Question 1

An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.

Accepted Answer

A) True 
 B)False

Question 2

To evaluate the size of the federal budget deficit or surplus over time, it would be best to look at the

Accepted Answer

A)  absolute size of the budget deficit or surplus. 
B)  budget deficit or surplus as a percentage of GDP. 
C)  budget deficit or surplus as a percentage of tax revenues. 
D)  budget deficit or surplus as a percentage of government spending. 
A)  absolute size of the budget deficit or surplus. 
B)  budget deficit or surplus as a percentage of GDP. 
C)  budget deficit or surplus as a percentage of tax revenues. 
D)  budget deficit or surplus as a percentage of government spending.

Question 3

Identify each of the following as (i) part of an expansionary fiscal policy, (ii) part of a contractionary fiscal policy, or (iii) not part of fiscal policy.
a. The personal income tax rate is lowered.
b. Congress cuts spending on defense.
c. College students are allowed to deduct tuition costs from their federal income taxes.
d. The corporate income tax rate is lowered.
e. The state of Nevada builds a new tollway in an attempt to expand employment and ease traffic in Las Vegas.

Accepted Answer

a. This is expansionary fiscal policy.
b

Question 4

During recessions, government expenditure automatically

Accepted Answer

A)  falls because of programs such as unemployment insurance and Medicaid. 
B)  rises because of programs such as unemployment insurance and Medicaid. 
C)  falls because of the progressive income tax system. 
D)  rises because of the progressive income tax system. 
A)  falls because of programs such as unemployment insurance and Medicaid. 
B)  rises because of programs such as unemployment insurance and Medicaid. 
C)  falls because of the progressive income tax system. 
D)  rises because of the progressive income tax system.

Question 5

Which of the following is an objective of fiscal policy?

Accepted Answer

A)  energy independence from Middle East oil 
B)  health care coverage for all Americans 
C)  discovering a cure for Alzheimer's 
D)  high rates of economic growth 
E)  homeland security 
A)  energy independence from Middle East oil 
B)  health care coverage for all Americans 
C)  discovering a cure for Alzheimer's 
D)  high rates of economic growth 
E)  homeland security

Question 6

The federal government debt ________ when the federal government runs a deficit and ________ when the federal government runs a surplus.

Accepted Answer

A)  increases; increases 
B)  decreases; increases 
C)  increases; decreases 
D)  decreases; decreases 
A)  increases; increases 
B)  decreases; increases 
C)  increases; decreases 
D)  decreases; decreases

Question 7

Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight rising inflation.

Accepted Answer

A) True 
 B)False

Question 8

Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability, high rates of economic growth, and high employment.

Accepted Answer

A)  taxes; interest rates 
B)  taxes; the money supply 
C)  interest rates; money supply 
D)  taxes; expenditures 
A)  taxes; interest rates 
B)  taxes; the money supply 
C)  interest rates; money supply 
D)  taxes; expenditures

Question 9

List the five categories of federal government expenditures.

Accepted Answer

1. Defense spending
2. Transfe

Question 10

Contractionary fiscal policy involves decreasing government purchases or increasing taxes.

Accepted Answer

A) True 
 B)False

Question 11

Suppose the federal budget deficit for the year was $100 billion and the economy was in a recession. If the economy had been at potential GDP, it is estimated that tax revenues would have been $60 billion higher and government spending on transfer payments $50 billion lower. Using these estimates, the cyclically adjusted budget

Accepted Answer

A)  deficit was $210 billion. 
B)  deficit was $110 billion. 
C)  surplus was $10 billion. 
D)  surplus was $110 billion. 
A)  deficit was $210 billion. 
B)  deficit was $110 billion. 
C)  surplus was $10 billion. 
D)  surplus was $110 billion.

Question 12

What are the key differences between how we illustrate an expansionary 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 13

If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

Accepted Answer

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

Question 14

If the economy is growing beyond potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

Accepted Answer

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

Question 15

Expansionary fiscal policy will

Accepted Answer

A)  shift the aggregate demand curve to the left. 
B)  shift the aggregate demand curve to the right. 
C)  not shift the aggregate demand curve. 
D)  shift the short-run aggregate supply curve to the left. 
A)  shift the aggregate demand curve to the left. 
B)  shift the aggregate demand curve to the right. 
C)  not shift the aggregate demand curve. 
D)  shift the short-run aggregate supply curve to the left.

Question 16

A decrease in the marginal income tax rate is a fiscal policy which will increase aggregate demand.

Accepted Answer

A) True 
 B)False

Question 17

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.8, the tax rate is 0.1, and the marginal propensity to import equals 0.2.

Accepted Answer

A)  2.1 
B)  1.9 
C)  1.7 
D)  1.4 
A)  2.1 
B)  1.9 
C)  1.7 
D)  1.4

Question 18

Fiscal policy refers to changes in

Accepted Answer

A)  state and local taxes and purchases that are intended to achieve macroeconomic policy objectives. 
B)  federal taxes and purchases that are intended to achieve macroeconomic policy objectives. 
C)  federal taxes and purchases that are intended to fund the war on terrorism. 
D)  the money supply and interest rates that are intended to achieve macroeconomic policy objectives. 
A)  state and local taxes and purchases that are intended to achieve macroeconomic policy objectives. 
B)  federal taxes and purchases that are intended to achieve macroeconomic policy objectives. 
C)  federal taxes and purchases that are intended to fund the war on terrorism. 
D)  the money supply and interest rates that are intended to achieve macroeconomic policy objectives.

Question 19

In preparing their estimates of the stimulus package's effect on GDP, Obama administration economists estimated a government purchases multiplier of 1.57. This indicates that a $1 billion increase in government purchases would increase equilibrium real GDP by

Accepted Answer

A)  $1 billion. 
B)  $1.57 billion. 
C)  $15.7 billion. 
D)  $157 billion. 
A)  $1 billion. 
B)  $1.57 billion. 
C)  $15.7 billion. 
D)  $157 billion.

Question 20

Figure 27-5  
-Refer to Figure 27-5. 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)  decrease government spending. 
B)  increase government spending. 
C)  increase oil prices. 
D)  increase taxes. 
E)  lower interest rates. 
A)  decrease government spending. 
B)  increase government spending. 
C)  increase oil prices. 
D)  increase taxes. 
E)  lower interest rates.

Exam 27: Fiscal Policy

An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.

To evaluate the size of the federal budget deficit or surplus over time, it would be best to look at the

During recessions, government expenditure automatically

Which of the following is an objective of fiscal policy?

The federal government debt ________ when the federal government runs a deficit and ________ when the federal government runs a surplus.

Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight rising inflation.

Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability, high rates of economic growth, and high employment.

List the five categories of federal government expenditures.

Contractionary fiscal policy involves decreasing government purchases or increasing taxes.

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

If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

If the economy is growing beyond potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

Expansionary fiscal policy will

A decrease in the marginal income tax rate is a fiscal policy which will increase aggregate demand.

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.8, the tax rate is 0.1, and the marginal propensity to import equals 0.2.

Fiscal policy refers to changes in

In preparing their estimates of the stimulus package's effect on GDP, Obama administration economists estimated a government purchases multiplier of 1.57. This indicates that a $1 billion increase in government purchases would increase equilibrium real GDP by

Figure 27-5 -Refer to Figure 27-5. 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

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 federal government debt when the federal government runs a deficit and when the federal government runs a surplus.

Fiscal policy is defined as changes in federal and to achieve macroeconomic objectives such as price stability, high rates of economic growth, and high employment.