Question 1

Use the following to answer questions:  
-(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. At E1, the economy:

Accepted Answer

A)  is in a long-run equilibrium. 
B)  has an inflationary gap. 
C)  has a recessionary gap. 
D)  has low unemployment. 
A)  is in a long-run equilibrium. 
B)  has an inflationary gap. 
C)  has a recessionary gap. 
D)  has low unemployment.

Question 2

Use the following to answer questions:  
-(Figure: AD-AS) Refer to Figure: AD-AS. Suppose the economy is producing the output level Yp and a negative demand shock shifts the AD1 curve to AD3. The economy now has a(n) _____ gap, which can be closed by _____ fiscal policy.

Accepted Answer

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

Question 3

Use the following to answer questions:  
-(Figure: Short- and Long-Run Equilibrium II) Refer to Figure: Short- and Long-Run Equilibrium II. Which action would be the appropriate response on the part of the government upon viewing the state of the economy?

Accepted Answer

A)  Increase government spending to close the recessionary gap. 
B)  Decrease government spending to close the recessionary gap. 
C)  Lower tax rates to close the inflationary gap. 
D)  Raise tax rates to close the inflationary gap. 
A)  Increase government spending to close the recessionary gap. 
B)  Decrease government spending to close the recessionary gap. 
C)  Lower tax rates to close the inflationary gap. 
D)  Raise tax rates to close the inflationary gap.

Question 4

Fiscal policy that increases aggregate demand is:

Accepted Answer

A)  balanced. 
B)  supplemental. 
C)  contractionary. 
D)  expansionary. 
A)  balanced. 
B)  supplemental. 
C)  contractionary. 
D)  expansionary.

Question 5

Some argue that budget deficits will lead to reduced private spending because:

Accepted Answer

A)  the government will purchase so many goods and services that it will lead to a shortage of consumer goods and services. 
B)  budget deficits will reduce interest rates on savings and decrease consumers' wealth. 
C)  consumers, anticipating higher taxes, will reduce consumption to save money to pay the future taxes. 
D)  the government will have to increase transfer payments to finance the deficit. 
A)  the government will purchase so many goods and services that it will lead to a shortage of consumer goods and services. 
B)  budget deficits will reduce interest rates on savings and decrease consumers' wealth. 
C)  consumers, anticipating higher taxes, will reduce consumption to save money to pay the future taxes. 
D)  the government will have to increase transfer payments to finance the deficit.

Question 6

Contractionary fiscal policy includes:

Accepted Answer

A)  decreasing taxes. 
B)  decreasing the money supply. 
C)  decreasing government expenditures. 
D)  increasing government expenditures. 
A)  decreasing taxes. 
B)  decreasing the money supply. 
C)  decreasing government expenditures. 
D)  increasing government expenditures.

Question 7

Expansionary fiscal policy includes:

Accepted Answer

A)  increasing taxes. 
B)  increasing the money supply. 
C)  decreasing government expenditures. 
D)  increasing government expenditures. 
A)  increasing taxes. 
B)  increasing the money supply. 
C)  decreasing government expenditures. 
D)  increasing government expenditures.

Question 8

Fiscal policy that decreases aggregate demand is:

Accepted Answer

A)  balanced. 
B)  supplemental. 
C)  contractionary. 
D)  expansionary. 
A)  balanced. 
B)  supplemental. 
C)  contractionary. 
D)  expansionary.

Question 9

Use the following to answer questions:  
-(Figure: Short- and Long-Run Equilibrium II) Refer to Figure: Short- and Long-Run Equilibrium II. If the economy is at equilibrium at E1, the government should use _____ fiscal policy to shift the aggregate demand curve to the _____.

Accepted Answer

A)  expansionary; right 
B)  expansionary; left 
C)  contractionary; right 
D)  contractionary; left 
A)  expansionary; right 
B)  expansionary; left 
C)  contractionary; right 
D)  contractionary; left

Question 10

Use the following to answer questions:  
-(Figure: AD-AS) Refer to Figure: AD-AS. Consider an economy that is producing an output level of Y1. The economy has a(n) _____ gap, which can be closed by _____ fiscal policy.

Accepted Answer

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

Question 11

Use the following to answer questions:  
-(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. A movement from AD1 to AD3 could be caused by:

Accepted Answer

A)  increased government purchases. 
B)  decreased government transfers. 
C)  higher tax rates. 
D)  decreased government purchases. 
A)  increased government purchases. 
B)  decreased government transfers. 
C)  higher tax rates. 
D)  decreased government purchases.

Question 12

Suppose that the government increases spending more than is necessary to close a recessionary gap. What is the MOST likely result?

Accepted Answer

A)  Inflation will increase. 
B)  The price level will decline. 
C)  The equilibrium real GDP will fall. 
D)  The equilibrium real GDP will fall short of potential GDP. 
A)  Inflation will increase. 
B)  The price level will decline. 
C)  The equilibrium real GDP will fall. 
D)  The equilibrium real GDP will fall short of potential GDP.

Question 13

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

Accepted Answer

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

Question 14

To close a recessionary gap with fiscal policy, the government could:

Accepted Answer

A)  increase national savings so that the interest rate falls. 
B)  lower the annual income exempt from paying the personal income tax. 
C)  lower the corporate income tax rate. 
D)  lower the amount of unemployment insurance benefits. 
A)  increase national savings so that the interest rate falls. 
B)  lower the annual income exempt from paying the personal income tax. 
C)  lower the corporate income tax rate. 
D)  lower the amount of unemployment insurance benefits.

Question 15

A recessionary gap can be closed with:

Accepted Answer

A)  contractionary monetary policy. 
B)  an increase in taxes. 
C)  a decrease in government purchases. 
D)  expansionary fiscal policy. 
A)  contractionary monetary policy. 
B)  an increase in taxes. 
C)  a decrease in government purchases. 
D)  expansionary fiscal policy.

Question 16

Time lags associated with policy decision making and implementation suggest that:

Accepted Answer

A)  increases in spending to fight a recessionary gap can be timed correctly. 
B)  increases in spending to fight a recessionary gap may occur too early. 
C)  increases in spending to fight a recessionary gap may occur too late. 
D)  most information is old before the public is aware of it. 
A)  increases in spending to fight a recessionary gap can be timed correctly. 
B)  increases in spending to fight a recessionary gap may occur too early. 
C)  increases in spending to fight a recessionary gap may occur too late. 
D)  most information is old before the public is aware of it.

Question 17

President Johnson's use of a temporary 10% surcharge on income taxes is a classic example of _____ policy.

Accepted Answer

A)  expansionary fiscal 
B)  contractionary fiscal 
C)  expansionary monetary 
D)  contractionary monetary 
A)  expansionary fiscal 
B)  contractionary fiscal 
C)  expansionary monetary 
D)  contractionary monetary

Question 18

One of the shortcomings of fiscal policy is that:

Accepted Answer

A)  it has significant time lags, which make it more effective. 
B)  it takes effect immediately, so it is the best policy to use in an economic crisis. 
C)  it affects aggregate demand indirectly through the interest rate. 
D)  it has time lags, so sometimes it may end up destabilizing the economy. 
A)  it has significant time lags, which make it more effective. 
B)  it takes effect immediately, so it is the best policy to use in an economic crisis. 
C)  it affects aggregate demand indirectly through the interest rate. 
D)  it has time lags, so sometimes it may end up destabilizing the economy.

Question 19

After passage of the stimulus in 2009 government borrowing _____, and interest rates_____.

Accepted Answer

A)  increased; increased to record levels 
B)  increased; remained very low 
C)  decreased; increased 
D)  decreased; decreased 
A)  increased; increased to record levels 
B)  increased; remained very low 
C)  decreased; increased 
D)  decreased; decreased

Question 20

An expansionary fiscal policy:

Accepted Answer

A)  usually decreases a government budget deficit or increases a government budget surplus. 
B)  may include decreases in government spending. 
C)  may include increases in taxes. 
D)  may include decreases in taxes. 
A)  usually decreases a government budget deficit or increases a government budget surplus. 
B)  may include decreases in government spending. 
C)  may include increases in taxes. 
D)  may include decreases in taxes.

Use the following to answer questions: -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. At E₁, the economy:

Use the following to answer questions: -(Figure: AD-AS) Refer to Figure: AD-AS. Suppose the economy is producing the output level Y_p and a negative demand shock shifts the AD₁ curve to AD₃. The economy now has a(n) _ gap, which can be closed by _ fiscal policy.

Use the following to answer questions: -(Figure: Short- and Long-Run Equilibrium II) Refer to Figure: Short- and Long-Run Equilibrium II. Which action would be the appropriate response on the part of the government upon viewing the state of the economy?

Fiscal policy that increases aggregate demand is:

Some argue that budget deficits will lead to reduced private spending because:

Contractionary fiscal policy includes:

Expansionary fiscal policy includes:

Fiscal policy that decreases aggregate demand is:

Use the following to answer questions: -(Figure: Short- and Long-Run Equilibrium II) Refer to Figure: Short- and Long-Run Equilibrium II. If the economy is at equilibrium at E₁, the government should use _ fiscal policy to shift the aggregate demand curve to the _.

Use the following to answer questions: -(Figure: AD-AS) Refer to Figure: AD-AS. Consider an economy that is producing an output level of Y₁. The economy has a(n) _ gap, which can be closed by _ fiscal policy.

Use the following to answer questions: -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. A movement from AD₁ to AD₃ could be caused by:

Suppose that the government increases spending more than is necessary to close a recessionary gap. What is the MOST likely result?

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

To close a recessionary gap with fiscal policy, the government could:

A recessionary gap can be closed with:

Time lags associated with policy decision making and implementation suggest that:

President Johnson's use of a temporary 10% surcharge on income taxes is a classic example of _____ policy.

One of the shortcomings of fiscal policy is that:

After passage of the stimulus in 2009 government borrowing _, and interest rates_.

An expansionary fiscal policy:

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

Use the following to answer questions: -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. At E1, the economy:

Use the following to answer questions: -(Figure: AD-AS) Refer to Figure: AD-AS. Suppose the economy is producing the output level Yp and a negative demand shock shifts the AD1 curve to AD3. The economy now has a(n) _____ gap, which can be closed by _____ fiscal policy.

Use the following to answer questions: -(Figure: Short- and Long-Run Equilibrium II) Refer to Figure: Short- and Long-Run Equilibrium II. Which action would be the appropriate response on the part of the government upon viewing the state of the economy?

Fiscal policy that increases aggregate demand is:

Some argue that budget deficits will lead to reduced private spending because:

Contractionary fiscal policy includes:

Expansionary fiscal policy includes:

Fiscal policy that decreases aggregate demand is:

Use the following to answer questions: -(Figure: Short- and Long-Run Equilibrium II) Refer to Figure: Short- and Long-Run Equilibrium II. If the economy is at equilibrium at E1, the government should use _____ fiscal policy to shift the aggregate demand curve to the _____.

Use the following to answer questions: -(Figure: AD-AS) Refer to Figure: AD-AS. Consider an economy that is producing an output level of Y1. The economy has a(n) _____ gap, which can be closed by _____ fiscal policy.

Use the following to answer questions: -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. A movement from AD1 to AD3 could be caused by:

Suppose that the government increases spending more than is necessary to close a recessionary gap. What is the MOST likely result?

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

To close a recessionary gap with fiscal policy, the government could:

A recessionary gap can be closed with:

Time lags associated with policy decision making and implementation suggest that:

President Johnson's use of a temporary 10% surcharge on income taxes is a classic example of _____ policy.

One of the shortcomings of fiscal policy is that:

After passage of the stimulus in 2009 government borrowing _____, and interest rates_____.

An expansionary fiscal policy:

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

Use the following to answer questions: -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. At E₁, the economy:

Use the following to answer questions: -(Figure: AD-AS) Refer to Figure: AD-AS. Suppose the economy is producing the output level Y_p and a negative demand shock shifts the AD₁ curve to AD₃. The economy now has a(n) _ gap, which can be closed by _ fiscal policy.

Use the following to answer questions: -(Figure: Short- and Long-Run Equilibrium II) Refer to Figure: Short- and Long-Run Equilibrium II. If the economy is at equilibrium at E₁, the government should use _ fiscal policy to shift the aggregate demand curve to the _.

Use the following to answer questions: -(Figure: AD-AS) Refer to Figure: AD-AS. Consider an economy that is producing an output level of Y₁. The economy has a(n) _ gap, which can be closed by _ fiscal policy.

Use the following to answer questions: -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. A movement from AD₁ to AD₃ could be caused by:

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

After passage of the stimulus in 2009 government borrowing _, and interest rates_.