Question 1

Which of the following is considered contractionary fiscal policy?

Accepted Answer

A)  Congress increases the income tax rate. 
B)  Congress increases defense spending. 
C)  Legislation removes a college tuition deduction from federal income taxes. 
D)  The New Jersey legislature cuts highway spending to balance its budget. 
A)  Congress increases the income tax rate. 
B)  Congress increases defense spending. 
C)  Legislation removes a college tuition deduction from federal income taxes. 
D)  The New Jersey legislature cuts highway spending to balance its budget.

Question 2

Crowding out will be greater

Accepted Answer

A)  the less sensitive consumption spending is to changes in the interest rate. 
B)  the further equilibrium GDP is below potential GDP. 
C)  the more sensitive investment spending is to changes in the interest rate. 
D)  if the economy is in recession, rather than at full employment. 
A)  the less sensitive consumption spending is to changes in the interest rate. 
B)  the further equilibrium GDP is below potential GDP. 
C)  the more sensitive investment spending is to changes in the interest rate. 
D)  if the economy is in recession, rather than at full employment.

Question 3

Increases in government spending result in ________ in the short run, and permanent increases in government spending result in ________ in the long run.

Accepted Answer

A)  partial crowding out; partial crowding out 
B)  partial crowding out; complete crowding out 
C)  complete crowding out; complete crowding out 
D)  complete crowding out; partial crowding out 
A)  partial crowding out; partial crowding out 
B)  partial crowding out; complete crowding out 
C)  complete crowding out; complete crowding out 
D)  complete crowding out; partial crowding out

Question 4

Table 27-1
  
-Refer to Table 27-1. Consider the hypothetical information in the table above for potential real GDP, real GDP, and the price level in 2018 and in 2019 if Congress and the president do not use fiscal policy. If Congress and the president want to keep real GDP at its potential level in 2019, they should

Accepted Answer

A)  decrease income taxes. 
B)  decrease government purchases. 
C)  decrease the money supply. 
D)  increase the level of interest rates. 
A)  decrease income taxes. 
B)  decrease government purchases. 
C)  decrease the money supply. 
D)  increase the level of interest rates.

Question 5

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 pursue

Accepted Answer

A)  expansionary fiscal policy. 
B)  contractionary fiscal policy. 
C)  expansionary monetary policy. 
D)  contractionary monetary policy. 
E)  expansionary automatic stabilizers. 
A)  expansionary fiscal policy. 
B)  contractionary fiscal policy. 
C)  expansionary monetary policy. 
D)  contractionary monetary policy. 
E)  expansionary automatic stabilizers.

Question 6

Congress and the president carry out fiscal policy through changes in

Accepted Answer

A)  interest rates and the money supply. 
B)  taxes and the interest rate. 
C)  government purchases and the money supply. 
D)  government purchases and taxes. 
A)  interest rates and the money supply. 
B)  taxes and the interest rate. 
C)  government purchases and the money supply. 
D)  government purchases and taxes.

Question 7

How can tax simplification be beneficial to the economy?

Accepted Answer

Tax simplification would free up resourc

Question 8

The largest source of federal government revenue in 2016 was

Accepted Answer

A)  sales taxes. 
B)  corporate income taxes. 
C)  individual income taxes. 
D)  payroll taxes to fund Social Security and Medicare programs. 
A)  sales taxes. 
B)  corporate income taxes. 
C)  individual income taxes. 
D)  payroll taxes to fund Social Security and Medicare programs.

Question 9

If the economy is slipping into a recession, which of the following would be an appropriate fiscal policy?

Accepted Answer

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

Question 10

Figure 27-1  
-Refer to Figure 27-1. Suppose the economy is in short-run equilibrium above potential GDP and wages and prices are rising. If contractionary policy is used to move the economy back to long run equilibrium, this would be depicted as a movement from ________ using the basic AD-AS model in the figure above.

Accepted Answer

A)  D to C 
B)  C to B 
C)  A to E 
D)  B to A 
E)  E to A 
A)  D to C 
B)  C to B 
C)  A to E 
D)  B to A 
E)  E to A

Question 11

A study by Edward Prescott found that the ________ marginal tax rates in the United States relative to Europe resulted in a ________ quantity of labor supplied in the United States.

Accepted Answer

A)  higher; larger 
B)  lower; larger 
C)  higher; smaller 
D)  lower; smaller 
A)  higher; larger 
B)  lower; larger 
C)  higher; smaller 
D)  lower; smaller

Question 12

If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2, does it follow that the federal government acted to raise taxes or cut government spending in Year 2?

Accepted Answer

No, the economy could have been in an ex

Question 13

Why will there be less crowding out of private spending by government spending the less sensitive consumption, investment, and net exports are to changes in interest rates?

Accepted Answer

Crowding out occurs when the increase in

Question 14

Included in government expenditures are government purchases and transfer payments.

Accepted Answer

A) True 
 B)False

Question 15

Expansionary fiscal policy is used to increase aggregate demand in an attempt to fight rising inflation.

Accepted Answer

A) True 
 B)False

Question 16

The federal budget exhibited a $128.7 billion surplus in 2001 but moved to a deficit of $157.8 billion in 2002. Some argued the deficit was opened up because of the Bush 2001 tax cuts, but others argued that the deficit grew because of the recession suffered in 2001. Evaluate the validity of the second argument.

Accepted Answer

Recessions increase the federal budget d

Question 17

Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in a long-run macroeconomic equilibrium. For Year 2, graph aggregate demand, long-run aggregate supply, and short-run aggregate supply such that the condition of the economy will induce the president and Congress to conduct contractionary fiscal policy. Briefly explain the condition of the economy and what the president and Congress are attempting to do.

Accepted Answer

The president and Congress conduct contr

Question 18

Crowding out, following an increase in government spending, results from (the exchange rate is the foreign exchange price of the domestic currency)

Accepted Answer

A)  higher interest rates and a lower exchange rate. 
B)  higher interest rates and a higher exchange rate. 
C)  lower interest rates and a lower exchange rate. 
D)  lower interest rates and a higher exchange rate. 
A)  higher interest rates and a lower exchange rate. 
B)  higher interest rates and a higher exchange rate. 
C)  lower interest rates and a lower exchange rate. 
D)  lower interest rates and a higher exchange rate.

Question 19

Government deficits tend to increase during

Accepted Answer

A)  recessions and booms. 
B)  periods of war and recession. 
C)  periods of below- or above-average growth. 
D)  periods of increased financial uncertainty. 
A)  recessions and booms. 
B)  periods of war and recession. 
C)  periods of below- or above-average growth. 
D)  periods of increased financial uncertainty.

Question 20

If the federal government's expenditures are less than its tax revenues, then

Accepted Answer

A)  a budget surplus results. 
B)  a budget deficit results. 
C)  the budget is balanced. 
D)  No conclusion can be drawn here regarding the budget surplus or deficit without information regarding government purchases versus other outlays. 
A)  a budget surplus results. 
B)  a budget deficit results. 
C)  the budget is balanced. 
D)  No conclusion can be drawn here regarding the budget surplus or deficit without information regarding government purchases versus other outlays.

Exam 27: Fiscal Policy

Which of the following is considered contractionary fiscal policy?

Crowding out will be greater

Increases in government spending result in ________ in the short run, and permanent increases in government spending result in ________ in the long run.

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 pursue

Congress and the president carry out fiscal policy through changes in

How can tax simplification be beneficial to the economy?

The largest source of federal government revenue in 2016 was

If the economy is slipping into a recession, which of the following would be an appropriate fiscal policy?

A study by Edward Prescott found that the ________ marginal tax rates in the United States relative to Europe resulted in a ________ quantity of labor supplied in the United States.

If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2, does it follow that the federal government acted to raise taxes or cut government spending in Year 2?

Why will there be less crowding out of private spending by government spending the less sensitive consumption, investment, and net exports are to changes in interest rates?

Included in government expenditures are government purchases and transfer payments.

Expansionary fiscal policy is used to increase aggregate demand in an attempt to fight rising inflation.

Crowding out, following an increase in government spending, results from (the exchange rate is the foreign exchange price of the domestic currency)

Government deficits tend to increase during

If the federal government's expenditures are less than its tax revenues, then

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

Increases in government spending result in in the short run, and permanent increases in government spending result in in the long run.

A study by Edward Prescott found that the marginal tax rates in the United States relative to Europe resulted in a quantity of labor supplied in the United States.