  I and III only 
D)  II and III only 
A)  I, II, and III 
B)  I and II only 
C)  I and III only 
D)  II and III only

The United States has, by far, the largest national debt as a percentage of its GDP among industrialized nations.

If the federal budget is initially balanced and government expenditures remain constant, then an Increase in GDP will _ tax revenues and create a budget _.

The government has a budget deficit if

In general, personal income taxes

An expansionary fiscal policy is likely to

A contractionary fiscal policy shifts the aggregate demand curve

Personal income and payroll taxes are the largest sources of revenue for the federal government.

An expansionary fiscal policy increases a government budget deficit or reduces a government budget surplus.

Use the following to answer questions . Exhibit: Fiscal Policy Options -(Exhibit: Fiscal Policy Options) If the aggregate demand curve is AD₀, which of the following is the most appropriate discretionary fiscal policy to pursue?

In late 2008, the U.S. government extended unemployment insurance benefits for seven additional weeks, in recognition of the growing unemployment problem. This extension is an example of

The crowding-out effect refers to which of the following?

The various studies of the size of the fiscal multiplier by different economists suggest

Use the following to answer questions . Exhibit: Fiscal Policy 2 -(Exhibit: Fiscal Policy 2) Suppose real GDP is equal to Y_r. If policymakers want to close the output gap with demand management policies, what should they do?

All of the following are instruments of fiscal policy except

If private sector investment does not respond much to interest rate changes, then

Use the following to answer questions . Exhibit: Fiscal Policy 2 -(Exhibit: Fiscal Policy 2) If real GDP is equal to Y_r, there is

Use the following to answer questions . Exhibit: Fiscal Policy Options -(Exhibit: Fiscal Policy Options) If the aggregate demand curve is AD₂, which of the following is the most appropriate discretionary fiscal policy to pursue?

An expansionary fiscal policy will result in the Treasury selling more bonds, the price of bonds falling, and interest rates rising.

A contractionary fiscal policy I. decreases a government budget deficit or increases a government budget surplus. II. includes tax cuts. III. may include discretionary cuts in transfer payments.

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

The United States has, by far, the largest national debt as a percentage of its GDP among industrialized nations.

If the federal budget is initially balanced and government expenditures remain constant, then an Increase in GDP will _________ tax revenues and create a budget _________.

The government has a budget deficit if

In general, personal income taxes

An expansionary fiscal policy is likely to

A contractionary fiscal policy shifts the aggregate demand curve

Personal income and payroll taxes are the largest sources of revenue for the federal government.

An expansionary fiscal policy increases a government budget deficit or reduces a government budget surplus.

Use the following to answer questions . Exhibit: Fiscal Policy Options -(Exhibit: Fiscal Policy Options) If the aggregate demand curve is AD0, which of the following is the most appropriate discretionary fiscal policy to pursue?

In late 2008, the U.S. government extended unemployment insurance benefits for seven additional weeks, in recognition of the growing unemployment problem. This extension is an example of

The crowding-out effect refers to which of the following?

The various studies of the size of the fiscal multiplier by different economists suggest

Use the following to answer questions . Exhibit: Fiscal Policy 2 -(Exhibit: Fiscal Policy 2) Suppose real GDP is equal to Yr. If policymakers want to close the output gap with demand management policies, what should they do?

All of the following are instruments of fiscal policy except

If private sector investment does not respond much to interest rate changes, then

Use the following to answer questions . Exhibit: Fiscal Policy 2 -(Exhibit: Fiscal Policy 2) If real GDP is equal to Yr, there is

Use the following to answer questions . Exhibit: Fiscal Policy Options -(Exhibit: Fiscal Policy Options) If the aggregate demand curve is AD2, which of the following is the most appropriate discretionary fiscal policy to pursue?

An expansionary fiscal policy will result in the Treasury selling more bonds, the price of bonds falling, and interest rates rising.

A contractionary fiscal policy I. decreases a government budget deficit or increases a government budget surplus. II. includes tax cuts. III. may include discretionary cuts in transfer payments.

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

If the federal budget is initially balanced and government expenditures remain constant, then an Increase in GDP will _ tax revenues and create a budget _.

Use the following to answer questions . Exhibit: Fiscal Policy Options -(Exhibit: Fiscal Policy Options) If the aggregate demand curve is AD₀, 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) Suppose real GDP is equal to Y_r. If policymakers want to close the output gap with demand management policies, what should they do?

Use the following to answer questions . Exhibit: Fiscal Policy 2 -(Exhibit: Fiscal Policy 2) If real GDP is equal to Y_r, there is

Use the following to answer questions . Exhibit: Fiscal Policy Options -(Exhibit: Fiscal Policy Options) If the aggregate demand curve is AD₂, which of the following is the most appropriate discretionary fiscal policy to pursue?