Question 1

Decreasing government spending ________ the price level and ________ equilibrium real GDP.

Accepted Answer

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

Question 2

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

Accepted Answer

A)  decrease the required reserve ratio. 
B)  decrease government spending. 
C)  decrease oil prices. 
D)  decrease tax rates. 
A)  decrease the required reserve ratio. 
B)  decrease government spending. 
C)  decrease oil prices. 
D)  decrease tax rates.

Question 3

In early 2008, the housing crisis and rising oil prices increased the risk of recession in the United States. What fiscal policy action was taken by Congress and the president to counter these events?

Accepted Answer

A)  The Federal Reserve cut its target for the federal funds rate. 
B)  There was an increase in government spending on defense and unemployment compensation. 
C)  Taxpayers were given rebates on taxes they already paid. 
D)  Income taxes were raised to reduce the federal budget deficit and reduce interest rates. 
A)  The Federal Reserve cut its target for the federal funds rate. 
B)  There was an increase in government spending on defense and unemployment compensation. 
C)  Taxpayers were given rebates on taxes they already paid. 
D)  Income taxes were raised to reduce the federal budget deficit and reduce interest rates.

Question 4

Assume a closed economy, that taxes are fixed, and the marginal propensity to consume is equal to 0.8. What is the government spending multiplier?

Accepted Answer

A)  10 
B)  5 
C)  4 
D)  3 
A)  10 
B)  5 
C)  4 
D)  3

Question 5

The budget deficit increases during wars and recessions.

Accepted Answer

A) True 
 B)False

Question 6

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009, approximately ________ took the form of tax cuts and ________ took the form of increases in government expenditures.

Accepted Answer

A)  one-half; one-half 
B)  three-fourths; one-fourth 
C)  one-tenth; nine-tenths 
D)  one-third; two-thirds 
A)  one-half; one-half 
B)  three-fourths; one-fourth 
C)  one-tenth; nine-tenths 
D)  one-third; two-thirds

Question 7

For the federal deficit to be lowered

Accepted Answer

A)  the federal government must increase its spending and increase net exports. 
B)  the federal government's expenditures must be lower than its tax revenue. 
C)  the Federal Reserve must raise interest rates and lower the required reserve ratio. 
D)  the Federal Reserve must reduce the money supply. 
A)  the federal government must increase its spending and increase net exports. 
B)  the federal government's expenditures must be lower than its tax revenue. 
C)  the Federal Reserve must raise interest rates and lower the required reserve ratio. 
D)  the Federal Reserve must reduce the money supply.

Question 8

Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced. What will happen to real equilibrium GDP?

Accepted Answer

A)  Real equilibrium GDP will fall. 
B)  Real equilibrium GDP will rise. 
C)  There will be no change in real equilibrium GDP. 
D)  Real equilibrium GDP will initially rise, but then fall below its previous equilibrium value. 
A)  Real equilibrium GDP will fall. 
B)  Real equilibrium GDP will rise. 
C)  There will be no change in real equilibrium GDP. 
D)  Real equilibrium GDP will initially rise, but then fall below its previous equilibrium value.

Question 9

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

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 10

Does expansionary fiscal policy directly increase the money supply? Isn't it true that the president and Congress fight recessions by spending more money?

Accepted Answer

No, expansionary fiscal policy does not

Question 11

Tax cuts on business income ________ aggregate demand.

Accepted Answer

A)  would decrease 
B)  would increase 
C)  would not change 
D)  may increase or decrease 
A)  would decrease 
B)  would increase 
C)  would not change 
D)  may increase or decrease

Question 12

The impact of crowding out may be the least

Accepted Answer

A)  during a deep recession. 
B)  when real GDP is above but close to potential GDP. 
C)  during an expansion. 
D)  when real GDP is below but close to potential GDP. 
A)  during a deep recession. 
B)  when real GDP is above but close to potential GDP. 
C)  during an expansion. 
D)  when real GDP is below but close to potential GDP.

Question 13

In 2017, the Congressional Budget Office forecast that which of the following would have the lowest average annual growth rate for the years 2017-2027?

Accepted Answer

A)  population 
B)  hours worked 
C)  labor productivity 
D)  real GDP 
A)  population 
B)  hours worked 
C)  labor productivity 
D)  real GDP

Question 14

The aggregate demand curve will shift to the right ________ the initial increase in government purchases.

Accepted Answer

A)  by less than 
B)  by more than 
C)  by the same amount as 
D)  sometimes by more than and other times by less than 
A)  by less than 
B)  by more than 
C)  by the same amount as 
D)  sometimes by more than and other times by less than

Question 15

An increase in the sensitivity of private spending (consumption, investment, and net exports) to changes in the interest rate ________ the government purchases multiplier.

Accepted Answer

A)  will decrease 
B)  will increase 
C)  will not change 
D)  may increase or may decrease 
A)  will decrease 
B)  will increase 
C)  will not change 
D)  may increase or may decrease

Question 16

Figure 27-1  
-Refer to Figure 27-1. Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued. Using the basic AD-AS model in the figure above, this would be depicted as a movement from

Accepted Answer

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

Question 17

Suppose real GDP is $13 trillion, potential real GDP is $13.5 trillion, and Congress and the president plan to use fiscal policy to restore the economy to potential real GDP. Assuming a constant price level, Congress and the president would need to decrease taxes by

Accepted Answer

A)  $500 billion. 
B)  less than $500 billion. 
C)  more than $500 billion. 
D)  None of the above are correct. Congress should raise taxes in this case. 
A)  $500 billion. 
B)  less than $500 billion. 
C)  more than $500 billion. 
D)  None of the above are correct. Congress should raise taxes in this case.

Question 18

From the 1960s to 2016, transfer payments

Accepted Answer

A)  have risen from 25 percent to about 49 percent of federal government expenditures. 
B)  remained the same percentage of total federal government expenditures. 
C)  have declined by half as a percentage of total federal government expenditures. 
D)  have grown very slowly as a percentage of total federal government expenditures. 
A)  have risen from 25 percent to about 49 percent of federal government expenditures. 
B)  remained the same percentage of total federal government expenditures. 
C)  have declined by half as a percentage of total federal government expenditures. 
D)  have grown very slowly as a percentage of total federal government expenditures.

Question 19

When the Social Security program was in its infancy in 1940, the ratio of workers to retirees was more than 150 to 1. Currently, the ratio of workers to retirees is

Accepted Answer

A)  more than 300 to 1. 
B)  50 to 1. 
C)  less than 3 to 1. 
D)  an even 1 to 1. 
A)  more than 300 to 1. 
B)  50 to 1. 
C)  less than 3 to 1. 
D)  an even 1 to 1.

Question 20

An increase in government spending lowers interest rates and increases the rate of investment in new capital.

Accepted Answer

A) True 
 B)False

Exam 27: Fiscal Policy

Decreasing government spending ________ the price level and ________ equilibrium real GDP.

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

In early 2008, the housing crisis and rising oil prices increased the risk of recession in the United States. What fiscal policy action was taken by Congress and the president to counter these events?

Assume a closed economy, that taxes are fixed, and the marginal propensity to consume is equal to 0.8. What is the government spending multiplier?

The budget deficit increases during wars and recessions.

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009, approximately ________ took the form of tax cuts and ________ took the form of increases in government expenditures.

For the federal deficit to be lowered

Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced. What will happen to real equilibrium GDP?

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

Does expansionary fiscal policy directly increase the money supply? Isn't it true that the president and Congress fight recessions by spending more money?

Tax cuts on business income ________ aggregate demand.

The impact of crowding out may be the least

In 2017, the Congressional Budget Office forecast that which of the following would have the lowest average annual growth rate for the years 2017-2027?

The aggregate demand curve will shift to the right ________ the initial increase in government purchases.

An increase in the sensitivity of private spending (consumption, investment, and net exports) to changes in the interest rate ________ the government purchases multiplier.

Figure 27-1 -Refer to Figure 27-1. Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued. Using the basic AD-AS model in the figure above, this would be depicted as a movement from

Suppose real GDP is $13 trillion, potential real GDP is $13.5 trillion, and Congress and the president plan to use fiscal policy to restore the economy to potential real GDP. Assuming a constant price level, Congress and the president would need to decrease taxes by

From the 1960s to 2016, transfer payments

When the Social Security program was in its infancy in 1940, the ratio of workers to retirees was more than 150 to 1. Currently, the ratio of workers to retirees is

An increase in government spending lowers interest rates and increases the rate of investment in new capital.

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

Decreasing government spending the price level and equilibrium real GDP.

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009, approximately took the form of tax cuts and took the form of increases in government expenditures.

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