Question 1

Suppose that the government increases taxes. One effect of this change is that it decreases

Accepted Answer

A)  disposable income, which decreases consumption expenditure and aggregate demand. 
B)  government expenditure, which decreases aggregate demand. 
C)  the size of the government expenditure multiplier. 
D)  disposable income which then decreases aggregate supply. 
A)  disposable income, which decreases consumption expenditure and aggregate demand. 
B)  government expenditure, which decreases aggregate demand. 
C)  the size of the government expenditure multiplier. 
D)  disposable income which then decreases aggregate supply.

Question 2

-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 above 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 3

A cyclical surplus is a

Accepted Answer

A)  budget surplus only because real GDP is less than potential GDP. 
B)  budget surplus only because real GDP is greater than potential GDP. 
C)  budget surplus only because real GDP is equal to potential GDP. 
D)  nominal, as opposed to real, budget surplus. 
A)  budget surplus only because real GDP is less than potential GDP. 
B)  budget surplus only because real GDP is greater than potential GDP. 
C)  budget surplus only because real GDP is equal to potential GDP. 
D)  nominal, as opposed to real, budget surplus.

Question 4

If the economy has a structural deficit of $25 billion and a cyclical deficit of $75, we can conclude that the current budget deficit is ________ billion.

Accepted Answer

A)  $25 
B)  $50 
C)  $75 
D)  $100 
A)  $25 
B)  $50 
C)  $75 
D)  $100

Question 5

In 2008, Britain decided to cut its value added tax (VAT) to 15 percent from 17.5 percent. The VAT is similar to a sales tax. According to the supply-side view, this change will increase
I. the after-tax wage.
II. the incentive to work.
III. the supply of labor.

Accepted Answer

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

Question 6

The government begins year 1 with $25 billion of debt. Based on the information in the above table, what is the amount of debt following year 3?

Accepted Answer

A)  $15 billion 
B)  $5 billion 
C)  $20 billion 
D)  $260 billion 
A)  $15 billion 
B)  $5 billion 
C)  $20 billion 
D)  $260 billion

Question 7

Fiscal policy involves

Accepted Answer

A)  the use of interest rates to influence the level of GDP. 
B)  the use of tax and spending policies by the government. 
C)  decreasing the role of the Federal Reserve in the everyday life of the economy. 
D)  the use of tax and money policies by the government to influence the level of interest rates. 
A)  the use of interest rates to influence the level of GDP. 
B)  the use of tax and spending policies by the government. 
C)  decreasing the role of the Federal Reserve in the everyday life of the economy. 
D)  the use of tax and money policies by the government to influence the level of interest rates.

Question 8

The Laffer curve is the relationship between

Accepted Answer

A)  government purchases and potential GDP. 
B)  tax rates and potential GDP. 
C)  tax revenue and potential GDP. 
D)  tax rates and tax revenue. 
A)  government purchases and potential GDP. 
B)  tax rates and potential GDP. 
C)  tax revenue and potential GDP. 
D)  tax rates and tax revenue.

Question 9

The structural deficit is the deficit

Accepted Answer

A)  during a recession. 
B)  during an expansion. 
C)  that would occur at full employment. 
D)  caused by the business cycle. 
A)  during a recession. 
B)  during an expansion. 
C)  that would occur at full employment. 
D)  caused by the business cycle.

Question 10

-What is the amount of the surplus or deficit incurred in year 2 by the government shown in the above table?

Accepted Answer

A)  $0 
B)  $5 billion surplus 
C)  $5 billion deficit 
D)  $250 billion surplus 
A)  $0 
B)  $5 billion surplus 
C)  $5 billion deficit 
D)  $250 billion surplus

Question 11

An increase in taxes on interest income ________ supply of loanable funds curve and ________ the demand for loanable funds curve.

Accepted Answer

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

Question 12

In response to the economic downturn, New Zealand's government had enacted a $3.8 stimulus package. www.iht.com, 11/26/2008
The stimulus plan is considered

Accepted Answer

A)  automatic fiscal policy. 
B)  contractionary fiscal policy. 
C)  discretionary fiscal policy. 
D)  needs-tested spending. 
A)  automatic fiscal policy. 
B)  contractionary fiscal policy. 
C)  discretionary fiscal policy. 
D)  needs-tested spending.

Question 13

If a tax cut increases people's labor supply, then

Accepted Answer

A)  tax cuts increase potential GDP. 
B)  tax cuts decrease aggregate demand. 
C)  tax cuts cannot affect aggregate demand. 
D)  Both answers A and B are correct. 
A)  tax cuts increase potential GDP. 
B)  tax cuts decrease aggregate demand. 
C)  tax cuts cannot affect aggregate demand. 
D)  Both answers A and B are correct.

Question 14

In December 2012 the structural deficit was $325 billion and the cyclical deficit was $700 billion. That means that the actual budget deficit equaled ________ billion.

Accepted Answer

A)  $1,025 
B)  $375 
C)  $700 
D)  None of the above answers are correct. 
A)  $1,025 
B)  $375 
C)  $700 
D)  None of the above answers are correct.

Question 15

According to tax receipt and outlay categories, what are the main components of the federal government budget?

Accepted Answer

The budget is divided between the tax re

Question 16

Income taxes in the United States are part of automatic fiscal policy because

Accepted Answer

A)  tax revenues increase when income increases, thus offsetting some of the increase in aggregate demand. 
B)  tax revenues decrease when income increases, intensifying the increase in aggregate demand. 
C)  the President can increase tax rates whenever the President deems such a policy appropriate. 
D)  tax rates can be adjusted by the Congress to counteract economic fluctuations. 
A)  tax revenues increase when income increases, thus offsetting some of the increase in aggregate demand. 
B)  tax revenues decrease when income increases, intensifying the increase in aggregate demand. 
C)  the President can increase tax rates whenever the President deems such a policy appropriate. 
D)  tax rates can be adjusted by the Congress to counteract economic fluctuations.

Question 17

If $1,000 is invested at 3 percent per year for 10 years, the investment grows to $1,343.92. This means that the present value of $1,343.92 at an interest rate of 3 percent 10 years from now is

Accepted Answer

A)  3 percent. 
B)  $1,000. 
C)  $343.92. 
D)  $1,343.92. 
A)  3 percent. 
B)  $1,000. 
C)  $343.92. 
D)  $1,343.92.

Question 18

Using the AD-AS model, an increase in government expenditure

Accepted Answer

A)  has no impact on real GDP. 
B)  has no impact on real GDP, but will increase potential GDP. 
C)  increases both real GDP and the price level. 
D)  has a full multiplier effect on real GDP, leaving the price level unchanged in the long run. 
A)  has no impact on real GDP. 
B)  has no impact on real GDP, but will increase potential GDP. 
C)  increases both real GDP and the price level. 
D)  has a full multiplier effect on real GDP, leaving the price level unchanged in the long run.

Question 19

Expenditures such as Social Security benefits, farm subsidies and grants are considered

Accepted Answer

A)  expenditures on goods and services. 
B)  transfer payments. 
C)  debt reduction. 
D)  debt interest. 
A)  expenditures on goods and services. 
B)  transfer payments. 
C)  debt reduction. 
D)  debt interest.

Question 20

Suppose the economy is at a short-run equilibrium with real GDP greater than potential GDP. Which of the following fiscal policies would decrease real GDP and the price level?

Accepted Answer

A)  an increase in government expenditure 
B)  a decrease in taxes 
C)  an increase in taxes 
D)  None of the above answers is correct. 
A)  an increase in government expenditure 
B)  a decrease in taxes 
C)  an increase in taxes 
D)  None of the above answers is correct.

Suppose that the government increases taxes. One effect of this change is that it decreases

-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 above full employment, the government has a

A cyclical surplus is a

If the economy has a structural deficit of $25 billion and a cyclical deficit of $75, we can conclude that the current budget deficit is ________ billion.

In 2008, Britain decided to cut its value added tax (VAT) to 15 percent from 17.5 percent. The VAT is similar to a sales tax. According to the supply-side view, this change will increase I. the after-tax wage. II. the incentive to work. III. the supply of labor.

The government begins year 1 with $25 billion of debt. Based on the information in the above table, what is the amount of debt following year 3?

Fiscal policy involves

The Laffer curve is the relationship between

The structural deficit is the deficit

-What is the amount of the surplus or deficit incurred in year 2 by the government shown in the above table?

An increase in taxes on interest income supply of loanable funds curve and the demand for loanable funds curve.

In response to the economic downturn, New Zealand's government had enacted a $3.8 stimulus package. www.iht.com, 11/26/2008 The stimulus plan is considered

If a tax cut increases people's labor supply, then

In December 2012 the structural deficit was $325 billion and the cyclical deficit was $700 billion. That means that the actual budget deficit equaled ________ billion.

According to tax receipt and outlay categories, what are the main components of the federal government budget?

Income taxes in the United States are part of automatic fiscal policy because

If $1,000 is invested at 3 percent per year for 10 years, the investment grows to $1,343.92. This means that the present value of $1,343.92 at an interest rate of 3 percent 10 years from now is

Using the AD-AS model, an increase in government expenditure

Expenditures such as Social Security benefits, farm subsidies and grants are considered

Suppose the economy is at a short-run equilibrium with real GDP greater than potential GDP. Which of the following fiscal policies would decrease real GDP and the price level?

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

Suppose that the government increases taxes. One effect of this change is that it decreases

-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 above full employment, the government has a

A cyclical surplus is a

If the economy has a structural deficit of $25 billion and a cyclical deficit of $75, we can conclude that the current budget deficit is ________ billion.

In 2008, Britain decided to cut its value added tax (VAT) to 15 percent from 17.5 percent. The VAT is similar to a sales tax. According to the supply-side view, this change will increase I. the after-tax wage. II. the incentive to work. III. the supply of labor.

The government begins year 1 with $25 billion of debt. Based on the information in the above table, what is the amount of debt following year 3?

Fiscal policy involves

The Laffer curve is the relationship between

The structural deficit is the deficit

-What is the amount of the surplus or deficit incurred in year 2 by the government shown in the above table?

An increase in taxes on interest income ________ supply of loanable funds curve and ________ the demand for loanable funds curve.

In response to the economic downturn, New Zealand's government had enacted a $3.8 stimulus package. www.iht.com, 11/26/2008 The stimulus plan is considered

If a tax cut increases people's labor supply, then

In December 2012 the structural deficit was $325 billion and the cyclical deficit was $700 billion. That means that the actual budget deficit equaled ________ billion.

According to tax receipt and outlay categories, what are the main components of the federal government budget?

Income taxes in the United States are part of automatic fiscal policy because

If $1,000 is invested at 3 percent per year for 10 years, the investment grows to $1,343.92. This means that the present value of $1,343.92 at an interest rate of 3 percent 10 years from now is

Using the AD-AS model, an increase in government expenditure

Expenditures such as Social Security benefits, farm subsidies and grants are considered

Suppose the economy is at a short-run equilibrium with real GDP greater than potential GDP. Which of the following fiscal policies would decrease real GDP and the price level?

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 interest income supply of loanable funds curve and the demand for loanable funds curve.