Question 1

-In the above figure, which of the following policies could move the economy to potential GDP?

Accepted Answer

A)  decreasing government expenditures and increasing taxes 
B)  decreasing taxes and not changing government expenditures 
C)  increasing government expenditures and decreasing taxes 
D)  None of the above answers is correct. 
A)  decreasing government expenditures and increasing taxes 
B)  decreasing taxes and not changing government expenditures 
C)  increasing government expenditures and decreasing taxes 
D)  None of the above answers is correct.

Question 2

-Using the above figure, if full employment occurs at $18 trillion, but the economy is actually producing $19 trillion, then there is a

Accepted Answer

A)  cyclical deficit. 
B)  cyclical surplus. 
C)  structural deficit. 
D)  structural surplus. 
A)  cyclical deficit. 
B)  cyclical surplus. 
C)  structural deficit. 
D)  structural surplus.

Question 3

-Economic data for a mythical economy in the years 2012-2016 are summarized in the figure above. Assume that the spending formulas and tax schedules are identical for all years. When the economy is at less than full employment, the government has a

Accepted Answer

A)  budget surplus. 
B)  balanced budget. 
C)  budget deficit. 
D)  procyclical policy. 
A)  budget surplus. 
B)  balanced budget. 
C)  budget deficit. 
D)  procyclical policy.

Question 4

The Council of Economic Advisers

Accepted Answer

A)  proposes the president's budget each year. 
B)  approves fiscal policy changes. 
C)  helps the President and the public stay informed about the state of the economy. 
D)  helps the President make changes in monetary policy. 
A)  proposes the president's budget each year. 
B)  approves fiscal policy changes. 
C)  helps the President and the public stay informed about the state of the economy. 
D)  helps the President make changes in monetary policy.

Question 5

If the government runs a surplus, the total amount of government debt is

Accepted Answer

A)  increasing. 
B)  decreasing. 
C)  constant. 
D)  zero. 
A)  increasing. 
B)  decreasing. 
C)  constant. 
D)  zero.

Question 6

In 2017, the U.S. government budget had a deficit. By definition, it must have been the case that

Accepted Answer

A)  tax revenues were less than government outlays. 
B)  tax revenues were equal to government outlays. 
C)  tax revenues were greater than government outlays. 
D)  the government debt became negative. 
A)  tax revenues were less than government outlays. 
B)  tax revenues were equal to government outlays. 
C)  tax revenues were greater than government outlays. 
D)  the government debt became negative.

Question 7

-What is the amount of the surplus or deficit incurred in year 1 by the government shown in the above table?

Accepted Answer

A)  $0 
B)  $25 billion deficit 
C)  $25 billion surplus 
D)  $240 billion surplus 
A)  $0 
B)  $25 billion deficit 
C)  $25 billion surplus 
D)  $240 billion surplus

Question 8

Because of automatic fiscal policy, when real GDP decreases

Accepted Answer

A)  government expenditures decrease and tax revenues increase. 
B)  government expenditures increase and tax revenues decrease. 
C)  government expenditures equal tax revenues. 
D)  the economy will automatically go to full employment. 
A)  government expenditures decrease and tax revenues increase. 
B)  government expenditures increase and tax revenues decrease. 
C)  government expenditures equal tax revenues. 
D)  the economy will automatically go to full employment.

Question 9

-The table above has data for a country's government budget. Government outlays for the economy equal ________ billion.

Accepted Answer

A)  $1,200 
B)  $1,275 
C)  $1,500 
D)  $1,425 
A)  $1,200 
B)  $1,275 
C)  $1,500 
D)  $1,425

Question 10

What are some of the limitations of fiscal policy? Briefly discuss them.

Accepted Answer

One limitation of fiscal policy is the f

Question 11

-In the above figure, if the economy is initially at point B and taxes are raised while potential GDP does not change, then the economy will

Accepted Answer

A)  move to point C. 
B)  move to point A. 
C)  move to point D. 
D)  stay at point B. 
A)  move to point C. 
B)  move to point A. 
C)  move to point D. 
D)  stay at point B.

Question 12

How does a tax on labor income affect potential GDP?

Accepted Answer

The income tax reduces the incentive to

Question 13

The supply side effects of a cut in tax rates include ________ in the supply of labor and ________ in the supply of loanable funds.

Accepted Answer

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

Question 14

-Does the figure above illustrate a recessionary or an inflationary gap? What do potential GDP and real GDP equal? What is an appropriate fiscal policy to restore real GDP to potential real GDP?

Accepted Answer

A recessionary gap occurs when real GDP

Question 15

The demand-side effect of a change in taxes is less than the same sized change in government expenditure because

Accepted Answer

A)  only part of the increase in disposable income from the tax cut is spent. 
B)  the amount by which taxes change is affected by the MPC. 
C)  changes in government expenditure do not directly affect consumption. 
D)  tax rates are the same regardless of income levels. 
A)  only part of the increase in disposable income from the tax cut is spent. 
B)  the amount by which taxes change is affected by the MPC. 
C)  changes in government expenditure do not directly affect consumption. 
D)  tax rates are the same regardless of income levels.

Question 16

All of the following are government outlays EXCEPT

Accepted Answer

A)  interest on the government's debt. 
B)  transfer payments. 
C)  purchases of corporate bonds. 
D)  expenditure on goods and services. 
A)  interest on the government's debt. 
B)  transfer payments. 
C)  purchases of corporate bonds. 
D)  expenditure on goods and services.

Question 17

Whenever the federal government spends more than it receives in tax revenue, then by definition it

Accepted Answer

A)  runs a budget surplus. 
B)  operates a balanced budget. 
C)  runs a budget deficit. 
D)  increases economic growth. 
A)  runs a budget surplus. 
B)  operates a balanced budget. 
C)  runs a budget deficit. 
D)  increases economic growth.

Question 18

A decrease in the income tax rate

Accepted Answer

A)  decreases potential GDP. 
B)  increases the supply of labor. 
C)  increases the tax wedge. 
D)  decreases the demand for labor. 
A)  decreases potential GDP. 
B)  increases the supply of labor. 
C)  increases the tax wedge. 
D)  decreases the demand for labor.

Question 19

Which of the following are limitations of fiscal policy?
I. There is a lag between recognizing that fiscal policy might be needed and when it actually takes effect.
II. Economic forecasts might be incorrect.
III. Monetary policy might counter fiscal policy.

Accepted Answer

A)  I only 
B)  I and II 
C)  I and III 
D)  I, II and III 
A)  I only 
B)  I and II 
C)  I and III 
D)  I, II and III

Question 20

The structural deficit or surplus is the

Accepted Answer

A)  difference between actual government outlays and actual government receipts. 
B)  change in national debt that will result from current budgetary policies. 
C)  government budget deficit or surplus that would occur if the economy were at potential GDP. 
D)  actual government budget deficit or surplus minus expenditures for capital improvements. 
A)  difference between actual government outlays and actual government receipts. 
B)  change in national debt that will result from current budgetary policies. 
C)  government budget deficit or surplus that would occur if the economy were at potential GDP. 
D)  actual government budget deficit or surplus minus expenditures for capital improvements.

-In the above figure, which of the following policies could move the economy to potential GDP?

-Using the above figure, if full employment occurs at $18 trillion, but the economy is actually producing $19 trillion, then there is a

-Economic data for a mythical economy in the years 2012-2016 are summarized in the figure above. Assume that the spending formulas and tax schedules are identical for all years. When the economy is at less than full employment, the government has a

The Council of Economic Advisers

If the government runs a surplus, the total amount of government debt is

In 2017, the U.S. government budget had a deficit. By definition, it must have been the case that

-What is the amount of the surplus or deficit incurred in year 1 by the government shown in the above table?

Because of automatic fiscal policy, when real GDP decreases

-The table above has data for a country's government budget. Government outlays for the economy equal ________ billion.

What are some of the limitations of fiscal policy? Briefly discuss them.

-In the above figure, if the economy is initially at point B and taxes are raised while potential GDP does not change, then the economy will

How does a tax on labor income affect potential GDP?

The supply side effects of a cut in tax rates include in the supply of labor and in the supply of loanable funds.

-Does the figure above illustrate a recessionary or an inflationary gap? What do potential GDP and real GDP equal? What is an appropriate fiscal policy to restore real GDP to potential real GDP?

The demand-side effect of a change in taxes is less than the same sized change in government expenditure because

All of the following are government outlays EXCEPT

Whenever the federal government spends more than it receives in tax revenue, then by definition it

A decrease in the income tax rate

Which of the following are limitations of fiscal policy? I. There is a lag between recognizing that fiscal policy might be needed and when it actually takes effect. II. Economic forecasts might be incorrect. III. Monetary policy might counter fiscal policy.

The structural deficit or surplus is the

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

-In the above figure, which of the following policies could move the economy to potential GDP?

-Using the above figure, if full employment occurs at $18 trillion, but the economy is actually producing $19 trillion, then there is a

-Economic data for a mythical economy in the years 2012-2016 are summarized in the figure above. Assume that the spending formulas and tax schedules are identical for all years. When the economy is at less than full employment, the government has a

The Council of Economic Advisers

If the government runs a surplus, the total amount of government debt is

In 2017, the U.S. government budget had a deficit. By definition, it must have been the case that

-What is the amount of the surplus or deficit incurred in year 1 by the government shown in the above table?

Because of automatic fiscal policy, when real GDP decreases

-The table above has data for a country's government budget. Government outlays for the economy equal ________ billion.

What are some of the limitations of fiscal policy? Briefly discuss them.

-In the above figure, if the economy is initially at point B and taxes are raised while potential GDP does not change, then the economy will

How does a tax on labor income affect potential GDP?

The supply side effects of a cut in tax rates include ________ in the supply of labor and ________ in the supply of loanable funds.

-Does the figure above illustrate a recessionary or an inflationary gap? What do potential GDP and real GDP equal? What is an appropriate fiscal policy to restore real GDP to potential real GDP?

The demand-side effect of a change in taxes is less than the same sized change in government expenditure because

All of the following are government outlays EXCEPT

Whenever the federal government spends more than it receives in tax revenue, then by definition it

A decrease in the income tax rate

Which of the following are limitations of fiscal policy? I. There is a lag between recognizing that fiscal policy might be needed and when it actually takes effect. II. Economic forecasts might be incorrect. III. Monetary policy might counter fiscal policy.

The structural deficit or surplus is the

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

The supply side effects of a cut in tax rates include in the supply of labor and in the supply of loanable funds.