Question 1

Contractionary fiscal policy shifts the aggregate demand curve to the _____ and is used to close a(n) _____ gap.

Accepted Answer

A)  right; inflationary 
B)  right; recessionary 
C)  left; inflationary 
D)  left; recessionary 
A)  right; inflationary 
B)  right; recessionary 
C)  left; inflationary 
D)  left; recessionary

Question 2

If overall spending declines and thus the economy contracts, the government could counter this by:

Accepted Answer

A)  raising tax rates. 
B)  decreasing government transfers. 
C)  increasing government spending. 
D)  decreasing government spending. 
A)  raising tax rates. 
B)  decreasing government transfers. 
C)  increasing government spending. 
D)  decreasing government spending.

Question 3

If there is a recessionary gap, discretionary fiscal policy would likely include action to:

Accepted Answer

A)  shift aggregate demand to the right. 
B)  shift aggregate demand to the left. 
C)  leave aggregate demand alone and shift short-run aggregate supply to the left. 
D)  shift aggregate demand to the right and shift short-run aggregate supply to the left. 
A)  shift aggregate demand to the right. 
B)  shift aggregate demand to the left. 
C)  leave aggregate demand alone and shift short-run aggregate supply to the left. 
D)  shift aggregate demand to the right and shift short-run aggregate supply to the left.

Question 4

Which factor is an expansionary fiscal policy?

Accepted Answer

A)  an increase in the money supply that decreases interest rates 
B)  an increase in taxes that reduces the budget deficit and decreases consumption 
C)  a decrease in government spending 
D)  an increase in unemployment benefits 
A)  an increase in the money supply that decreases interest rates 
B)  an increase in taxes that reduces the budget deficit and decreases consumption 
C)  a decrease in government spending 
D)  an increase in unemployment benefits

Question 5

Use the following to answer questions:  
-(Figure: Fiscal Policy I) Refer to Figure: Fiscal Policy I. Suppose that this economy is in equilibrium at E2. If there is an increase in government transfers_____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

Accepted Answer

A)  AD2; right; increase; increase 
B)  AD2; left; decrease; decrease 
C)  AD1; right; increase; increase 
D)  AD1; right; decrease; increase 
A)  AD2; right; increase; increase 
B)  AD2; left; decrease; decrease 
C)  AD1; right; increase; increase 
D)  AD1; right; decrease; increase

Question 6

Use the following to answer questions:  
-(Figure: Fiscal Policy I) Refer to Figure: Fiscal Policy I. Suppose that this economy is in equilibrium at E1. If there is a decrease in taxes, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

Accepted Answer

A)  AD2; left; increase; decrease 
B)  AD2; left; decrease; decrease 
C)  AD1; right; increase; increase 
D)  AD1; right; decrease; increase 
A)  AD2; left; increase; decrease 
B)  AD2; left; decrease; decrease 
C)  AD1; right; increase; increase 
D)  AD1; right; decrease; increase

Question 7

Use the following to answer questions:  
-(Figure: Fiscal Policy Options) Refer to Figure: Fiscal Policy Options. If the aggregate demand curve is AD:

Accepted Answer

A)  a contractionary fiscal policy may be warranted. 
B)  an expansionary fiscal policy may be warranted. 
C)  no change in discretionary fiscal policy is warranted. 
D)  the economy is in an inflationary gap. 
A)  a contractionary fiscal policy may be warranted. 
B)  an expansionary fiscal policy may be warranted. 
C)  no change in discretionary fiscal policy is warranted. 
D)  the economy is in an inflationary gap.

Question 8

Use the following to answer questions:  
-(Figure: Fiscal Policy Options) Refer to Figure: Fiscal Policy Options. If the aggregate demand curve is ADʺ, the most appropriate discretionary fiscal policy is to _____ government spending and _____ income tax rates.

Accepted Answer

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

Question 9

Use the following to answer questions:  
-(Figure: Short- and Long-Run Equilibrium) Refer to Figure: Short- and Long-Run Equilibrium. If the economy is at equilibrium at E1, it is in a(n):

Accepted Answer

A)  recessionary gap. 
B)  inflationary gap. 
C)  low level of unemployment. 
D)  liquidity trap. 
A)  recessionary gap. 
B)  inflationary gap. 
C)  low level of unemployment. 
D)  liquidity trap.

Question 10

Sources of federal tax revenue do NOT include:

Accepted Answer

A)  the personal income tax. 
B)  sales taxes. 
C)  social insurance taxes. 
D)  the corporate profits tax. 
A)  the personal income tax. 
B)  sales taxes. 
C)  social insurance taxes. 
D)  the corporate profits tax.

Question 11

If the economy is at equilibrium below potential output, there is a(n) _____ gap, and _____ fiscal policy is appropriate.

Accepted Answer

A)  recessionary; expansionary 
B)  inflationary; expansionary 
C)  recessionary; contractionary 
D)  inflationary; contractionary 
A)  recessionary; expansionary 
B)  inflationary; expansionary 
C)  recessionary; contractionary 
D)  inflationary; contractionary

Question 12

Decreasing funding for space exploration will shift the _____ curve to the _____.

Accepted Answer

A)  short-run aggregate supply; left 
B)  short-run aggregate supply; right 
C)  aggregate demand; left 
D)  aggregate demand; right 
A)  short-run aggregate supply; left 
B)  short-run aggregate supply; right 
C)  aggregate demand; left 
D)  aggregate demand; right

Question 13

A contractionary fiscal policy either _____ government spending or _____ taxes.

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 14

Which example does NOT illustrate government transfers?

Accepted Answer

A)  Medicaid-paid prescription drugs for low-income individuals 
B)  unemployment insurance 
C)  a Social Security disability pension 
D)  a reimbursement of personal income tax withheld from wages 
A)  Medicaid-paid prescription drugs for low-income individuals 
B)  unemployment insurance 
C)  a Social Security disability pension 
D)  a reimbursement of personal income tax withheld from wages

Question 15

A cut in taxes _____, shifting the aggregate demand curve to the _____.

Accepted Answer

A)  decreases government transfers and consumption; right 
B)  increases disposable income and consumption; right 
C)  decreases the marginal propensity to save, increasing consumption; left 
D)  increases corporate profits and investment; left 
A)  decreases government transfers and consumption; right 
B)  increases disposable income and consumption; right 
C)  decreases the marginal propensity to save, increasing consumption; left 
D)  increases corporate profits and investment; left

Question 16

A reduction in government transfers _____, therefore shifting the aggregate demand curve to the _____.

Accepted Answer

A)  increases labor costs to companies, increasing investment; left 
B)  decreases government purchases of goods and services, decreasing consumption; right 
C)  increases the marginal propensity to save, decreasing consumption; right 
D)  decreases disposable income and consumption; left 
A)  increases labor costs to companies, increasing investment; left 
B)  decreases government purchases of goods and services, decreasing consumption; right 
C)  increases the marginal propensity to save, decreasing consumption; right 
D)  decreases disposable income and consumption; left

Question 17

Use the following to answer questions:  
-(Figure: Fiscal Policy II) Refer to Figure: Fiscal Policy II. Suppose that this economy is in equilibrium at E1. If there is a decrease in taxes, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

Accepted Answer

A)  AD1; right; increase; increase 
B)  AD1; left; decrease; decrease 
C)  AD2; right; increase; increase 
D)  AD2; right; decrease; increase 
A)  AD1; right; increase; increase 
B)  AD1; left; decrease; decrease 
C)  AD2; right; increase; increase 
D)  AD2; right; decrease; increase

Question 18

If there is an inflationary gap in the economy, discretionary fiscal policy will likely include action to:

Accepted Answer

A)  shift aggregate demand to the right. 
B)  prevent the aggregate demand curve from shifting. 
C)  shift aggregate demand to the left. 
D)  shift both aggregate demand and short-run aggregate supply to the left. 
A)  shift aggregate demand to the right. 
B)  prevent the aggregate demand curve from shifting. 
C)  shift aggregate demand to the left. 
D)  shift both aggregate demand and short-run aggregate supply to the left.

Question 19

Use the following to answer questions:  
-(Figure: Fiscal Policy I) Refer to Figure: Fiscal Policy I. Suppose that this economy is in equilibrium at E2. If there is an increase in taxes_____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

Accepted Answer

A)  AD2; left; increase; decrease 
B)  AD2; left; decrease; decrease 
C)  AD1; right; increase; increase 
D)  AD1; right; decrease; increase 
A)  AD2; left; increase; decrease 
B)  AD2; left; decrease; decrease 
C)  AD1; right; increase; increase 
D)  AD1; right; decrease; increase

Question 20

Use the following to answer questions:  
-(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. Which equation measures a recessionary gap?

Accepted Answer

A)  Y3 - Y1 
B)  Y3 - Y2 
C)  Y2 - Y1 
D)  Y3 - Y0 
A)  Y3 - Y1 
B)  Y3 - Y2 
C)  Y2 - Y1 
D)  Y3 - Y0

Contractionary fiscal policy shifts the aggregate demand curve to the _ and is used to close a(n) _ gap.

If overall spending declines and thus the economy contracts, the government could counter this by:

If there is a recessionary gap, discretionary fiscal policy would likely include action to:

Which factor is an expansionary fiscal policy?

Use the following to answer questions: -(Figure: Fiscal Policy I) Refer to Figure: Fiscal Policy I. Suppose that this economy is in equilibrium at E₂. If there is an increase in government transfers___ will shift to the _, causing a(n) _ in the price level and a(n) ___ in real GDP.

Use the following to answer questions: -(Figure: Fiscal Policy I) Refer to Figure: Fiscal Policy I. Suppose that this economy is in equilibrium at E₁. If there is a decrease in taxes, ___ will shift to the _, causing a(n) _ in the price level and a(n) ___ in real GDP.

Use the following to answer questions: -(Figure: Fiscal Policy Options) Refer to Figure: Fiscal Policy Options. If the aggregate demand curve is AD:

Use the following to answer questions: -(Figure: Fiscal Policy Options) Refer to Figure: Fiscal Policy Options. If the aggregate demand curve is ADʺ, the most appropriate discretionary fiscal policy is to _ government spending and _ income tax rates.

Use the following to answer questions: -(Figure: Short- and Long-Run Equilibrium) Refer to Figure: Short- and Long-Run Equilibrium. If the economy is at equilibrium at E₁, it is in a(n):

Sources of federal tax revenue do NOT include:

If the economy is at equilibrium below potential output, there is a(n) _ gap, and _ fiscal policy is appropriate.

Decreasing funding for space exploration will shift the _ curve to the _.

A contractionary fiscal policy either _ government spending or _ taxes.

Which example does NOT illustrate government transfers?

A cut in taxes _, shifting the aggregate demand curve to the _.

A reduction in government transfers _, therefore shifting the aggregate demand curve to the _.

Use the following to answer questions: -(Figure: Fiscal Policy II) Refer to Figure: Fiscal Policy II. Suppose that this economy is in equilibrium at E₁. If there is a decrease in taxes, ___ will shift to the _, causing a(n) _ in the price level and a(n) ___ in real GDP.

If there is an inflationary gap in the economy, discretionary fiscal policy will likely include action to:

Use the following to answer questions: -(Figure: Fiscal Policy I) Refer to Figure: Fiscal Policy I. Suppose that this economy is in equilibrium at E₂. If there is an increase in taxes___ will shift to the _, causing a(n) _ in the price level and a(n) ___ in real GDP.

Use the following to answer questions: -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. Which equation measures a recessionary gap?

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial Syst

Income and Expenditure

Aggregate Demand and Aggregate Supply

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Macroeconomics: Events and Ideas

International Macroeconomics

Filters

Exam 13: Fiscal Policy

Contractionary fiscal policy shifts the aggregate demand curve to the _____ and is used to close a(n) _____ gap.

If overall spending declines and thus the economy contracts, the government could counter this by:

If there is a recessionary gap, discretionary fiscal policy would likely include action to:

Which factor is an expansionary fiscal policy?

Use the following to answer questions: -(Figure: Fiscal Policy I) Refer to Figure: Fiscal Policy I. Suppose that this economy is in equilibrium at E2. If there is an increase in government transfers_____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

Use the following to answer questions: -(Figure: Fiscal Policy I) Refer to Figure: Fiscal Policy I. Suppose that this economy is in equilibrium at E1. If there is a decrease in taxes, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

Use the following to answer questions: -(Figure: Fiscal Policy Options) Refer to Figure: Fiscal Policy Options. If the aggregate demand curve is AD:

Use the following to answer questions: -(Figure: Fiscal Policy Options) Refer to Figure: Fiscal Policy Options. If the aggregate demand curve is ADʺ, the most appropriate discretionary fiscal policy is to _____ government spending and _____ income tax rates.

Use the following to answer questions: -(Figure: Short- and Long-Run Equilibrium) Refer to Figure: Short- and Long-Run Equilibrium. If the economy is at equilibrium at E1, it is in a(n):

Sources of federal tax revenue do NOT include:

If the economy is at equilibrium below potential output, there is a(n) _____ gap, and _____ fiscal policy is appropriate.

Decreasing funding for space exploration will shift the _____ curve to the _____.

A contractionary fiscal policy either _____ government spending or _____ taxes.

Which example does NOT illustrate government transfers?

A cut in taxes _____, shifting the aggregate demand curve to the _____.

A reduction in government transfers _____, therefore shifting the aggregate demand curve to the _____.

Use the following to answer questions: -(Figure: Fiscal Policy II) Refer to Figure: Fiscal Policy II. Suppose that this economy is in equilibrium at E1. If there is a decrease in taxes, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

If there is an inflationary gap in the economy, discretionary fiscal policy will likely include action to:

Use the following to answer questions: -(Figure: Fiscal Policy I) Refer to Figure: Fiscal Policy I. Suppose that this economy is in equilibrium at E2. If there is an increase in taxes_____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

Use the following to answer questions: -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. Which equation measures a recessionary gap?

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial Syst

Income and Expenditure

Aggregate Demand and Aggregate Supply

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Macroeconomics: Events and Ideas

International Macroeconomics

Filters

Contractionary fiscal policy shifts the aggregate demand curve to the _ and is used to close a(n) _ gap.

Use the following to answer questions: -(Figure: Fiscal Policy I) Refer to Figure: Fiscal Policy I. Suppose that this economy is in equilibrium at E₂. If there is an increase in government transfers___ will shift to the _, causing a(n) _ in the price level and a(n) ___ in real GDP.

Use the following to answer questions: -(Figure: Fiscal Policy I) Refer to Figure: Fiscal Policy I. Suppose that this economy is in equilibrium at E₁. If there is a decrease in taxes, ___ will shift to the _, causing a(n) _ in the price level and a(n) ___ in real GDP.

Use the following to answer questions: -(Figure: Fiscal Policy Options) Refer to Figure: Fiscal Policy Options. If the aggregate demand curve is ADʺ, the most appropriate discretionary fiscal policy is to _ government spending and _ income tax rates.

Use the following to answer questions: -(Figure: Short- and Long-Run Equilibrium) Refer to Figure: Short- and Long-Run Equilibrium. If the economy is at equilibrium at E₁, it is in a(n):

If the economy is at equilibrium below potential output, there is a(n) _ gap, and _ fiscal policy is appropriate.

Decreasing funding for space exploration will shift the _ curve to the _.

A contractionary fiscal policy either _ government spending or _ taxes.

A cut in taxes _, shifting the aggregate demand curve to the _.

A reduction in government transfers _, therefore shifting the aggregate demand curve to the _.

Use the following to answer questions: -(Figure: Fiscal Policy II) Refer to Figure: Fiscal Policy II. Suppose that this economy is in equilibrium at E₁. If there is a decrease in taxes, ___ will shift to the _, causing a(n) _ in the price level and a(n) ___ in real GDP.

Use the following to answer questions: -(Figure: Fiscal Policy I) Refer to Figure: Fiscal Policy I. Suppose that this economy is in equilibrium at E₂. If there is an increase in taxes___ will shift to the _, causing a(n) _ in the price level and a(n) ___ in real GDP.