Question 1

Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?

Accepted Answer

A)  an increase in government purchases 
B)  an increase in the supply of money 
C)  an increase in individual income taxes 
D)  a decrease in transfer payments 
A)  an increase in government purchases 
B)  an increase in the supply of money 
C)  an increase in individual income taxes 
D)  a decrease in transfer payments

Question 2

If real GDP is $300 billion below potential GDP and the tax multiplier equals -1.5, then how much would the government need to change taxes to bring the economy to equilibrium at potential?

Accepted Answer

The government would need to c

Question 3

In absolute value, the tax multiplier is greater than the government purchases multiplier.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following would increase the size of the government purchases multiplier?

Accepted Answer

A)  an increase in the tax rate 
B)  an increase in the quantity of imports purchased by households from an increase in income 
C)  a decrease in the amount of consumption spending by households from an increase in income 
D)  a decrease in the amount saved by households from an increase in income 
A)  an increase in the tax rate 
B)  an increase in the quantity of imports purchased by households from an increase in income 
C)  a decrease in the amount of consumption spending by households from an increase in income 
D)  a decrease in the amount saved by households from an increase in income

Question 5

Consider the following statement, "The Federal Reserve fights recessions by increasing the money supply so people will have more money to spend." What is wrong with the statement and how can it be corrected?

Accepted Answer

The Federal Reserve fights recessions by

Question 6

Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion. To move the economy back to potential GDP, Congress should

Accepted Answer

A)  lower government purchases by an amount less than $200 billion. 
B)  lower government purchases by $200 billion. 
C)  raise taxes by $200 billion. 
D)  lower taxes by $200 billion. 
E)  raise taxes by an amount more than $200 billion. 
A)  lower government purchases by an amount less than $200 billion. 
B)  lower government purchases by $200 billion. 
C)  raise taxes by $200 billion. 
D)  lower taxes by $200 billion. 
E)  raise taxes by an amount more than $200 billion.

Question 7

The tax wedge is the difference between the

Accepted Answer

A)  amount of taxes needed to balance the federal budget and the actual amount of taxes. 
B)  amount of taxes needed to pay off the national debt and the actual amount of taxes. 
C)  pretax and posttax returns to an economic activity. 
D)  nominal and real interest rates. 
A)  amount of taxes needed to balance the federal budget and the actual amount of taxes. 
B)  amount of taxes needed to pay off the national debt and the actual amount of taxes. 
C)  pretax and posttax returns to an economic activity. 
D)  nominal and real interest rates.

Question 8

Figure 27-6  
-Refer to Figure 27-6. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely

Accepted Answer

A)  increase the money supply and decrease the interest rate. 
B)  increase taxes. 
C)  increase government spending. 
D)  increase oil prices. 
E)  raise interest rates. 
A)  increase the money supply and decrease the interest rate. 
B)  increase taxes. 
C)  increase government spending. 
D)  increase oil prices. 
E)  raise interest rates.

Question 9

From an initial long-run equilibrium, if aggregate demand grows more slowly than long-run and short-run aggregate supply, then Congress and the president would most likely

Accepted Answer

A)  increase the required reserve ratio and decrease government spending. 
B)  decrease government spending. 
C)  decrease oil prices. 
D)  decrease taxes. 
E)  lower interest rates. 
A)  increase the required reserve ratio and decrease government spending. 
B)  decrease government spending. 
C)  decrease oil prices. 
D)  decrease taxes. 
E)  lower interest rates.

Question 10

Fiscal policy is determined by

Accepted Answer

A)  the Federal Reserve. 
B)  the president and the Federal Reserve. 
C)  Congress and the Federal Reserve. 
D)  Congress and the president. 
A)  the Federal Reserve. 
B)  the president and the Federal Reserve. 
C)  Congress and the Federal Reserve. 
D)  Congress and the president.

Question 11

The government purchases multiplier equals the change in ________ divided by the change in ________.

Accepted Answer

A)  government purchases; equilibrium real GDP 
B)  equilibrium real GDP; government purchases 
C)  government purchases; consumption spending 
D)  consumption spending; government purchases 
A)  government purchases; equilibrium real GDP 
B)  equilibrium real GDP; government purchases 
C)  government purchases; consumption spending 
D)  consumption spending; government purchases

Question 12

Social Security

Accepted Answer

A)  has not been successful in reducing poverty among elderly Americans. 
B)  is a system whereby current retirees are paid from taxes collected from current workers. 
C)  has a greater number of workers per retiree today as compared to when it started. 
D)  currently pays retirees benefits equal to what they paid into the system. 
A)  has not been successful in reducing poverty among elderly Americans. 
B)  is a system whereby current retirees are paid from taxes collected from current workers. 
C)  has a greater number of workers per retiree today as compared to when it started. 
D)  currently pays retirees benefits equal to what they paid into the system.

Question 13

To combat inflation, Congress and the president should

Accepted Answer

A)  decrease government spending. 
B)  decrease taxes. 
C)  raise interest rates. 
D)  increase transfer payments. 
A)  decrease government spending. 
B)  decrease taxes. 
C)  raise interest rates. 
D)  increase transfer payments.

Question 14

Some economists argue that the federal government should normally run a deficit at potential GDP, with the borrowed funds applied to

Accepted Answer

A)  consumption goods. 
B)  investment goods. 
C)  social security benefits. 
D)  health care costs. 
A)  consumption goods. 
B)  investment goods. 
C)  social security benefits. 
D)  health care costs.

Question 15

Which of the following is a reason why we should consider the federal national debt a problem?

Accepted Answer

A)  The federal government is in danger of defaulting on its debt. 
B)  If the debt drives up interest rates, crowding out will occur. 
C)  If the debt was incurred to finance improvements in infrastructure, crowding out will occur. 
D)  If the debt was incurred to finance research and development, crowding out will occur. 
A)  The federal government is in danger of defaulting on its debt. 
B)  If the debt drives up interest rates, crowding out will occur. 
C)  If the debt was incurred to finance improvements in infrastructure, crowding out will occur. 
D)  If the debt was incurred to finance research and development, crowding out will occur.

Question 16

Before the Great Depression of the 1930s, the majority of government spending took place at the ________ and after the Great Depression the majority of government spending took place at the ________.

Accepted Answer

A)  state and local levels; federal level 
B)  local level; federal level 
C)  federal level; state and local levels 
D)  federal level; state level 
A)  state and local levels; federal level 
B)  local level; federal level 
C)  federal level; state and local levels 
D)  federal level; state level

Question 17

What are the key differences between how we illustrate a contractionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

Accepted Answer

In the basic aggregate demand and aggreg

Question 18

Assuming a fixed amount of taxes and a closed economy, calculate the value of the government purchases multiplier, the tax multiplier, and the balanced budget multiplier if the marginal propensity to consume equals 0.75.

Accepted Answer

Government purchases multiplie

Question 19

The Congressional Budget Office estimates the size of the tax multiplier to be ________ for a 2-year tax cut for lower- and middle-income people.

Accepted Answer

A)  0.1 - 0.6 
B)  0.3 - 1.5 
C)  0.5 - 2.5 
D)  2.0 - 3.0 
A)  0.1 - 0.6 
B)  0.3 - 1.5 
C)  0.5 - 2.5 
D)  2.0 - 3.0

Question 20

If real GDP exceeded potential real GDP and inflation was increasing, which of the following would be an appropriate fiscal policy?

Accepted Answer

A)  a decrease in the money supply and an increase in the interest rate 
B)  an increase in government spending 
C)  an increase in taxes 
D)  an increase in oil prices 
A)  a decrease in the money supply and an increase in the interest rate 
B)  an increase in government spending 
C)  an increase in taxes 
D)  an increase in oil prices

Exam 27: Fiscal Policy

Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?

If real GDP is $300 billion below potential GDP and the tax multiplier equals -1.5, then how much would the government need to change taxes to bring the economy to equilibrium at potential?

In absolute value, the tax multiplier is greater than the government purchases multiplier.

Which of the following would increase the size of the government purchases multiplier?

Consider the following statement, "The Federal Reserve fights recessions by increasing the money supply so people will have more money to spend." What is wrong with the statement and how can it be corrected?

Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion. To move the economy back to potential GDP, Congress should

The tax wedge is the difference between the

Figure 27-6 -Refer to Figure 27-6. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely

From an initial long-run equilibrium, if aggregate demand grows more slowly than long-run and short-run aggregate supply, then Congress and the president would most likely

Fiscal policy is determined by

The government purchases multiplier equals the change in ________ divided by the change in ________.

Social Security

To combat inflation, Congress and the president should

Some economists argue that the federal government should normally run a deficit at potential GDP, with the borrowed funds applied to

Which of the following is a reason why we should consider the federal national debt a problem?

Before the Great Depression of the 1930s, the majority of government spending took place at the ________ and after the Great Depression the majority of government spending took place at the ________.

What are the key differences between how we illustrate a contractionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

Assuming a fixed amount of taxes and a closed economy, calculate the value of the government purchases multiplier, the tax multiplier, and the balanced budget multiplier if the marginal propensity to consume equals 0.75.

The Congressional Budget Office estimates the size of the tax multiplier to be ________ for a 2-year tax cut for lower- and middle-income people.

If real GDP exceeded potential real GDP and inflation was increasing, which of the following would be an appropriate fiscal policy?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

The government purchases multiplier equals the change in divided by the change in .

Before the Great Depression of the 1930s, the majority of government spending took place at the and after the Great Depression the majority of government spending took place at the .