Question 1

An example of contractionary fiscal policy is

Accepted Answer

A)  increasing government spending. 
B)  increasing taxes. 
C)  decreasing government spending. 
D)  decreasing taxes. 
E)  b and c 
A)  increasing government spending. 
B)  increasing taxes. 
C)  decreasing government spending. 
D)  decreasing taxes. 
E)  b and c

Question 2

Suppose Congress increases income taxes.This is an example of

Accepted Answer

A)  expansionary fiscal policy. 
B)  expansionary monetary policy. 
C)  contractionary fiscal policy. 
D)  contractionary monetary policy. 
A)  expansionary fiscal policy. 
B)  expansionary monetary policy. 
C)  contractionary fiscal policy. 
D)  contractionary monetary policy.

Question 3

Exhibit 11-1
  
-Refer to Exhibit 11-1.The economy is currently at point 1.In this situation,Keynesian economists would most likely propose

Accepted Answer

A)  an increase in government purchases. 
B)  a decrease in government purchases. 
C)  an increase in taxes. 
D)  a and c 
E)  b and c 
A)  an increase in government purchases. 
B)  a decrease in government purchases. 
C)  an increase in taxes. 
D)  a and c 
E)  b and c

Question 4

Which of the following illustrates the wait-and-see lag?

Accepted Answer

A)  Policymakers believe an economic downturn has occurred, but they decide not to take action until they are sure. 
B)  Policymakers are in the process of proposing policy measures to deal with the current economic slowdown. 
C)  Policymakers first learn of the recession when it is five months old. 
D)  Policymakers implement policy X, but it will be a few months before it starts working. 
E)  Policymakers agree to policy X, but it will be at least two months before the policy is implemented. 
A)  Policymakers believe an economic downturn has occurred, but they decide not to take action until they are sure. 
B)  Policymakers are in the process of proposing policy measures to deal with the current economic slowdown. 
C)  Policymakers first learn of the recession when it is five months old. 
D)  Policymakers implement policy X, but it will be a few months before it starts working. 
E)  Policymakers agree to policy X, but it will be at least two months before the policy is implemented.

Question 5

A federal budget surplus occurs when government expenditures exceed tax revenues.

Accepted Answer

A) True 
 B)False

Question 6

The economy is in a recessionary gap.There is no crowding out and government has correctly estimated that to bring the economy into long-run equilibrium it should raise government purchases by $123 billion.If government purchases are raised by $123 billion,does it follow that the economy will be moved into long-run equilibrium?

Accepted Answer

A)  Yes, because all the necessary conditions for effective fiscal policy are present. 
B)  No, because the economy may be self-regulating, and by the time expansionary fiscal policy is effective, the AD curve may intersect the SRAS curve at an inflationary-gap level of Real GDP. 
C)  Yes, because of the validity of the balanced budget theorem. 
D)  No, because of inflexible wages and the fact that the SRAS curve is upward-sloping. 
E)  none of the above 
A)  Yes, because all the necessary conditions for effective fiscal policy are present. 
B)  No, because the economy may be self-regulating, and by the time expansionary fiscal policy is effective, the AD curve may intersect the SRAS curve at an inflationary-gap level of Real GDP. 
C)  Yes, because of the validity of the balanced budget theorem. 
D)  No, because of inflexible wages and the fact that the SRAS curve is upward-sloping. 
E)  none of the above

Question 7

In June 2012,the public debt in the United States was approximately

Accepted Answer

A)  $5.8 billion. 
B)  $90 billion. 
C)  $1.6 billion. 
D)  $15.8 trillion. 
E)  $120 trillion. 
A)  $5.8 billion. 
B)  $90 billion. 
C)  $1.6 billion. 
D)  $15.8 trillion. 
E)  $120 trillion.

Question 8

Between the data lag and the legislative lag falls the __________ lag.

Accepted Answer

A)  effectiveness 
B)  wait-and-see 
C)  expansionary 
D)  legislative 
A)  effectiveness 
B)  wait-and-see 
C)  expansionary 
D)  legislative

Question 9

The AD curve shifts to the left with a __________ in government purchases (G)or a __________ in taxes.

Accepted Answer

A)  rise; rise 
B)  rise; fall 
C)  fall; rise 
D)  fall; fall 
A)  rise; rise 
B)  rise; fall 
C)  fall; rise 
D)  fall; fall

Question 10

The answer is: "Policymakers are not aware of changes in the economy as soon as they happen." What is the question?

Accepted Answer

A)  What is the wait-and-see lag? 
B)  What is the data lag? 
C)  What is the effectiveness lag? 
D)  What is the transmission lag? 
E)  none of the above 
A)  What is the wait-and-see lag? 
B)  What is the data lag? 
C)  What is the effectiveness lag? 
D)  What is the transmission lag? 
E)  none of the above

Question 11

Taxable income rises by $1,515 and taxes rise by $590.85.What is the marginal tax rate?

Accepted Answer

A)  $4 dollars 
B)  39 percent 
C)  10 percent 
D)  30 percent 
E)  25 percent 
A)  $4 dollars 
B)  39 percent 
C)  10 percent 
D)  30 percent 
E)  25 percent

Question 12

Some economists argue that a rise in the interest rate,brought about by a rise in government borrowing in the loanable funds market to finance the deficit,brings in foreign funds in search of the higher interest rate return.This,in turn,dampens the rise in the interest rate.If this is true as far as it goes,there will be __________ crowding out than there would be if foreign funds did not flow into the country.

Accepted Answer

A)  more 
B)  less 
C)  the same amount of 
D)  none of the above 
A)  more 
B)  less 
C)  the same amount of 
D)  none of the above

Question 13

A tax rate increase necessarily leads to an increase in tax revenue for the government.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is not an example of crowding out?

Accepted Answer

A)  Government purchases rise, the budget deficit rises, the federal government's demand for loanable funds rises, the interest rate rises, and investment falls. 
B)  Government spends more on X, prompting individuals to spend less on X. 
C)  Taxes decline, the budget deficit rises, the federal government's demand for loanable funds rises, the interest rate rises, the demand rises for U.S. dollars, the dollar appreciates, and net exports decline. 
D)  Business firms spend more on X, prompting households to spend less on Y. 
E)  none of the above 
A)  Government purchases rise, the budget deficit rises, the federal government's demand for loanable funds rises, the interest rate rises, and investment falls. 
B)  Government spends more on X, prompting individuals to spend less on X. 
C)  Taxes decline, the budget deficit rises, the federal government's demand for loanable funds rises, the interest rate rises, the demand rises for U.S. dollars, the dollar appreciates, and net exports decline. 
D)  Business firms spend more on X, prompting households to spend less on Y. 
E)  none of the above

Question 15

To finance a budget deficit the federal government borrow funds.

Accepted Answer

A) True 
 B)False

Question 16

Fiscal policy refers to

Accepted Answer

A)  efforts to balance a government's budget. 
B)  changes in the money supply to achieve particular economic goals. 
C)  changes in government expenditures and taxation to achieve particular economic goals. 
D)  the change in private expenditures that occurs as a consequence of changes in government spending. 
A)  efforts to balance a government's budget. 
B)  changes in the money supply to achieve particular economic goals. 
C)  changes in government expenditures and taxation to achieve particular economic goals. 
D)  the change in private expenditures that occurs as a consequence of changes in government spending.

Question 17

Suppose aggregate demand is too high to bring about the Natural Real GDP level.A Keynesian policy prescription would call for a(n)_____________________ to close this inflationary gap.

Accepted Answer

A)  increase in government spending 
B)  decrease in government spending 
C)  increase in taxes 
D)  decrease in taxes 
E)  b or c 
A)  increase in government spending 
B)  decrease in government spending 
C)  increase in taxes 
D)  decrease in taxes 
E)  b or c

Question 18

A curve showing the relationship between tax rates and tax revenues is called a __________ curve.

Accepted Answer

A)  Phillips 
B)  Keynesian 
C)  Gaussian 
D)  Laffer 
A)  Phillips 
B)  Keynesian 
C)  Gaussian 
D)  Laffer

Question 19

Tax revenues can be found by

Accepted Answer

A)  multiplying the tax base by the (average) tax rate. 
B)  dividing the tax base by the (average) tax rate. 
C)  summing the tax base and the (average) tax rate. 
D)  multiplying taxable income by the marginal tax rate. 
A)  multiplying the tax base by the (average) tax rate. 
B)  dividing the tax base by the (average) tax rate. 
C)  summing the tax base and the (average) tax rate. 
D)  multiplying taxable income by the marginal tax rate.

Question 20

The effectiveness lag is the time between

Accepted Answer

A)  the implementation of a policy and when the impact of the policy is felt. 
B)  the enactment of a policy and the implementation of the policy. 
C)  realizing a policy is needed and enacting the policy. 
D)  the occurrence of an event and policymakers realizing the event has occurred. 
A)  the implementation of a policy and when the impact of the policy is felt. 
B)  the enactment of a policy and the implementation of the policy. 
C)  realizing a policy is needed and enacting the policy. 
D)  the occurrence of an event and policymakers realizing the event has occurred.

Exam 11: Fiscal Policy and the Federal Budget

An example of contractionary fiscal policy is

Suppose Congress increases income taxes.This is an example of

Exhibit 11-1 -Refer to Exhibit 11-1.The economy is currently at point 1.In this situation,Keynesian economists would most likely propose

Which of the following illustrates the wait-and-see lag?

A federal budget surplus occurs when government expenditures exceed tax revenues.

In June 2012,the public debt in the United States was approximately

Between the data lag and the legislative lag falls the __________ lag.

The AD curve shifts to the left with a __________ in government purchases (G)or a __________ in taxes.

The answer is: "Policymakers are not aware of changes in the economy as soon as they happen." What is the question?

Taxable income rises by $1,515 and taxes rise by $590.85.What is the marginal tax rate?

A tax rate increase necessarily leads to an increase in tax revenue for the government.

Which of the following is not an example of crowding out?

To finance a budget deficit the federal government borrow funds.

Fiscal policy refers to

Suppose aggregate demand is too high to bring about the Natural Real GDP level.A Keynesian policy prescription would call for a(n)_____________________ to close this inflationary gap.

A curve showing the relationship between tax rates and tax revenues is called a __________ curve.

Tax revenues can be found by

The effectiveness lag is the time between

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The AD curve shifts to the left with a in government purchases (G)or a in taxes.