Question 1

Which of the following is true of government purchases?

Accepted Answer

A) Government purchases are independent of the price level. 
B) Government purchases are independent of the level of real GDP. 
C) Government purchases are independent of consumption. 
D) Government purchases are independent of investment. 
E) Government purchases are independent of the amount saved by households. 
A) Government purchases are independent of the price level. 
B) Government purchases are independent of the level of real GDP. 
C) Government purchases are independent of consumption. 
D) Government purchases are independent of investment. 
E) Government purchases are independent of the amount saved by households.

Question 2

The effect of a change in net taxes on the quantity of real GDP demanded equals the resulting shift in the consumption function times _____.

Accepted Answer

A) the marginal propensity to consume 
B) the marginal propensity to save 
C) the autonomous net tax multiplier 
D) the simple spending multiplier 
E) the marginal tax rate 
A) the marginal propensity to consume 
B) the marginal propensity to save 
C) the autonomous net tax multiplier 
D) the simple spending multiplier 
E) the marginal tax rate

Question 3

Which of the following best describes the concept of laissez-faire?

Accepted Answer

A) Government should not intervene in the economy. 
B) Government should actively intervene in the economy whenever it judges the action to be beneficial. 
C) Government should intervene in the economy only to promote short-term economic stability. 
D) Government should intervene in the economy only to maximize long-term growth rates. 
E) Government should intervene in the economy only when the economy is not at full employment or there is substantial inflation. 
A) Government should not intervene in the economy. 
B) Government should actively intervene in the economy whenever it judges the action to be beneficial. 
C) Government should intervene in the economy only to promote short-term economic stability. 
D) Government should intervene in the economy only to maximize long-term growth rates. 
E) Government should intervene in the economy only when the economy is not at full employment or there is substantial inflation.

Question 4

All of the following are likely to be effective at eliminating a recessionary gap except one.Which is the exception?

Accepted Answer

A) Reducing Social Security payments to beneficiaries 
B) Reducing personal income taxes 
C) Increasing government expenditures on the interstate highway network 
D) Increasing farm subsidies 
E) Reducing corporate income taxes 
A) Reducing Social Security payments to beneficiaries 
B) Reducing personal income taxes 
C) Increasing government expenditures on the interstate highway network 
D) Increasing farm subsidies 
E) Reducing corporate income taxes

Question 5

A decrease in net taxes during a recession increases aggregate demand and helps the economy return to its potential output level.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is not a weakness of fiscal policy as a tool of economic stabilization?

Accepted Answer

A) It is ineffective in dealing with stagflation. 
B) Its correct implementation depends on an accurate estimate of potential output. 
C) It is subject to lags. 
D) It affects only aggregate demand but does not have any impact on aggregate supply. 
E) Households may not respond to changes they perceive as permanent. 
A) It is ineffective in dealing with stagflation. 
B) Its correct implementation depends on an accurate estimate of potential output. 
C) It is subject to lags. 
D) It affects only aggregate demand but does not have any impact on aggregate supply. 
E) Households may not respond to changes they perceive as permanent.

Question 7

Figure 11.2 shows the relationship between the price level and real GDP.Suppose the economy is currently at e'.If the government implements a contractionary fiscal policy,the economy would land up at:

Accepted Answer

A) point e*. 
B) point e'. 
C) point e''. 
D) a point between e* and e'' on the potential output line. 
E) a point between e* and e' on the short-run aggregate supply line. 
A) point e*. 
B) point e'. 
C) point e''. 
D) a point between e* and e'' on the potential output line. 
E) a point between e* and e' on the short-run aggregate supply line.

Question 8

A $0.2 trillion increase in government purchases increases the quantity demanded by $1.0 trillion,price level remaining constant.This additional spending reflects the _____ effect.

Accepted Answer

A) recessionary 
B) expansionary 
C) simple spending multiplier 
D) income 
E) substitution 
A) recessionary 
B) expansionary 
C) simple spending multiplier 
D) income 
E) substitution

Question 9

Which of the following are components of fiscal policy?

Accepted Answer

A) Transfer payments only 
B) Money supply and government purchases 
C) Government purchases only 
D) Government purchases,transfer payments,and taxes 
E) Taxes and money supply 
A) Transfer payments only 
B) Money supply and government purchases 
C) Government purchases only 
D) Government purchases,transfer payments,and taxes 
E) Taxes and money supply

Question 10

The one-time tax cuts used by the Bush administration to stimulate the economy in 2008 proved to be very successful.

Accepted Answer

A) True 
 B)False

Question 11

The exact change in equilibrium output due to a shift in short-run aggregate demand depends on:

Accepted Answer

A) the amount of tax imposed 
B) the steepness of the aggregate supply curve. 
C) the steepness of the aggregate demand curve 
D) the gap between the supply curve and the demand curve. 
E) the consumption pattern in the economy. 
A) the amount of tax imposed 
B) the steepness of the aggregate supply curve. 
C) the steepness of the aggregate demand curve 
D) the gap between the supply curve and the demand curve. 
E) the consumption pattern in the economy.

Question 12

Which of the following fiscal programs is least likely to affect aggregate demand?

Accepted Answer

A) Defense spending 
B) Road construction 
C) Grants for scientific research and development 
D) Social Security for women 
E) Government purchases of labor 
A) Defense spending 
B) Road construction 
C) Grants for scientific research and development 
D) Social Security for women 
E) Government purchases of labor

Question 13

Suppose government purchases increase by $100 million in an economy,which leads to total output increasing by $500 million.The size of the multiplier is _____.

Accepted Answer

A) $400 
B) 5 
C) $500 
D) 0.5 
E) 50 
A) $400 
B) 5 
C) $500 
D) 0.5 
E) 50

Question 14

Lags in the approval and implementation of fiscal policy:

Accepted Answer

A) weaken fiscal policy as a tool of economic stabilization. 
B) increase the effectiveness of fiscal policy as a tool of economic stabilization. 
C) help legislators better assess what policies are most appropriate to adopt. 
D) make fiscal policy more responsive to the current economic environment. 
E) cause fiscal policy to be more effective at changing the level of real GDP than changing the price level only in the long run. 
A) weaken fiscal policy as a tool of economic stabilization. 
B) increase the effectiveness of fiscal policy as a tool of economic stabilization. 
C) help legislators better assess what policies are most appropriate to adopt. 
D) make fiscal policy more responsive to the current economic environment. 
E) cause fiscal policy to be more effective at changing the level of real GDP than changing the price level only in the long run.

Question 15

Which of the following is an example of an automatic stabilizer?

Accepted Answer

A) Decrease in tax rates by Congress in times of unemployment 
B) Decrease in tax rates by Congress in times of inflation 
C) Increase in government defense spending during war 
D) Increase in unemployment compensation during recession 
E) Decrease in welfare programs during inflation 
A) Decrease in tax rates by Congress in times of unemployment 
B) Decrease in tax rates by Congress in times of inflation 
C) Increase in government defense spending during war 
D) Increase in unemployment compensation during recession 
E) Decrease in welfare programs during inflation

Question 16

Fiscal policy focuses on manipulating _____.

Accepted Answer

A) aggregate demand to smooth out business fluctuations 
B) aggregate supply to smooth out business fluctuations 
C) both aggregate supply and aggregate demand to smooth out business fluctuations 
D) aggregate demand to stimulate the economy and aggregate supply to contract it 
E) short-run aggregate supply to stimulate the economy and aggregate demand to contract it 
A) aggregate demand to smooth out business fluctuations 
B) aggregate supply to smooth out business fluctuations 
C) both aggregate supply and aggregate demand to smooth out business fluctuations 
D) aggregate demand to stimulate the economy and aggregate supply to contract it 
E) short-run aggregate supply to stimulate the economy and aggregate demand to contract it

Question 17

To close a recessionary gap using fiscal policy,the government can:

Accepted Answer

A) increase government spending by the size of the gap. 
B) decrease government spending by the size of the gap. 
C) increase government spending by more than the size of the gap. 
D) increase government spending by less than the size of the gap. 
E) decrease government spending by more than the size of the gap. 
A) increase government spending by the size of the gap. 
B) decrease government spending by the size of the gap. 
C) increase government spending by more than the size of the gap. 
D) increase government spending by less than the size of the gap. 
E) decrease government spending by more than the size of the gap.

Question 18

Discretionary fiscal policy is a policy that _____.

Accepted Answer

A) is developed in secret 
B) applies to some states and not all states 
C) applies to only to some specific industries in an economy 
D) works automatically without public announcement or plan 
E) is an intentional change in taxation or government spending 
A) is developed in secret 
B) applies to some states and not all states 
C) applies to only to some specific industries in an economy 
D) works automatically without public announcement or plan 
E) is an intentional change in taxation or government spending

Question 19

One disadvantage of discretionary fiscal policy is that it can return the economy to its potential level of output,but at the cost of increasing the price level.

Accepted Answer

A) True 
 B)False

Question 20

The supply-side effect of higher tax rates would include a fall in the economy's potential GDP.

Accepted Answer

A) True 
 B)False

Which of the following is true of government purchases?

The effect of a change in net taxes on the quantity of real GDP demanded equals the resulting shift in the consumption function times _____.

Which of the following best describes the concept of laissez-faire?

All of the following are likely to be effective at eliminating a recessionary gap except one.Which is the exception?

A decrease in net taxes during a recession increases aggregate demand and helps the economy return to its potential output level.

Which of the following is not a weakness of fiscal policy as a tool of economic stabilization?

Figure 11.2 shows the relationship between the price level and real GDP.Suppose the economy is currently at e'.If the government implements a contractionary fiscal policy,the economy would land up at:

A $0.2 trillion increase in government purchases increases the quantity demanded by $1.0 trillion,price level remaining constant.This additional spending reflects the _____ effect.

Which of the following are components of fiscal policy?

The one-time tax cuts used by the Bush administration to stimulate the economy in 2008 proved to be very successful.

The exact change in equilibrium output due to a shift in short-run aggregate demand depends on:

Which of the following fiscal programs is least likely to affect aggregate demand?

Suppose government purchases increase by $100 million in an economy,which leads to total output increasing by $500 million.The size of the multiplier is _____.

Lags in the approval and implementation of fiscal policy:

Which of the following is an example of an automatic stabilizer?

Fiscal policy focuses on manipulating _____.

To close a recessionary gap using fiscal policy,the government can:

Discretionary fiscal policy is a policy that _____.

One disadvantage of discretionary fiscal policy is that it can return the economy to its potential level of output,but at the cost of increasing the price level.

The supply-side effect of higher tax rates would include a fall in the economy's potential GDP.

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

Aggregate Demand

Aggregate Supply

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy

The Policy Debate: Active or Passive

International Trade

International Finance

Economic Development

Filters

Exam 11: Fiscal Policy

Which of the following is true of government purchases?

The effect of a change in net taxes on the quantity of real GDP demanded equals the resulting shift in the consumption function times _____.

Which of the following best describes the concept of laissez-faire?

All of the following are likely to be effective at eliminating a recessionary gap except one.Which is the exception?

A decrease in net taxes during a recession increases aggregate demand and helps the economy return to its potential output level.

Which of the following is not a weakness of fiscal policy as a tool of economic stabilization?

Figure 11.2 shows the relationship between the price level and real GDP.Suppose the economy is currently at e'.If the government implements a contractionary fiscal policy,the economy would land up at:

A $0.2 trillion increase in government purchases increases the quantity demanded by $1.0 trillion,price level remaining constant.This additional spending reflects the _____ effect.

Which of the following are components of fiscal policy?

The one-time tax cuts used by the Bush administration to stimulate the economy in 2008 proved to be very successful.

The exact change in equilibrium output due to a shift in short-run aggregate demand depends on:

Which of the following fiscal programs is least likely to affect aggregate demand?

Suppose government purchases increase by $100 million in an economy,which leads to total output increasing by $500 million.The size of the multiplier is _____.

Lags in the approval and implementation of fiscal policy:

Which of the following is an example of an automatic stabilizer?

Fiscal policy focuses on manipulating _____.

To close a recessionary gap using fiscal policy,the government can:

Discretionary fiscal policy is a policy that _____.

One disadvantage of discretionary fiscal policy is that it can return the economy to its potential level of output,but at the cost of increasing the price level.

The supply-side effect of higher tax rates would include a fall in the economy's potential GDP.

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

Aggregate Demand

Aggregate Supply

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy

The Policy Debate: Active or Passive

International Trade

International Finance

Economic Development

Filters