Question 1

A government spending and taxation policy to achieve macroeconomic goals is known as:

Accepted Answer

A)  countercyclical policy. 
B)  fiscal policy. 
C)  monetary policy. 
D)  a balanced budget. 
A)  countercyclical policy. 
B)  fiscal policy. 
C)  monetary policy. 
D)  a balanced budget.

Question 2

Supply-side economics calls for:

Accepted Answer

A)  lower taxes on businesses and individuals. 
B)  regulatory reforms to increase enforcement. 
C)  reduction in trade barriers. 
D)  increased government spending on infrastructure. 
A)  lower taxes on businesses and individuals. 
B)  regulatory reforms to increase enforcement. 
C)  reduction in trade barriers. 
D)  increased government spending on infrastructure.

Question 3

The government wishes to close an inflationary gap by reducing real GDP by $400 billion. Assuming a tax multiplier of 4 and an income multiplier of 5, which of the following policy prescriptions would reduce the inflationary gap by $400 billion?

Accepted Answer

A)  Decreasing government spending by $400 billion and increasing taxes by $400 billion. 
B)  Decreasing government spending by $160 billion and decreasing taxes by $100 billion. 
C)  Decreasing government spending by $40 billion and decreasing taxes by $40 billion. 
D)  Decreasing government spending by $80 billion and keeping taxes the same. 
A)  Decreasing government spending by $400 billion and increasing taxes by $400 billion. 
B)  Decreasing government spending by $160 billion and decreasing taxes by $100 billion. 
C)  Decreasing government spending by $40 billion and decreasing taxes by $40 billion. 
D)  Decreasing government spending by $80 billion and keeping taxes the same.

Question 4

A decrease in real GDP would affect the U.S. economy by:

Accepted Answer

A)  cutting tax revenues and raising government expenditures. 
B)  cutting government expenditures and raising tax revenues. 
C)  raising both tax revenues and government expenditures. 
D)  cutting both government expenditures and tax revenues. 
A)  cutting tax revenues and raising government expenditures. 
B)  cutting government expenditures and raising tax revenues. 
C)  raising both tax revenues and government expenditures. 
D)  cutting both government expenditures and tax revenues.

Question 5

According to supply-side fiscal policy, reducing tax rates on wages and profits will:

Accepted Answer

A)  create demand-pull inflation. 
B)  lower the price level but may trigger a recession. 
C)  result in stagflation. 
D)  reduce both unemployment and inflation. 
A)  create demand-pull inflation. 
B)  lower the price level but may trigger a recession. 
C)  result in stagflation. 
D)  reduce both unemployment and inflation.

Question 6

Mathematically, the value of the tax multiplier in terms of the marginal propensity to consume (MPC) is given by the formula:

Accepted Answer

A)  MPC − 1. 
B)  (MPC − 1) / MPC. 
C)  1 / MPC. 
D)  1 − [1 / (1 − MP
C) ]. 
A)  MPC − 1. 
B)  (MPC − 1) / MPC. 
C)  1 / MPC. 
D)  1 − [1 / (1 − MP
C) ].

Question 7

Assume that we want to drive our economy out of recession by generating a $400 billion change in real GDP. The MPC is 0.80. Which of the following policy prescriptions would generate the targeted $400 billion change in income?

Accepted Answer

A)  $120 billion increase in government spending and $50 billion increase in tax revenue. 
B)  $140 billion increase in government spending and $70 billion increase in tax revenue. 
C)  $160 billion increase in government spending and $120 billion increase in tax revenue. 
D)  $220 billion increase in government spending and $100 billion increase in tax revenue. 
A)  $120 billion increase in government spending and $50 billion increase in tax revenue. 
B)  $140 billion increase in government spending and $70 billion increase in tax revenue. 
C)  $160 billion increase in government spending and $120 billion increase in tax revenue. 
D)  $220 billion increase in government spending and $100 billion increase in tax revenue.

Question 8

Income tax collections:

Accepted Answer

A)  rise during a recession, thus reduce the severity of the recession. 
B)  rise during a recession, thus increase the severity of the recession. 
C)  fall during inflationary episodes, thus increase the severity of the inflation. 
D)  fall during a recession, thus reducing the severity of the recession. 
A)  rise during a recession, thus reduce the severity of the recession. 
B)  rise during a recession, thus increase the severity of the recession. 
C)  fall during inflationary episodes, thus increase the severity of the inflation. 
D)  fall during a recession, thus reducing the severity of the recession.

Question 9

Which of the following is an automatic stabilizer that moves the federal budget toward deficit during an economic contraction and toward surplus during an economic expansion?

Accepted Answer

A)  Congress votes for a federal investment in infrastructure. 
B)  corporate subsidies for green energy investments 
C)  unemployment benefits 
D)  a stimulus package that reduces personal income taxes 
A)  Congress votes for a federal investment in infrastructure. 
B)  corporate subsidies for green energy investments 
C)  unemployment benefits 
D)  a stimulus package that reduces personal income taxes

Question 10

An advocate of supply-side fiscal policy would advocate which of the following?

Accepted Answer

A)  imposition of new taxes on technological advances 
B)  more regulation 
C)  increase in resource prices 
D)  reduction in taxes 
A)  imposition of new taxes on technological advances 
B)  more regulation 
C)  increase in resource prices 
D)  reduction in taxes

Question 11

On a graph showing the influence of automatic stabilizers on the economy, government expenditures on transfer payments and real GDP have a(n):

Accepted Answer

A)  direct relationship as shown by an upward-sloping line G. 
B)  direct relationship as shown by a downward-sloping line G. 
C)  inverse relationship as shown by an upward-sloping line G. 
D)  inverse relationship as shown by a downward-sloping line G. 
A)  direct relationship as shown by an upward-sloping line G. 
B)  direct relationship as shown by a downward-sloping line G. 
C)  inverse relationship as shown by an upward-sloping line G. 
D)  inverse relationship as shown by a downward-sloping line G.

Question 12

Discuss the differences between Keynesian and supply-side fiscal policies.

Accepted Answer

The essential difference is that Keynesi

Question 13

Unemployment insurance payments act as automatic stabilizers by:

Accepted Answer

A)  allowing for more consumer spending during prosperity. 
B)  making the unemployment rate worse during a recession. 
C)  allowing for more consumer spending during a recession. 
D)  changing the Phillips curve to a Laffer curve. 
A)  allowing for more consumer spending during prosperity. 
B)  making the unemployment rate worse during a recession. 
C)  allowing for more consumer spending during a recession. 
D)  changing the Phillips curve to a Laffer curve.

Question 14

If the marginal propensity to save (MPS) is 0.25, the value of the spending multiplier is:

Accepted Answer

A)  1. 
B)  2. 
C)  4. 
D)  9. 
A)  1. 
B)  2. 
C)  4. 
D)  9.

Question 15

A tax multiplier equal to − 4.30 would imply that a $100 tax increase would lead to a:

Accepted Answer

A)  $430 decline in real GDP. 
B)  $430 increase in real GDP. 
C)  4.3 percent increase in real GDP. 
D)  4.3 percent decrease in real GDP. 
A)  $430 decline in real GDP. 
B)  $430 increase in real GDP. 
C)  4.3 percent increase in real GDP. 
D)  4.3 percent decrease in real GDP.

Question 16

If the marginal propensity to consume (MPC) is 0.75, a $50 decrease in government spending, other things being equal, would cause equilibrium real GDP to:

Accepted Answer

A)  increase by $50. 
B)  decrease by $50. 
C)  increase by $200. 
D)  decrease by $200. 
A)  increase by $50. 
B)  decrease by $50. 
C)  increase by $200. 
D)  decrease by $200.

Question 17

If the spending multiplier is 3 and the desired amount of increase in real GDP is $90 million, then by how much would government spending have to increase?​

Accepted Answer

A)  ​$270 million. 
B)  ​$90 million. 
C)  ​$30 million. 
D)  ​$0. 
A)  ​$270 million. 
B)  ​$90 million. 
C)  ​$30 million. 
D)  ​$0.

Question 18

Which of the following statements is true ?

Accepted Answer

A)  Above the optimal tax rate, a reduction in tax rates along the downward-sloping portion of the Laffer curve would increase tax revenues. 
B)  According to supply-side fiscal policy, lower tax rates would shift the aggregate demand curve to the right, expanding the economy and creating some inflation. 
C)  The presence of the automatic stabilizers tends to destabilize the economy. 
D)  To combat inflation, Keynesians recommend lower taxes and greater government spending. 
A)  Above the optimal tax rate, a reduction in tax rates along the downward-sloping portion of the Laffer curve would increase tax revenues. 
B)  According to supply-side fiscal policy, lower tax rates would shift the aggregate demand curve to the right, expanding the economy and creating some inflation. 
C)  The presence of the automatic stabilizers tends to destabilize the economy. 
D)  To combat inflation, Keynesians recommend lower taxes and greater government spending.

Question 19

If the marginal propensity to consume (MPC) is 0.96, the value of the spending multiplier is:

Accepted Answer

A)  25. 
B)  40. 
C)  96. 
D)  100. 
A)  25. 
B)  40. 
C)  96. 
D)  100.

Question 20

The Laffer curve is a graph of the relationship between tax rates and:

Accepted Answer

A)  real GDP. 
B)  total tax revenues. 
C)  government spending. 
D)  inflation. 
A)  real GDP. 
B)  total tax revenues. 
C)  government spending. 
D)  inflation.

Exam 21: Fiscal Policy

A government spending and taxation policy to achieve macroeconomic goals is known as:

Supply-side economics calls for:

The government wishes to close an inflationary gap by reducing real GDP by $400 billion. Assuming a tax multiplier of 4 and an income multiplier of 5, which of the following policy prescriptions would reduce the inflationary gap by $400 billion?

A decrease in real GDP would affect the U.S. economy by:

According to supply-side fiscal policy, reducing tax rates on wages and profits will:

Mathematically, the value of the tax multiplier in terms of the marginal propensity to consume (MPC) is given by the formula:

Assume that we want to drive our economy out of recession by generating a $400 billion change in real GDP. The MPC is 0.80. Which of the following policy prescriptions would generate the targeted $400 billion change in income?

Income tax collections:

Which of the following is an automatic stabilizer that moves the federal budget toward deficit during an economic contraction and toward surplus during an economic expansion?

An advocate of supply-side fiscal policy would advocate which of the following?

On a graph showing the influence of automatic stabilizers on the economy, government expenditures on transfer payments and real GDP have a(n):

Discuss the differences between Keynesian and supply-side fiscal policies.

Unemployment insurance payments act as automatic stabilizers by:

If the marginal propensity to save (MPS) is 0.25, the value of the spending multiplier is:

A tax multiplier equal to − 4.30 would imply that a $100 tax increase would lead to a:

If the marginal propensity to consume (MPC) is 0.75, a $50 decrease in government spending, other things being equal, would cause equilibrium real GDP to:

If the spending multiplier is 3 and the desired amount of increase in real GDP is $90 million, then by how much would government spending have to increase?​

Which of the following statements is true ?

If the marginal propensity to consume (MPC) is 0.96, the value of the spending multiplier is:

The Laffer curve is a graph of the relationship between tax rates and:

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Understanding Direct and Inverse Relationships between Variables

Filters

If the spending multiplier is 3 and the desired amount of increase in real GDP is $90 million, then by how much would government spending have to increase?