Question 1

A change in taxes or a change in government transfers affects consumption through its effect on:

Accepted Answer

A)  autonomous consumption. 
B)  the marginal propensity to save. 
C)  disposable income. 
D)  government spending. 
A)  autonomous consumption. 
B)  the marginal propensity to save. 
C)  disposable income. 
D)  government spending.

Question 2

Use the following to answer questions:  
-(Figure: Short-Run Equilibrium) Refer to Figure: Short-Run Equilibrium. If the economy is at equilibrium at Y1 and P1, 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 3

An expansionary 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 4

Use the following to answer questions:  
-(Figure: Fiscal Policy II) Refer to Figure: Fiscal Policy II. 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; left; decrease; decrease 
A)  AD2; right; increase; increase 
B)  AD2; left; decrease; decrease 
C)  AD1; right; increase; increase 
D)  AD1; left; decrease; decrease

Question 5

Expansionary 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 6

Consumer spending will likely fall if:

Accepted Answer

A)  government transfers rise. 
B)  the government raises tax rates. 
C)  the government lowers tax rates. 
D)  government transfers rise or tax rates are lowered. 
A)  government transfers rise. 
B)  the government raises tax rates. 
C)  the government lowers tax rates. 
D)  government transfers rise or tax rates are lowered.

Question 7

Sources of state and local revenue do NOT include:

Accepted Answer

A)  social insurance taxes. 
B)  property taxes. 
C)  sales taxes. 
D)  income taxes. 
A)  social insurance taxes. 
B)  property taxes. 
C)  sales taxes. 
D)  income taxes.

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 transfer payments and _____ income tax rates.

Accepted Answer

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

Question 9

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)  the economy is in long-run equilibrium. 
B)  an expansionary fiscal policy may be warranted. 
C)  a contractionary fiscal policy may be warranted. 
D)  the economy is in a recessionary gap. 
A)  the economy is in long-run equilibrium. 
B)  an expansionary fiscal policy may be warranted. 
C)  a contractionary fiscal policy may be warranted. 
D)  the economy is in a recessionary gap.

Question 10

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 an increase in taxes, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

Accepted Answer

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

Question 11

Spending for Medicare and Medicaid accounts for approximately _____% of federal spending.

Accepted Answer

A)  11 
B)  14 
C)  15 
D)  21 
A)  11 
B)  14 
C)  15 
D)  21

Question 12

Examples of fiscal policy do NOT include:

Accepted Answer

A)  increasing Medicaid reimbursements. 
B)  reducing the money supply to raise the interest rate. 
C)  increasing personal income tax deductions for home ownership. 
D)  reducing federal subsidies to state universities. 
A)  increasing Medicaid reimbursements. 
B)  reducing the money supply to raise the interest rate. 
C)  increasing personal income tax deductions for home ownership. 
D)  reducing federal subsidies to state universities.

Question 13

Use the following to answer questions:  
-(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. At E3, the economy:

Accepted Answer

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

Question 14

Expansionary fiscal policy does NOT include a(n):

Accepted Answer

A)  increase in government transfers. 
B)  increase in government purchases. 
C)  increase in tax rates. 
D)  reduction in marginal tax rates. 
A)  increase in government transfers. 
B)  increase in government purchases. 
C)  increase in tax rates. 
D)  reduction in marginal tax rates.

Question 15

Use the following to answer questions:  
-(Figure: Fiscal Policy Choices) Refer to Figure: Fiscal Policy Choices. In panel (b), if real GDP is equal to Y1, there is:

Accepted Answer

A)  an inflationary gap. 
B)  a recessionary gap. 
C)  equilibrium at full employment. 
D)  no gap. 
A)  an inflationary gap. 
B)  a recessionary gap. 
C)  equilibrium at full employment. 
D)  no gap.

Question 16

Suppose the government increases taxes by more than is necessary to close an inflationary gap. What is the MOST likely result?

Accepted Answer

A)  Equilibrium real GDP will be more than anticipated. 
B)  The economy will move into a recession. 
C)  The economy will generate a larger inflationary gap than anticipated. 
D)  This will not have any adverse effects on the economy, since inflation has been abated. 
A)  Equilibrium real GDP will be more than anticipated. 
B)  The economy will move into a recession. 
C)  The economy will generate a larger inflationary gap than anticipated. 
D)  This will not have any adverse effects on the economy, since inflation has been abated.

Question 17

Expansionary fiscal policy includes:

Accepted Answer

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

Question 18

To close an inflationary gap with fiscal policy, the government could:

Accepted Answer

A)  reduce budget allocations to interstate highway maintenance. 
B)  increase federal subsidies to state universities. 
C)  lower the corporate income tax rate. 
D)  raise the average amount awarded for a disability pension. 
A)  reduce budget allocations to interstate highway maintenance. 
B)  increase federal subsidies to state universities. 
C)  lower the corporate income tax rate. 
D)  raise the average amount awarded for a disability pension.

Question 19

A contractionary fiscal policy:

Accepted Answer

A)  decreases a government budget deficit or increases a government budget surplus. 
B)  may include increases in government spending. 
C)  may include reductions in taxes. 
D)  may include discretionary increases in transfer payments. 
A)  decreases a government budget deficit or increases a government budget surplus. 
B)  may include increases in government spending. 
C)  may include reductions in taxes. 
D)  may include discretionary increases in transfer payments.

Question 20

Which factor is NOT a tool of fiscal policy?

Accepted Answer

A)  changing tax rates 
B)  government transfers 
C)  government purchases of goods and services 
D)  changes in the money supply 
A)  changing tax rates 
B)  government transfers 
C)  government purchases of goods and services 
D)  changes in the money supply

A change in taxes or a change in government transfers affects consumption through its effect on:

Use the following to answer questions: -(Figure: Short-Run Equilibrium) Refer to Figure: Short-Run Equilibrium. If the economy is at equilibrium at Y₁ and P₁, the government should use _ fiscal policy to shift the aggregate demand curve to the _.

An expansionary fiscal policy either _ government spending or _ taxes.

Use the following to answer questions: -(Figure: Fiscal Policy II) Refer to Figure: Fiscal Policy II. 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.

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

Consumer spending will likely fall if:

Sources of state and local revenue do NOT include:

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 transfer payments and _ income tax rates.

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

Spending for Medicare and Medicaid accounts for approximately _____% of federal spending.

Examples of fiscal policy do NOT include:

Use the following to answer questions: -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. At E₃, the economy:

Expansionary fiscal policy does NOT include a(n):

Use the following to answer questions: -(Figure: Fiscal Policy Choices) Refer to Figure: Fiscal Policy Choices. In panel (b), if real GDP is equal to Y₁, there is:

Suppose the government increases taxes by more than is necessary to close an inflationary gap. What is the MOST likely result?

Expansionary fiscal policy includes:

To close an inflationary gap with fiscal policy, the government could:

A contractionary fiscal policy:

Which factor is NOT a tool of 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

A change in taxes or a change in government transfers affects consumption through its effect on:

Use the following to answer questions: -(Figure: Short-Run Equilibrium) Refer to Figure: Short-Run Equilibrium. If the economy is at equilibrium at Y1 and P1, the government should use _____ fiscal policy to shift the aggregate demand curve to the _____.

An expansionary fiscal policy either _____ government spending or _____ taxes.

Use the following to answer questions: -(Figure: Fiscal Policy II) Refer to Figure: Fiscal Policy II. 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.

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

Consumer spending will likely fall if:

Sources of state and local revenue do NOT include:

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 transfer payments and _____ income tax rates.

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

Spending for Medicare and Medicaid accounts for approximately _____% of federal spending.

Examples of fiscal policy do NOT include:

Use the following to answer questions: -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. At E3, the economy:

Expansionary fiscal policy does NOT include a(n):

Use the following to answer questions: -(Figure: Fiscal Policy Choices) Refer to Figure: Fiscal Policy Choices. In panel (b), if real GDP is equal to Y1, there is:

Suppose the government increases taxes by more than is necessary to close an inflationary gap. What is the MOST likely result?

Expansionary fiscal policy includes:

To close an inflationary gap with fiscal policy, the government could:

A contractionary fiscal policy:

Which factor is NOT a tool of 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: Short-Run Equilibrium) Refer to Figure: Short-Run Equilibrium. If the economy is at equilibrium at Y₁ and P₁, the government should use _ fiscal policy to shift the aggregate demand curve to the _.

An expansionary fiscal policy either _ government spending or _ taxes.

Use the following to answer questions: -(Figure: Fiscal Policy II) Refer to Figure: Fiscal Policy II. 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.

Expansionary 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 Options) Refer to Figure: Fiscal Policy Options. If the aggregate demand curve is ADʺ, the most appropriate discretionary fiscal policy is to _ government transfer payments and _ income tax rates.

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 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. At E₃, the economy:

Use the following to answer questions: -(Figure: Fiscal Policy Choices) Refer to Figure: Fiscal Policy Choices. In panel (b), if real GDP is equal to Y₁, there is: