Question 1

When a decrease in one or more components of private spending completely offsets an increase in government spending, there is

Accepted Answer

A) incomplete crowding out. 
B) zero crowding out. 
C) complete crowding out. 
D) complete crowding in. 
E) either c or d 
A) incomplete crowding out. 
B) zero crowding out. 
C) complete crowding out. 
D) complete crowding in. 
E) either c or d C

Question 2

According to Keynesian theory, a recessionary gap can be closed using expansionary fiscal policy.

Accepted Answer

A) True 
 B)False  True

Question 3

What are the two types of discretionary fiscal policy?

Accepted Answer

A) automatic and expansionary 
B) expansionary and contractionary 
C) expansionary and recessionary 
D) automatic and contractionary 
A) automatic and expansionary 
B) expansionary and contractionary 
C) expansionary and recessionary 
D) automatic and contractionary B

Question 4

Reductions in private spending as a result of increased government spending or the need to finance a budget deficit is called

Accepted Answer

A) pushing in. 
B) rushing forth. 
C) crowding in. 
D) crowding out. 
A) pushing in. 
B) rushing forth. 
C) crowding in. 
D) crowding out.

Question 5

Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 42,001st dollar of taxable income earned?

Accepted Answer

A) 17% 
B) 20% 
C) 30% 
D) 33% 
E) There is not enough information provided to answer this question. 
A) 17% 
B) 20% 
C) 30% 
D) 33% 
E) There is not enough information provided to answer this question.

Question 6

Exhibit 11-5
   Assume that the farmer grows wheat and sells it to the miller, the miller turns the wheat into flour and sells it to the baker, and the baker turns the flour into bread and sells it to the final consumer.
-Refer to Exhibit 11-5 which summarizes the situation prior to the value added tax (VAT). If the government imposes a VAT rate of 10 percent, the miller must pay ___________ in VAT tax and will need to raise the price he charges the baker to _______________.

Accepted Answer

A) $0.06; $0.66 
B) $0.08; $0.88 
C) $0.08; $1.54 
D) $0.60; $1.20 
A) $0.06; $0.66 
B) $0.08; $0.88 
C) $0.08; $1.54 
D) $0.60; $1.20

Question 7

Expansionary fiscal policy actions include __________ government spending and/or __________ taxes, while contractionary fiscal policy actions include __________ government spending and/or __________ taxes.

Accepted Answer

A) increasing; increasing; decreasing; decreasing 
B) decreasing; decreasing; increasing; increasing 
C) increasing; decreasing; increasing; decreasing 
D) decreasing; increasing; increasing; decreasing 
E) increasing; decreasing; decreasing; increasing 
A) increasing; increasing; decreasing; decreasing 
B) decreasing; decreasing; increasing; increasing 
C) increasing; decreasing; increasing; decreasing 
D) decreasing; increasing; increasing; decreasing 
E) increasing; decreasing; decreasing; increasing

Question 8

Fiscal policy is

Accepted Answer

A) the money supply policy that the Fed pursues to achieve particular economic goals. 
B) the spending and tax policy that the government pursues to achieve particular macroeconomic goals. 
C) the investment policy that businesses pursue to achieve particular macroeconomic goals. 
D) the spending and saving policy that consumers pursue to achieve particular macroeconomic goals. 
E) none of the above 
A) the money supply policy that the Fed pursues to achieve particular economic goals. 
B) the spending and tax policy that the government pursues to achieve particular macroeconomic goals. 
C) the investment policy that businesses pursue to achieve particular macroeconomic goals. 
D) the spending and saving policy that consumers pursue to achieve particular macroeconomic goals. 
E) none of the above

Question 9

Over the past 50 years in the United States, tax revenues as a percentage of GDP have tended to be in the __________________ percent range.

Accepted Answer

A) 1 to 9 
B) 10 to 14 
C) 15 to 19 
D) 20 to 24 
E) 25 to 30 
A) 1 to 9 
B) 10 to 14 
C) 15 to 19 
D) 20 to 24 
E) 25 to 30

Question 10

Crowding out results in a decrease in

Accepted Answer

A) transfer payments. 
B) defense spending. 
C) private spending. 
D) government spending. 
A) transfer payments. 
B) defense spending. 
C) private spending. 
D) government spending.

Question 11

Expansionary fiscal policy is ineffective if

Accepted Answer

A) there are idle resources in the economy. 
B) the MPC is less than 0.60. 
C) the government has a budget surplus. 
D) there is complete crowding out. 
E) a and d 
A) there are idle resources in the economy. 
B) the MPC is less than 0.60. 
C) the government has a budget surplus. 
D) there is complete crowding out. 
E) a and d

Question 12

A balanced budget occurs when

Accepted Answer

A) the national debt is reduced to zero dollars. 
B) a budget deficit during one year is matched by a budget surplus in the next year. 
C) transfer payments equal tax revenues. 
D) government expenditures equal tax revenues. 
E) the deficit-GDP ratio equals one. 
A) the national debt is reduced to zero dollars. 
B) a budget deficit during one year is matched by a budget surplus in the next year. 
C) transfer payments equal tax revenues. 
D) government expenditures equal tax revenues. 
E) the deficit-GDP ratio equals one.

Question 13

To finance a budget deficit the federal government borrows funds.

Accepted Answer

A) True 
 B)False

Question 14

Suppose the economy is at a point below its physical production possibilities frontier but above its institutional production possibilities frontier. In response to this situation, Keynesian economists may propose that government enact __________ fiscal policy to correct this __________ gap by __________ government expenditures.

Accepted Answer

A) expansionary; inflationary; increasing 
B) contractionary; inflationary; decreasing 
C) expansionary; recessionary; increasing 
D) contractionary; recessionary; decreasing 
E) contractionary; inflationary; increasing 
A) expansionary; inflationary; increasing 
B) contractionary; inflationary; decreasing 
C) expansionary; recessionary; increasing 
D) contractionary; recessionary; decreasing 
E) contractionary; inflationary; increasing

Question 15

Based upon information provided in the textbook, in 2014 the top 50 percent of income earners in the U.S. paid about __________ percent of the total federal income taxes.

Accepted Answer

A) 57.25 
B) 67.25 
C) 77.25 
D) 87.25 
E) 97.25 
A) 57.25 
B) 67.25 
C) 77.25 
D) 87.25 
E) 97.25

Question 16

Complete crowding out implies that as government increases purchases by $1,

Accepted Answer

A) private spending decreases by $1. 
B) Real GDP remains unchanged. 
C) there is an equal offsetting decrease in one or more of the components of private expenditures. 
D) all of the above 
E) none of the above 
A) private spending decreases by $1. 
B) Real GDP remains unchanged. 
C) there is an equal offsetting decrease in one or more of the components of private expenditures. 
D) all of the above 
E) none of the above

Question 17

If there is complete crowding out as a result of an increase in government spending there will be

Accepted Answer

A) a decrease in aggregate demand. 
B) no change in aggregate demand. 
C) an increase in aggregate demand. 
D) a downward movement along the aggregate demand curve. 
A) a decrease in aggregate demand. 
B) no change in aggregate demand. 
C) an increase in aggregate demand. 
D) a downward movement along the aggregate demand curve.

Question 18

Crowding out suggests that

Accepted Answer

A) high taxes reduce both consumption and saving. 
B) increases in consumption are always at the expense of saving. 
C) increases in government spending may raise the interest rate, thereby reducing investment. 
D) increases in government spending will close a recessionary gap. 
A) high taxes reduce both consumption and saving. 
B) increases in consumption are always at the expense of saving. 
C) increases in government spending may raise the interest rate, thereby reducing investment. 
D) increases in government spending will close a recessionary gap.

Question 19

The economy is in a recessionary gap and a Keynesian economist advocates expansionary fiscal policy. What is a likely reason this economist advocates expansionary fiscal policy?

Accepted Answer

A) The economist believes the economy is stuck in a recessionary gap and crowding out will be complete. 
B) The economist believes the economy is stuck in a recessionary gap and there will be no crowding out. 
C) The economist believes that wages are too flexible and that crowding out will be incomplete. 
D) The economist believes the AD curve is downward-sloping, the SRAS curve is upward-sloping, and prices are flexible. 
E) none of the above 
A) The economist believes the economy is stuck in a recessionary gap and crowding out will be complete. 
B) The economist believes the economy is stuck in a recessionary gap and there will be no crowding out. 
C) The economist believes that wages are too flexible and that crowding out will be incomplete. 
D) The economist believes the AD curve is downward-sloping, the SRAS curve is upward-sloping, and prices are flexible. 
E) none of the above

Question 20

All other things held constant, lower marginal (income) tax rates

Accepted Answer

A) necessarily increase tax revenues. 
B) necessarily decrease tax revenues. 
C) decrease the attractiveness of productive activities relative to leisure and tax- avoidance activities, and shift the SRAS curve rightward. 
D) do not affect the attractiveness of productive activities relative to leisure and tax- avoidance activities and therefore the SRAS does not shift rightward or leftward. 
E) increase the attractiveness of productive activities relative to leisure and tax- avoidance activities and shift the SRAS curve rightward. 
A) necessarily increase tax revenues. 
B) necessarily decrease tax revenues. 
C) decrease the attractiveness of productive activities relative to leisure and tax- avoidance activities, and shift the SRAS curve rightward. 
D) do not affect the attractiveness of productive activities relative to leisure and tax- avoidance activities and therefore the SRAS does not shift rightward or leftward. 
E) increase the attractiveness of productive activities relative to leisure and tax- avoidance activities and shift the SRAS curve rightward.

Exam 11: Fiscal Policy and the Federal Budget

When a decrease in one or more components of private spending completely offsets an increase in government spending, there is

According to Keynesian theory, a recessionary gap can be closed using expansionary fiscal policy.

What are the two types of discretionary fiscal policy?

Reductions in private spending as a result of increased government spending or the need to finance a budget deficit is called

Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 42,001st dollar of taxable income earned?

Expansionary fiscal policy actions include __________ government spending and/or __________ taxes, while contractionary fiscal policy actions include __________ government spending and/or __________ taxes.

Fiscal policy is

Over the past 50 years in the United States, tax revenues as a percentage of GDP have tended to be in the __________________ percent range.

Crowding out results in a decrease in

Expansionary fiscal policy is ineffective if

A balanced budget occurs when

To finance a budget deficit the federal government borrows funds.

Based upon information provided in the textbook, in 2014 the top 50 percent of income earners in the U.S. paid about __________ percent of the total federal income taxes.

Complete crowding out implies that as government increases purchases by $1,

If there is complete crowding out as a result of an increase in government spending there will be

Crowding out suggests that

The economy is in a recessionary gap and a Keynesian economist advocates expansionary fiscal policy. What is a likely reason this economist advocates expansionary fiscal policy?

All other things held constant, lower marginal (income) tax rates

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand Theory

Prices Free Controlled and Relative

Supply Demand and Price Applications

Macroeconomic Measurements Part I Prices and Unemployment

Macroeconomic Measurements Part II Gdp and Real Gdp

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability a Critique of the Self Regulating Economy

Money Banking and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth Resources Technology Ideas and Institutions

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition Oligopoly and Game Theory

Government and Product Markets Antitrust and Regulation

Factor Markets With Emphasis on the Labor Market

Wages Unions and Labor

The Distribution of Income and Poverty

Interest Rent and Profit

Market Failure Externalities Public Goods and Asymmetric Information

Public Choice and Special Interest Group Politics

Building Theories to Explain Everyday Life From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government Five Topics Considered

Stocks Bonds Futures and Options

Filters

Expansionary fiscal policy actions include government spending and/or taxes, while contractionary fiscal policy actions include government spending and/or taxes.