Question 1

An increase in taxes on labor income ________ the labor supply curve and ________ the labor demand curve.

Accepted Answer

A)  shifts; does not shift 
B)  shifts; shifts 
C)  does not shift; does not shift 
D)  does not shift; shifts 
A)  shifts; does not shift 
B)  shifts; shifts 
C)  does not shift; does not shift 
D)  does not shift; shifts A

Question 2

Ignoring any supply-side effects, how does the magnitude of the government expenditure multiplier compare to the magnitude of the tax multiplier? Explain your answer.

Accepted Answer

The magnitude of the government expenditure multiplier is larger than the magnitude of the tax multiplier. The government expenditure multiplier is larger because a $1 change in government expenditure has an initial effect on aggregate demand of $1. In other words, a $1 increase in government expenditure initially increases aggregate demand by the entire $1. However, a $1 change in taxes does not initially affect aggregate demand by the entire $1. Instead, it affects aggregate demand by less than $1. For instance, a $1 decrease in taxes increases aggregate demand by less than $1. Why? Because part of the $1 decrease in taxes is saved and the amount saved does not increase aggregate demand.

Question 3

A tax cut decreases government saving and can thereby crowd out investment.

Accepted Answer

A) True 
 B)False  True

Question 4

Automatic fiscal policy is at work if, as real GDP increases,

Accepted Answer

A)  transfer payments decrease and interest rates decrease. 
B)  transfer payments increase and tax revenues decrease. 
C)  tax revenues increase and transfer payments decrease. 
D)  tax revenues decrease and interest rates increase. 
A)  transfer payments decrease and interest rates decrease. 
B)  transfer payments increase and tax revenues decrease. 
C)  tax revenues increase and transfer payments decrease. 
D)  tax revenues decrease and interest rates increase.

Question 5

In early 2017, economists predicted that the U.S. economy would grow more rapidly than had been projected. If this forecast is correct, then the cyclical deficit will ________ than had been predicted.

Accepted Answer

A)  shrink more rapidly 
B)  shrink more slowly 
C)  increase more slowly 
D)  None of the above are correct because the growth of the economy does not affect the size of the cyclical deficit. 
A)  shrink more rapidly 
B)  shrink more slowly 
C)  increase more slowly 
D)  None of the above are correct because the growth of the economy does not affect the size of the cyclical deficit.

Question 6

What is needs-tested spending and how does it affect the government expenditure multiplier?

Accepted Answer

Needs-tested spending is government spen

Question 7

A reason the government expenditure multiplier is larger than 1 is because

Accepted Answer

A)  investment increases when government expenditure increases. 
B)  government expenditure always increases. 
C)  government expenditure changes generate changes in consumption expenditure. 
D)  taxes are left unchanged. 
A)  investment increases when government expenditure increases. 
B)  government expenditure always increases. 
C)  government expenditure changes generate changes in consumption expenditure. 
D)  taxes are left unchanged.

Question 8

In 2007, Denmark's government had expenditures of $157 billion and spending of $171 billion. GDP in 2007 was $312 billion. The government ran a budget ________ and government debt ________.

Accepted Answer

A)  deficit; decreased 
B)  deficit; increased 
C)  surplus; decreased 
D)  surplus; increased 
A)  deficit; decreased 
B)  deficit; increased 
C)  surplus; decreased 
D)  surplus; increased

Question 9

When interest income is taxed and the inflation rate rises, the tax revenue collected by the government

Accepted Answer

A)  increases. 
B)  doesn't change. 
C)  decreases. 
D)  could either increase or decrease. 
A)  increases. 
B)  doesn't change. 
C)  decreases. 
D)  could either increase or decrease.

Question 10

The largest source of revenue for the federal government is ________ and the largest outlay is for ________.

Accepted Answer

A)  corporate taxes; Social Security 
B)  personal income taxes; expenditure on goods and services 
C)  corporate taxes; interest on national debt 
D)  personal income taxes; transfer payments 
A)  corporate taxes; Social Security 
B)  personal income taxes; expenditure on goods and services 
C)  corporate taxes; interest on national debt 
D)  personal income taxes; transfer payments

Question 11

How can discretionary fiscal policy be used to close a recessionary gap?

Accepted Answer

If real GDP is less than potential GDP,

Question 12

The structural deficit is that deficit that would exist

Accepted Answer

A)  with the taxes and outlays that would occur if the economy was at the equilibrium level of real GDP. 
B)  with the taxes and outlays that would occur if the economy was at the full employment level of real GDP. 
C)  if tax rates were set to maximize tax revenues. 
D)  if there were no discretionary fiscal interventions into the economy. 
A)  with the taxes and outlays that would occur if the economy was at the equilibrium level of real GDP. 
B)  with the taxes and outlays that would occur if the economy was at the full employment level of real GDP. 
C)  if tax rates were set to maximize tax revenues. 
D)  if there were no discretionary fiscal interventions into the economy.

Question 13

Which of the following relationships is CORRECT?

Accepted Answer

A)  actual budget deficit = structural deficit - cyclical deficit 
B)  cyclical surplus = actual budget deficit - cyclical deficit 
C)  actual budget deficit = structural deficit + cyclical deficit 
D)  cyclical deficit = actual budget deficit + structural deficit 
A)  actual budget deficit = structural deficit - cyclical deficit 
B)  cyclical surplus = actual budget deficit - cyclical deficit 
C)  actual budget deficit = structural deficit + cyclical deficit 
D)  cyclical deficit = actual budget deficit + structural deficit

Question 14

Generational accounting does NOT investigate issues involving

Accepted Answer

A)  the budget deficit. 
B)  government obligations such as Social Security. 
C)  the ownership of corporate stock. 
D)  the burden of taxes. 
A)  the budget deficit. 
B)  government obligations such as Social Security. 
C)  the ownership of corporate stock. 
D)  the burden of taxes.

Question 15

An increase in government expenditure shifts the AD curve ________ and an increase in taxes shifts the AD curve ________.

Accepted Answer

A)  rightward; rightward 
B)  rightward; leftward 
C)  leftward; rightward 
D)  leftward; leftward 
A)  rightward; rightward 
B)  rightward; leftward 
C)  leftward; rightward 
D)  leftward; leftward

Question 16

The aggregate demand curve is shifted rightward by an increase in tax rates.

Accepted Answer

A) True 
 B)False

Question 17

What is the effect on aggregate demand and the AD curve from either an increase in government expenditure or a cut in taxes?

Accepted Answer

Both an increase in government

Question 18

The U.S. federal budget over the past 30 years has been

Accepted Answer

A)  in balance most years. 
B)  in deficit most of the years. 
C)  in surplus most of the years. 
D)  in surplus about half the time and deficit the other half. 
A)  in balance most years. 
B)  in deficit most of the years. 
C)  in surplus most of the years. 
D)  in surplus about half the time and deficit the other half.

Question 19

The use of fiscal policy is limited because

Accepted Answer

A)  there is never a long enough time lag. 
B)  the economy is almost always at full employment. 
C)  the President may have different goals than Congress. 
D)  time lags associated with fiscal policy may cause the policy to take effect too late to solve the problem it was supposed to address. 
A)  there is never a long enough time lag. 
B)  the economy is almost always at full employment. 
C)  the President may have different goals than Congress. 
D)  time lags associated with fiscal policy may cause the policy to take effect too late to solve the problem it was supposed to address.

Question 20

All of the following are part of fiscal policy EXCEPT

Accepted Answer

A)  setting tax rates. 
B)  setting government spending. 
C)  choosing the size of the government deficit. 
D)  controlling the money supply. 
A)  setting tax rates. 
B)  setting government spending. 
C)  choosing the size of the government deficit. 
D)  controlling the money supply.

An increase in taxes on labor income the labor supply curve and the labor demand curve.

Ignoring any supply-side effects, how does the magnitude of the government expenditure multiplier compare to the magnitude of the tax multiplier? Explain your answer.

A tax cut decreases government saving and can thereby crowd out investment.

Automatic fiscal policy is at work if, as real GDP increases,

In early 2017, economists predicted that the U.S. economy would grow more rapidly than had been projected. If this forecast is correct, then the cyclical deficit will ________ than had been predicted.

What is needs-tested spending and how does it affect the government expenditure multiplier?

A reason the government expenditure multiplier is larger than 1 is because

In 2007, Denmark's government had expenditures of $157 billion and spending of $171 billion. GDP in 2007 was $312 billion. The government ran a budget and government debt .

When interest income is taxed and the inflation rate rises, the tax revenue collected by the government

The largest source of revenue for the federal government is and the largest outlay is for .

How can discretionary fiscal policy be used to close a recessionary gap?

The structural deficit is that deficit that would exist

Which of the following relationships is CORRECT?

Generational accounting does NOT investigate issues involving

An increase in government expenditure shifts the AD curve and an increase in taxes shifts the AD curve .

The aggregate demand curve is shifted rightward by an increase in tax rates.

What is the effect on aggregate demand and the AD curve from either an increase in government expenditure or a cut in taxes?

The U.S. federal budget over the past 30 years has been

The use of fiscal policy is limited because

All of the following are part of fiscal policy EXCEPT

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Monetary Policy

International Trade Policy

Filters

Exam 13: Fiscal Policy

An increase in taxes on labor income ________ the labor supply curve and ________ the labor demand curve.

Ignoring any supply-side effects, how does the magnitude of the government expenditure multiplier compare to the magnitude of the tax multiplier? Explain your answer.

A tax cut decreases government saving and can thereby crowd out investment.

Automatic fiscal policy is at work if, as real GDP increases,

In early 2017, economists predicted that the U.S. economy would grow more rapidly than had been projected. If this forecast is correct, then the cyclical deficit will ________ than had been predicted.

What is needs-tested spending and how does it affect the government expenditure multiplier?

A reason the government expenditure multiplier is larger than 1 is because

In 2007, Denmark's government had expenditures of $157 billion and spending of $171 billion. GDP in 2007 was $312 billion. The government ran a budget ________ and government debt ________.

When interest income is taxed and the inflation rate rises, the tax revenue collected by the government

The largest source of revenue for the federal government is ________ and the largest outlay is for ________.

How can discretionary fiscal policy be used to close a recessionary gap?

The structural deficit is that deficit that would exist

Which of the following relationships is CORRECT?

Generational accounting does NOT investigate issues involving

An increase in government expenditure shifts the AD curve ________ and an increase in taxes shifts the AD curve ________.

The aggregate demand curve is shifted rightward by an increase in tax rates.

What is the effect on aggregate demand and the AD curve from either an increase in government expenditure or a cut in taxes?

The U.S. federal budget over the past 30 years has been

The use of fiscal policy is limited because

All of the following are part of fiscal policy EXCEPT

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Monetary Policy

International Trade Policy

Filters

An increase in taxes on labor income the labor supply curve and the labor demand curve.

In 2007, Denmark's government had expenditures of $157 billion and spending of $171 billion. GDP in 2007 was $312 billion. The government ran a budget and government debt .

The largest source of revenue for the federal government is and the largest outlay is for .

An increase in government expenditure shifts the AD curve and an increase in taxes shifts the AD curve .