Question 1

Accumulating debt poses a problem for the U.S. federal government because

Accepted Answer

A)  it is currently in danger of defaulting on the debt. 
B)  a large debt-to-GDP ratio causes crowding out. 
C)  building roads and bridges do not yield enough benefits to justify their cost. 
D)  the debt has to ultimately be paid off. 
A)  it is currently in danger of defaulting on the debt. 
B)  a large debt-to-GDP ratio causes crowding out. 
C)  building roads and bridges do not yield enough benefits to justify their cost. 
D)  the debt has to ultimately be paid off.

Question 2

The income tax system serves as an automatic stabilizer over the course of the business cycle.

Accepted Answer

A) True 
 B)False

Question 3

In an open economy, the government purchases multiplier will be

Accepted Answer

A)  larger as the marginal propensity to import decreases. 
B)  smaller as the marginal propensity to import decreases. 
C)  smaller as the marginal propensity to tax decreases. 
D)  larger as the marginal propensity to consume decreases. 
A)  larger as the marginal propensity to import decreases. 
B)  smaller as the marginal propensity to import decreases. 
C)  smaller as the marginal propensity to tax decreases. 
D)  larger as the marginal propensity to consume decreases.

Question 4

An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

Accepted Answer

A)  increase; rise; falls 
B)  increase; fall; rises 
C)  decrease; rise; falls 
D)  decrease; fall; rises 
A)  increase; rise; falls 
B)  increase; fall; rises 
C)  decrease; rise; falls 
D)  decrease; fall; rises

Question 5

Figure 27-1  
-Refer to Figure 27-1. An increase in taxes would be depicted as a movement from ________, using the basic AD-AS model in the figure above.

Accepted Answer

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

Question 6

In the long run, most economists agree that a permanent increase in government spending leads to ________ crowding out of private spending.

Accepted Answer

A)  no 
B)  partial 
C)  complete 
D)  more than complete 
A)  no 
B)  partial 
C)  complete 
D)  more than complete

Question 7

What is the "tax wedge"?

Accepted Answer

The "tax wedge" is t

Question 8

Suppose real GDP is $13 trillion and potential real GDP is $13.5 trillion. If Congress and the president increase government purchases by $500 billion, then the economy will be brought to equilibrium at potential real GDP.

Accepted Answer

A) True 
 B)False

Question 9

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

Accepted Answer

A)  automatic stabilizers. 
B)  discretionary fiscal policy. 
C)  discretionary monetary policy. 
D)  automatic monetary policy. 
A)  automatic stabilizers. 
B)  discretionary fiscal policy. 
C)  discretionary monetary policy. 
D)  automatic monetary policy.

Question 10

A permanent tax cut would likely ________ consumption spending ________ than would a tax rebate like the one issued in 2008.

Accepted Answer

A)  increase; more 
B)  increase; less 
C)  decrease; more 
D)  decrease; less 
A)  increase; more 
B)  increase; less 
C)  decrease; more 
D)  decrease; less

Question 11

How could the existence of an unemployment insurance system or other transfer programs have reduced the severity of the Great Depression?

Accepted Answer

If these programs existed during the Gre

Question 12

Table 27-2
  
-Refer to Table 27-2. 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)  buy Treasury securities. 
B)  conduct expansionary fiscal policy. 
C)  decrease government purchases. 
D)  decrease the discount rate. 
A)  buy Treasury securities. 
B)  conduct expansionary fiscal policy. 
C)  decrease government purchases. 
D)  decrease the discount rate.

Question 13

As the tax wedge associated with a given economic activity gets smaller, we would expect

Accepted Answer

A)  more of that economic activity to occur. 
B)  the distortions caused by taxes on that activity to be greater. 
C)  people to engage in less of that particular activity. 
D)  no change in the practice of that activity until the tax wedge ultimately disappears. 
A)  more of that economic activity to occur. 
B)  the distortions caused by taxes on that activity to be greater. 
C)  people to engage in less of that particular activity. 
D)  no change in the practice of that activity until the tax wedge ultimately disappears.

Question 14

An increase in the money supply is a discretionary fiscal policy which will increase aggregate demand.

Accepted Answer

A) True 
 B)False

Question 15

Article Summary
In November 2017, the House Ways and Means Committee announced a tax reform bill which includes hundreds of changes to the tax code. Overall, the tax plan represents a move in the direction of greater neutrality and global competitiveness. Following are eight of the most important provisions in the tax bill.
		1. The corporate tax rate would be reduced to 20 percent.
		2. Pass-through business income would be taxed at a maximum rate of 25 percent.
		3. Some disincentives to investment would be rolled back.
		4. The country would move to a territorial tax system.
		5. Many itemized deductions would be eliminated.
		6. The estate tax would be repealed.
		7. The tax treatment of interest would change.
		8. Tax expenditures would be curtailed.

-Refer to the Article Summary. A reduction in the tax rate on pass-through business income to a maximum of 25 percent would ________ the return to entrepreneurship, and this would ________ aggregate supply.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease

Question 16

The growth rate of real GDP equals

Accepted Answer

A)  the growth rate of hours worked plus the growth rate of labor productivity. 
B)  the growth rate of hours worked minus the growth rate of labor productivity. 
C)  the growth rate of hours worked multiplied by the growth rate of labor productivity. 
D)  the growth rate of hours worked divided by the growth rate of labor productivity. 
A)  the growth rate of hours worked plus the growth rate of labor productivity. 
B)  the growth rate of hours worked minus the growth rate of labor productivity. 
C)  the growth rate of hours worked multiplied by the growth rate of labor productivity. 
D)  the growth rate of hours worked divided by the growth rate of labor productivity.

Question 17

An increase in government spending may expedite recovery from a recession in the short run, but in the long run this policy may

Accepted Answer

A)  reduce investment in new capital. 
B)  make domestic businesses less competitive in international markets as the dollar appreciates in value. 
C)  raise interest rates and reduce consumer expenditures on automobiles and new houses. 
D)  All of the above are correct. 
A)  reduce investment in new capital. 
B)  make domestic businesses less competitive in international markets as the dollar appreciates in value. 
C)  raise interest rates and reduce consumer expenditures on automobiles and new houses. 
D)  All of the above are correct.

Question 18

A tax rebate by the government would

Accepted Answer

A)  increase your pretax income, but not your disposable income. 
B)  increase your disposable income, but not your pretax income. 
C)  decrease your pretax income, but not your disposable income. 
D)  decrease your disposable income, but not your pretax income. 
A)  increase your pretax income, but not your disposable income. 
B)  increase your disposable income, but not your pretax income. 
C)  decrease your pretax income, but not your disposable income. 
D)  decrease your disposable income, but not your pretax income.

Question 19

The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was

Accepted Answer

A)  in a recession. 
B)  in an expansion. 
C)  at potential GDP. 
D)  at potential tax revenue. 
A)  in a recession. 
B)  in an expansion. 
C)  at potential GDP. 
D)  at potential tax revenue.

Question 20

The multiplier effect refers to the series of

Accepted Answer

A)  autonomous increases in consumption spending that result from an initial increase in induced expenditures. 
B)  induced increases in consumption spending that result from an initial increase in autonomous expenditures. 
C)  autonomous increases in investment spending that result from an initial increase in induced expenditures. 
D)  induced increases in investment spending that result from an initial increase in autonomous expenditures. 
A)  autonomous increases in consumption spending that result from an initial increase in induced expenditures. 
B)  induced increases in consumption spending that result from an initial increase in autonomous expenditures. 
C)  autonomous increases in investment spending that result from an initial increase in induced expenditures. 
D)  induced increases in investment spending that result from an initial increase in autonomous expenditures.

Exam 27: Fiscal Policy

Accumulating debt poses a problem for the U.S. federal government because

The income tax system serves as an automatic stabilizer over the course of the business cycle.

In an open economy, the government purchases multiplier will be

An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

Figure 27-1 -Refer to Figure 27-1. An increase in taxes would be depicted as a movement from ________, using the basic AD-AS model in the figure above.

In the long run, most economists agree that a permanent increase in government spending leads to ________ crowding out of private spending.

What is the "tax wedge"?

Suppose real GDP is $13 trillion and potential real GDP is $13.5 trillion. If Congress and the president increase government purchases by $500 billion, then the economy will be brought to equilibrium at potential real GDP.

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

A permanent tax cut would likely ________ consumption spending ________ than would a tax rebate like the one issued in 2008.

How could the existence of an unemployment insurance system or other transfer programs have reduced the severity of the Great Depression?

As the tax wedge associated with a given economic activity gets smaller, we would expect

An increase in the money supply is a discretionary fiscal policy which will increase aggregate demand.

The growth rate of real GDP equals

An increase in government spending may expedite recovery from a recession in the short run, but in the long run this policy may

A tax rebate by the government would

The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was

The multiplier effect refers to the series of

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

An economic expansion tends to cause the federal budget deficit to because tax revenues and government spending on transfer payments .

A permanent tax cut would likely consumption spending than would a tax rebate like the one issued in 2008.