Question 1

If the government sells U.S. Treasury bonds to finance its budget deficit, one would expect:

Accepted Answer

A)  interest rates to rise. 
B)  domestic investment to rise. 
C)  tax rates to fall. 
D)  inflation to rise. 
E)  interest rates to fall. 
A)  interest rates to rise. 
B)  domestic investment to rise. 
C)  tax rates to fall. 
D)  inflation to rise. 
E)  interest rates to fall. A

Question 2

The ratio of U.S. government spending to GDP reached its peak during:

Accepted Answer

A)  World War I. 
B)  World War II. 
C)  the Great Depression. 
D)  the real estate crisis. 
E)  the bursting of the stock market bubble. 
A)  World War I. 
B)  World War II. 
C)  the Great Depression. 
D)  the real estate crisis. 
E)  the bursting of the stock market bubble. B

Question 3

If crowding out exists, contractionary fiscal policy will cause the aggregate demand curve to shift in by more than indicated by the government spending multiplier.

Accepted Answer

A) True 
 B)False  False

Question 4

Most industrial countries have adopted the regressive tax system.

Accepted Answer

A) True 
 B)False

Question 5

Other things equal, the steeper the slope of the aggregate supply curve, the more effective will be the expansionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 6

Suppose the Congress enacts a 5 percent decrease in annual military expenditures. Other things equal, this can be associated with:

Accepted Answer

A)  a change in the slope of the aggregate demand curve. 
B)  a leftward shift of the aggregate demand curve. 
C)  a rightward shift of the aggregate demand curve. 
D)  a movement down along the aggregate demand curve. 
E)  a movement up along the aggregate demand curve. 
A)  a change in the slope of the aggregate demand curve. 
B)  a leftward shift of the aggregate demand curve. 
C)  a rightward shift of the aggregate demand curve. 
D)  a movement down along the aggregate demand curve. 
E)  a movement up along the aggregate demand curve.

Question 7

If Joe earns $80,000 per year and pays $20,000 in taxes, while Moe earns $100,000 and pays $22,000 in taxes, their tax system would best be described as:

Accepted Answer

A)  progressive. 
B)  proportional. 
C)  regressive. 
D)  discretionary. 
E)  lump-sum. 
A)  progressive. 
B)  proportional. 
C)  regressive. 
D)  discretionary. 
E)  lump-sum.

Question 8

The flatter the aggregate supply curve, the less the amount of government spending necessary to close a $1 billion GDP gap.

Accepted Answer

A) True 
 B)False

Question 9

National debt can be defined as:

Accepted Answer

A)  the total money supply in the economy. 
B)  the total stock of government bonds outstanding. 
C)  the difference between real GDP and potential GDP. 
D)  the change in fiscal deficit that results from an increase in government spending. 
E)  the total volume of private investment in the country. 
A)  the total money supply in the economy. 
B)  the total stock of government bonds outstanding. 
C)  the difference between real GDP and potential GDP. 
D)  the change in fiscal deficit that results from an increase in government spending. 
E)  the total volume of private investment in the country.

Question 10

If the private sector anticipates higher future taxes as a result of a current budget deficit, current autonomous saving will decline.

Accepted Answer

A) True 
 B)False

Question 11

In general, developed countries depend more heavily on indirect taxes on goods and services than do developing countries.

Accepted Answer

A) True 
 B)False

Question 12

Ricardian equivalence can be said to hold if:

Accepted Answer

A)  taxation has greater effect on private spending than government borrowing. 
B)  taxation has a lesser effect on private spending than government borrowing. 
C)  government borrowing does not affect private consumption while taxation has a negative impact on private consumption. 
D)  government spending activities financed by taxation and those financed by borrowing have the same effect on private spending. 
E)  government spending activities financed by taxation and those financed by borrowing have no effect on private spending. 
A)  taxation has greater effect on private spending than government borrowing. 
B)  taxation has a lesser effect on private spending than government borrowing. 
C)  government borrowing does not affect private consumption while taxation has a negative impact on private consumption. 
D)  government spending activities financed by taxation and those financed by borrowing have the same effect on private spending. 
E)  government spending activities financed by taxation and those financed by borrowing have no effect on private spending.

Question 13

A value-added tax is a tax on consumption and not on personal income.

Accepted Answer

A) True 
 B)False

Question 14

If crowding out exists, the expansionary effect of government spending will be:

Accepted Answer

A)  smaller than intended. 
B)  negative. 
C)  infinite. 
D)  larger than intended. 
E)  zero. 
A)  smaller than intended. 
B)  negative. 
C)  infinite. 
D)  larger than intended. 
E)  zero.

Question 15

Calculate the government spending multiplier if, an increase in government spending by $5 million increases real GDP by $25 million.

Accepted Answer

A)  0.2 
B)  0.5 
C)  2 
D)  5 
E)  6 
A)  0.2 
B)  0.5 
C)  2 
D)  5 
E)  6

Question 16

Which of the following trends has been observed in federal revenues and expenditures over time?

Accepted Answer

A)  Expenditures were lower than the revenues in the 1998-2001 period. 
B)  Expenditures were lower than the revenues in the 1930s. 
C)  Expenditures were higher than the revenues in the 1998-2001 period. 
D)  Expenditures were more less equal to the revenues in the 1930s. 
E)  Expenditures were more or less equal to the revenues in the 1998-2001 period. 
A)  Expenditures were lower than the revenues in the 1998-2001 period. 
B)  Expenditures were lower than the revenues in the 1930s. 
C)  Expenditures were higher than the revenues in the 1998-2001 period. 
D)  Expenditures were more less equal to the revenues in the 1930s. 
E)  Expenditures were more or less equal to the revenues in the 1998-2001 period.

Question 17

A progressive tax system is one in which the tax rate actually increases as income rises.

Accepted Answer

A) True 
 B)False

Question 18

A decrease in federal income tax rates is an example of fiscal policy that affects GDP through consumption adjustments.

Accepted Answer

A) True 
 B)False

Question 19

Discretionary fiscal policy is best defined as:

Accepted Answer

A)  the deliberate change in tax laws and government spending to change equilibrium income. 
B)  the deliberate manipulation of the money supply to expand the economy. 
C)  the arbitrary fluctuation in tax laws and budget requirements. 
D)  the automatic change in certain fiscal instruments when real GDP changes. 
E)  the policy action taken by the Congress to reduce the federal budget deficit. 
A)  the deliberate change in tax laws and government spending to change equilibrium income. 
B)  the deliberate manipulation of the money supply to expand the economy. 
C)  the arbitrary fluctuation in tax laws and budget requirements. 
D)  the automatic change in certain fiscal instruments when real GDP changes. 
E)  the policy action taken by the Congress to reduce the federal budget deficit.

Question 20

Which of the following constitutes a transfer payment?

Accepted Answer

A)  Income taxes 
B)  Corporate salaries 
C)  Fiscal spending 
D)  Dividend payments 
E)  Welfare benefits 
A)  Income taxes 
B)  Corporate salaries 
C)  Fiscal spending 
D)  Dividend payments 
E)  Welfare benefits

Exam 11: Fiscal Policy

If the government sells U.S. Treasury bonds to finance its budget deficit, one would expect:

The ratio of U.S. government spending to GDP reached its peak during:

If crowding out exists, contractionary fiscal policy will cause the aggregate demand curve to shift in by more than indicated by the government spending multiplier.

Most industrial countries have adopted the regressive tax system.

Other things equal, the steeper the slope of the aggregate supply curve, the more effective will be the expansionary fiscal policy.

Suppose the Congress enacts a 5 percent decrease in annual military expenditures. Other things equal, this can be associated with:

If Joe earns $80,000 per year and pays $20,000 in taxes, while Moe earns $100,000 and pays $22,000 in taxes, their tax system would best be described as:

The flatter the aggregate supply curve, the less the amount of government spending necessary to close a $1 billion GDP gap.

National debt can be defined as:

If the private sector anticipates higher future taxes as a result of a current budget deficit, current autonomous saving will decline.

In general, developed countries depend more heavily on indirect taxes on goods and services than do developing countries.

Ricardian equivalence can be said to hold if:

A value-added tax is a tax on consumption and not on personal income.

If crowding out exists, the expansionary effect of government spending will be:

Calculate the government spending multiplier if, an increase in government spending by $5 million increases real GDP by $25 million.

Which of the following trends has been observed in federal revenues and expenditures over time?

A progressive tax system is one in which the tax rate actually increases as income rises.

A decrease in federal income tax rates is an example of fiscal policy that affects GDP through consumption adjustments.

Discretionary fiscal policy is best defined as:

Which of the following constitutes a transfer payment?

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

Money and Banking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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