Question 1

According to the concept of rational expectations

Accepted Answer

A) budget deficits are irrelevant to output in the short-run. 
B) higher deficits should increase output in the short-run if they are expected. 
C) lower deficits can be used to stabilize output during expansions. 
D) none of the above. 
A) budget deficits are irrelevant to output in the short-run. 
B) higher deficits should increase output in the short-run if they are expected. 
C) lower deficits can be used to stabilize output during expansions. 
D) none of the above. A

Question 2

According to the Keynesian model,the optimal fiscal policy is to

Accepted Answer

A) increase cyclical but not structural deficits during a recession. 
B) reduce cyclical and structural deficits during a recession. 
C) increase structural deficits during an recession. 
D) maintain a balanced budget in case of national emergency. 
A) increase cyclical but not structural deficits during a recession. 
B) reduce cyclical and structural deficits during a recession. 
C) increase structural deficits during an recession. 
D) maintain a balanced budget in case of national emergency. A

Question 3

A deficit-financed tax cut will ____ national savings and _____ private consumption.

Accepted Answer

A) have no effect on; increase 
B) increase; decrease 
C) decrease; decrease 
D) decrease; increase 
A) have no effect on; increase 
B) increase; decrease 
C) decrease; decrease 
D) decrease; increase D

Question 4

The structural deficit is

Accepted Answer

A) directly attributable to the long-run behavior of the economy. 
B) not directly attributable to the cyclical behavior of the economy. 
C) the result of permanent decisions policymakers have made about tax rates,the level of government spending,and benefit levels for transfer programs. 
D) Both b and c 
A) directly attributable to the long-run behavior of the economy. 
B) not directly attributable to the cyclical behavior of the economy. 
C) the result of permanent decisions policymakers have made about tax rates,the level of government spending,and benefit levels for transfer programs. 
D) Both b and c

Question 5

If the Federal Reserve increases the money supply at the same time as an expansionary fiscal policy drives up budget deficits,we would expect to see income _____ and interest rates ____.

Accepted Answer

A) changes be indeterminate; fall 
B) fall; fall 
C) rise; fall. 
D) rise; changes be indeterminate 
E) none of the above. 
A) changes be indeterminate; fall 
B) fall; fall 
C) rise; fall. 
D) rise; changes be indeterminate 
E) none of the above.

Question 6

Which of the following statements is (are)correct?

Accepted Answer

A) Expansionary monetary policy and expansionary fiscal that leads to budget deficits create low interest rates. 
B) High interest rates in the first half of the 1980s resulted from falls in the budget deficit under the Reagan administration. 
C) the best monetary-fiscal policy mix to keep interest rates low would be to raise taxes and raise the money supply. 
D) The answer depends upon the school of thought used to evaluate the effects of deficit policies. 
A) Expansionary monetary policy and expansionary fiscal that leads to budget deficits create low interest rates. 
B) High interest rates in the first half of the 1980s resulted from falls in the budget deficit under the Reagan administration. 
C) the best monetary-fiscal policy mix to keep interest rates low would be to raise taxes and raise the money supply. 
D) The answer depends upon the school of thought used to evaluate the effects of deficit policies.

Question 7

Based on current budget projections,in the U.S.over the next 20 years the

Accepted Answer

A) structural deficit rises will fall sharply as tax revenues rise. 
B) cyclical deficit will fall as the economy expands. 
C) structural deficit will rise sharply as a higher proportion of the population retires. 
D) structural deficit will fall sharply as more people enter the workforce. 
E) none of the above. 
A) structural deficit rises will fall sharply as tax revenues rise. 
B) cyclical deficit will fall as the economy expands. 
C) structural deficit will rise sharply as a higher proportion of the population retires. 
D) structural deficit will fall sharply as more people enter the workforce. 
E) none of the above.

Question 8

When automatic fiscal stabilizers are in place,a shock that causes a fall in the level of economic activity automatically

Accepted Answer

A) results in a decline in the federal budget deficit that lessens the fall in income. 
B) results in a rise in the federal deficit that lessens the fall in income. 
C) requires the federal government to balance the budget. 
D) will lead to a permanent increase in the budget deficit. 
E) both a and b 
A) results in a decline in the federal budget deficit that lessens the fall in income. 
B) results in a rise in the federal deficit that lessens the fall in income. 
C) requires the federal government to balance the budget. 
D) will lead to a permanent increase in the budget deficit. 
E) both a and b

Question 9

The higher the marginal income tax rate,the

Accepted Answer

A) higher the MPC out of disposable income. 
B) lower the MPC out of disposable income. 
C) higher the autonomous expenditure multiplier. 
D) lower the autonomous expenditure multiplier. 
E) None of the above 
A) higher the MPC out of disposable income. 
B) lower the MPC out of disposable income. 
C) higher the autonomous expenditure multiplier. 
D) lower the autonomous expenditure multiplier. 
E) None of the above

Question 10

From the net tax function: T = t0 + t1Y,where t0 1 > 0,it follows that,as income rises

Accepted Answer

A) average taxes falls and the surplus declines. 
B) average taxes rises and the deficit increases. 
C) average taxes falls and the deficit declines. 
D) Average taxes and the deficit do not change. 
A) average taxes falls and the surplus declines. 
B) average taxes rises and the deficit increases. 
C) average taxes falls and the deficit declines. 
D) Average taxes and the deficit do not change.

Question 11

The role of the progressive tax system as an autonomous fiscal stabilizer requires that the budget

Accepted Answer

A) should require actual deficits be equal to zero on average. 
B) should go into a surplus at appropriate points in the business cycle. 
C) cannot have a structural deficit component. 
D) Both a and b 
E) None of the above 
A) should require actual deficits be equal to zero on average. 
B) should go into a surplus at appropriate points in the business cycle. 
C) cannot have a structural deficit component. 
D) Both a and b 
E) None of the above

Question 12

Assume that the actual deficit is $150 billion with the economy well below potential output and that the level of economic activity rose to its potential level while tax revenues increased by $50 billion and transfer payments fell by $20 billion.Then,what is the structural deficit?

Accepted Answer

A) $180 billion 
B) $120 billion 
C) $220 billion 
D) $80 billion 
E) $100 billion 
A) $180 billion 
B) $120 billion 
C) $220 billion 
D) $80 billion 
E) $100 billion

Question 13

During the 2000s,the Federal government's deficit rose because of

Accepted Answer

A) large tax cut in 2001 and 2004.. 
B) large increases in government spending. 
C) increases in both the cyclical and structural deficits. 
D) a recession in 2001. 
E) all of the above. 
A) large tax cut in 2001 and 2004.. 
B) large increases in government spending. 
C) increases in both the cyclical and structural deficits. 
D) a recession in 2001. 
E) all of the above.

Question 14

Which of the following statements is (are)correct?

Accepted Answer

A) Even the earliest political business cycle and partisan models assumed that expectations were rational. 
B) The partisan model of fiscal policy cannot be modified to be consistent with rational expectations. 
C) the myopic,or short-sighted behavior of voters is inconsistent with rational expectations. 
D) The earliest political business cycle models assumed that expectations were always rational,whereas the partisan model assumed that expectations were sometimes irrational. 
A) Even the earliest political business cycle and partisan models assumed that expectations were rational. 
B) The partisan model of fiscal policy cannot be modified to be consistent with rational expectations. 
C) the myopic,or short-sighted behavior of voters is inconsistent with rational expectations. 
D) The earliest political business cycle models assumed that expectations were always rational,whereas the partisan model assumed that expectations were sometimes irrational.

Question 15

Which of the following hypotheses about voter behavior have been advanced in public-choice literature?

Accepted Answer

A) Voters are myopic 
B) Unemployment is more likely to result in vote loss than is higher inflation 
C) Deficit bias of the budget process 
D) Both a and c 
E) All of the above 
A) Voters are myopic 
B) Unemployment is more likely to result in vote loss than is higher inflation 
C) Deficit bias of the budget process 
D) Both a and c 
E) All of the above

Question 16

High budget deficits may:

Accepted Answer

A) encourage overly expansionary fiscal policy. 
B) create higher inflation. 
C) increase the risk of sovereign debt default. 
D) all of the above. 
A) encourage overly expansionary fiscal policy. 
B) create higher inflation. 
C) increase the risk of sovereign debt default. 
D) all of the above.

Question 17

In the simple Keynesian model,if the tax function is given by T = 0.15Y and the consumption function is C = 50 + 0.7YD then a 10-unit increase in government spending would increase equilibrium income by

Accepted Answer

A) 10 units. 
B) 11.2 units. 
C) 22.4 units. 
D) 30 units. 
E) none of the above 
A) 10 units. 
B) 11.2 units. 
C) 22.4 units. 
D) 30 units. 
E) none of the above

Question 18

According to the partisan theory model,what motivates policy makers? What differentiates one party from another? Which party should be more concerned with budget deficits?

Accepted Answer

Policy makers are viewed as ideologicall

Question 19

Which of the following statements is (are)correct?

Accepted Answer

A) Rational expectations imply rational voters that make do not make mistakes. 
B) The partisan model of fiscal policy are consistent with rational expectations 
C) short-sighted behavior in voting is inconsistent with rational expectations. 
D) The earliest political business cycle models assumed that expectations were always rational. 
E) none of the above. 
A) Rational expectations imply rational voters that make do not make mistakes. 
B) The partisan model of fiscal policy are consistent with rational expectations 
C) short-sighted behavior in voting is inconsistent with rational expectations. 
D) The earliest political business cycle models assumed that expectations were always rational. 
E) none of the above.

Question 20

In the IS-LM model,when government spending and taxes increase by the same amount

Accepted Answer

A) income and interest rates remain unchanged. 
B) interest rates and income rise. 
C) interest rates and income fall. 
D) changes in interest rates are indeterminate but income rises. 
E) none of the above. 
A) income and interest rates remain unchanged. 
B) interest rates and income rise. 
C) interest rates and income fall. 
D) changes in interest rates are indeterminate but income rises. 
E) none of the above.

According to the concept of rational expectations

According to the Keynesian model,the optimal fiscal policy is to

A deficit-financed tax cut will national savings and _ private consumption.

The structural deficit is

If the Federal Reserve increases the money supply at the same time as an expansionary fiscal policy drives up budget deficits,we would expect to see income _ and interest rates .

Which of the following statements is (are)correct?

Based on current budget projections,in the U.S.over the next 20 years the

When automatic fiscal stabilizers are in place,a shock that causes a fall in the level of economic activity automatically

The higher the marginal income tax rate,the

From the net tax function: T = t₀ + t₁Y,where t₀ < 0 and t₁ > 0,it follows that,as income rises

The role of the progressive tax system as an autonomous fiscal stabilizer requires that the budget

Assume that the actual deficit is $150 billion with the economy well below potential output and that the level of economic activity rose to its potential level while tax revenues increased by $50 billion and transfer payments fell by $20 billion.Then,what is the structural deficit?

During the 2000s,the Federal government's deficit rose because of

Which of the following statements is (are)correct?

Which of the following hypotheses about voter behavior have been advanced in public-choice literature?

High budget deficits may:

In the simple Keynesian model,if the tax function is given by T = 0.15Y and the consumption function is C = 50 + 0.7Y_D then a 10-unit increase in government spending would increase equilibrium income by

According to the partisan theory model,what motivates policy makers? What differentiates one party from another? Which party should be more concerned with budget deficits?

Which of the following statements is (are)correct?

In the IS-LM model,when government spending and taxes increase by the same amount

Introduction

Measurement of Macroeconomic Variables

Classical Macroeconomics I: Output and Employment

Classical Macroeconomics II: Money,prices,and Interest

Keynesian System I: the Role of Aggregate Demand

Keynesian System II: Money,interest,and Income

Keynesian System III: Policy Effects in the Is-Lm Model

Keynesian System Iv: Aggregate Supply and Demand

The Monetarist Counterrevolution

Output,inflation,and Unemployment: Alternative Views

New Classical Economics

Real Business Cycles and New Keynesian Economics

Macroeconomic Models:a Summary

Exchange Rates and the International Monetary System

Monetary and Fiscal Policy in the Open Economy

Money,the Banking System,and Interest Rates

Optimal Monetary Policy

Policies for Intermediate-Run Growth

Long-Run Economic Growth: Origins of the Wealth of Nations

Filters

Exam 18: Fiscal Policy

According to the concept of rational expectations

According to the Keynesian model,the optimal fiscal policy is to

A deficit-financed tax cut will ____ national savings and _____ private consumption.

The structural deficit is

If the Federal Reserve increases the money supply at the same time as an expansionary fiscal policy drives up budget deficits,we would expect to see income _____ and interest rates ____.

Which of the following statements is (are)correct?

Based on current budget projections,in the U.S.over the next 20 years the

When automatic fiscal stabilizers are in place,a shock that causes a fall in the level of economic activity automatically

The higher the marginal income tax rate,the

From the net tax function: T = t0 + t1Y,where t0 < 0 and t1 > 0,it follows that,as income rises

The role of the progressive tax system as an autonomous fiscal stabilizer requires that the budget

Assume that the actual deficit is $150 billion with the economy well below potential output and that the level of economic activity rose to its potential level while tax revenues increased by $50 billion and transfer payments fell by $20 billion.Then,what is the structural deficit?

During the 2000s,the Federal government's deficit rose because of

Which of the following statements is (are)correct?

Which of the following hypotheses about voter behavior have been advanced in public-choice literature?

High budget deficits may:

In the simple Keynesian model,if the tax function is given by T = 0.15Y and the consumption function is C = 50 + 0.7YD then a 10-unit increase in government spending would increase equilibrium income by

According to the partisan theory model,what motivates policy makers? What differentiates one party from another? Which party should be more concerned with budget deficits?

Which of the following statements is (are)correct?

In the IS-LM model,when government spending and taxes increase by the same amount

Introduction

Measurement of Macroeconomic Variables

Classical Macroeconomics I: Output and Employment

Classical Macroeconomics II: Money,prices,and Interest

Keynesian System I: the Role of Aggregate Demand

Keynesian System II: Money,interest,and Income

Keynesian System III: Policy Effects in the Is-Lm Model

Keynesian System Iv: Aggregate Supply and Demand

The Monetarist Counterrevolution

Output,inflation,and Unemployment: Alternative Views

New Classical Economics

Real Business Cycles and New Keynesian Economics

Macroeconomic Models:a Summary

Exchange Rates and the International Monetary System

Monetary and Fiscal Policy in the Open Economy

Money,the Banking System,and Interest Rates

Optimal Monetary Policy

Policies for Intermediate-Run Growth

Long-Run Economic Growth: Origins of the Wealth of Nations

Filters

A deficit-financed tax cut will national savings and _ private consumption.

If the Federal Reserve increases the money supply at the same time as an expansionary fiscal policy drives up budget deficits,we would expect to see income _ and interest rates .

From the net tax function: T = t₀ + t₁Y,where t₀ < 0 and t₁ > 0,it follows that,as income rises

In the simple Keynesian model,if the tax function is given by T = 0.15Y and the consumption function is C = 50 + 0.7Y_D then a 10-unit increase in government spending would increase equilibrium income by