Question 1

Fiscal policy is government action to influence aggregate demand and in turn to influence the level of real GDP and the price level, through:

Accepted Answer

A)  expanding and contracting the money supply. 
B)  regulation of net exports. 
C)  changes in government spending and/or tax revenues. 
D)  encouraging businesses to invest. 
A)  expanding and contracting the money supply. 
B)  regulation of net exports. 
C)  changes in government spending and/or tax revenues. 
D)  encouraging businesses to invest.

Question 2

Automatic stabilizers stabilize the level of real GDP because:

Accepted Answer

A)  Congress quickly changes spending and tax revenue. 
B)  federal expenditures and tax revenues change as the level of real GDP changes. 
C)  the spending and tax multiplier are constant. 
D)  wages are controlled by the minimum wage law. 
A)  Congress quickly changes spending and tax revenue. 
B)  federal expenditures and tax revenues change as the level of real GDP changes. 
C)  the spending and tax multiplier are constant. 
D)  wages are controlled by the minimum wage law.

Question 3

When an economy dips into recession, automatic stabilizers will:

Accepted Answer

A)  enlarge the budget deficit (or reduce the surplus). 
B)  reduce the budget deficit (or increase the surplus). 
C)  ensure that the budget remains in balance. 
D)  expand the supply of money and, thereby, stimulate aggregate demand. 
A)  enlarge the budget deficit (or reduce the surplus). 
B)  reduce the budget deficit (or increase the surplus). 
C)  ensure that the budget remains in balance. 
D)  expand the supply of money and, thereby, stimulate aggregate demand.

Question 4

In the _______ range of the aggregate supply curve, expansionary fiscal policy that causes aggregate ______ to increase will lead to a higher price level and a higher equilibrium level of real GDP.

Accepted Answer

A)  ​Keynesian, supply 
B)  ​classical, demand 
C)  ​intermediate, demand 
D)  ​intermediate, supply 
A)  ​Keynesian, supply 
B)  ​classical, demand 
C)  ​intermediate, demand 
D)  ​intermediate, supply

Question 5

If no fiscal policy changes are made, suppose the current aggregate demand curve will increase horizontally by $1,000 billion and cause inflation. If the marginal propensity to consume is 0.75, federal policymakers could follow Keynesian economics and restrain inflation by decreasing:

Accepted Answer

A)  government spending by $250 billion. 
B)  taxes by $100 billion. 
C)  taxes by $1,000 billion. 
D)  government spending by $1,000 billion. 
A)  government spending by $250 billion. 
B)  taxes by $100 billion. 
C)  taxes by $1,000 billion. 
D)  government spending by $1,000 billion.

Question 6

According to the Laffer curve, the federal tax rate affects:

Accepted Answer

A)  incentive to work. 
B)  savings. 
C)  investment. 
D)  tax revenue. 
E)  All of the above. 
A)  incentive to work. 
B)  savings. 
C)  investment. 
D)  tax revenue. 
E)  All of the above.

Question 7

The unemployment compensation program:

Accepted Answer

A)  makes recessions more severe. 
B)  makes recession less severe. 
C)  makes recessions more severe and inflationary episodes less severe. 
D)  makes recessions less severe and inflationary episodes more severe. 
E)  has no effect on the severity of recessions and inflationary episodes. 
A)  makes recessions more severe. 
B)  makes recession less severe. 
C)  makes recessions more severe and inflationary episodes less severe. 
D)  makes recessions less severe and inflationary episodes more severe. 
E)  has no effect on the severity of recessions and inflationary episodes.

Question 8

The greater the marginal propensity to consume in the economy, the smaller the spending multiplier.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is true ?

Accepted Answer

A)  Fiscal policy is the manipulation of the nation's money supply to influence the nation's output, employment and price level. 
B)  Discretionary fiscal policy is the deliberate use of changes in government spending and taxes to stabilize the economy. 
C)  The tax multiplier is the change in aggregate demand resulting from an initial change in government spending. 
D)  A budget deficit exists when government tax revenues exceed government spending. 
A)  Fiscal policy is the manipulation of the nation's money supply to influence the nation's output, employment and price level. 
B)  Discretionary fiscal policy is the deliberate use of changes in government spending and taxes to stabilize the economy. 
C)  The tax multiplier is the change in aggregate demand resulting from an initial change in government spending. 
D)  A budget deficit exists when government tax revenues exceed government spending.

Question 10

The spending multiplier is:

Accepted Answer

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

Question 11

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

Accepted Answer

The essential difference is that Keynesi

Question 12

As the marginal propensity to consume (MPC) decreases, the spending multiplier:

Accepted Answer

A)  increases. 
B)  decreases. 
C)  remains constant. 
D)  becomes undefinable. 
A)  increases. 
B)  decreases. 
C)  remains constant. 
D)  becomes undefinable.

Question 13

Using the aggregate demand and supply model, expansionary fiscal policy will not affect the price level, but will restore full-employment GDP.

Accepted Answer

A) True 
 B)False

Question 14

The curve that reflects the view that when tax rates are too high, lowering them not only creates greater incentive for suppliers to increase production, but ends up generating higher tax revenues, is known as the:

Accepted Answer

A)  Phillips curve. 
B)  Laffer curve. 
C)  Engel curve. 
D)  Rational expectations curve. 
E)  consumption curve. 
A)  Phillips curve. 
B)  Laffer curve. 
C)  Engel curve. 
D)  Rational expectations curve. 
E)  consumption curve.

Question 15

The government is pursuing an expansionary policy if it:

Accepted Answer

A)  decreases its spending and increases its tax revenues. 
B)  increases its spending or increases its tax revenues. 
C)  decreases its spending or reduces its tax revenues. 
D)  increases its spending and/or reduces its tax revenues. 
A)  decreases its spending and increases its tax revenues. 
B)  increases its spending or increases its tax revenues. 
C)  decreases its spending or reduces its tax revenues. 
D)  increases its spending and/or reduces its tax revenues.

Question 16

Unemployment compensation payments:

Accepted Answer

A)  fall during periods of prosperity and thus reduce federal budget deficits. 
B)  fall during periods of prosperity and thus increase federal budget deficits. 
C)  fall during recessions and thus increase the problem of unemployment. 
D)  rise during periods of prosperity and thus increase federal budget deficits. 
E)  rise during recessions and thus increase the problem of unemployment. 
A)  fall during periods of prosperity and thus reduce federal budget deficits. 
B)  fall during periods of prosperity and thus increase federal budget deficits. 
C)  fall during recessions and thus increase the problem of unemployment. 
D)  rise during periods of prosperity and thus increase federal budget deficits. 
E)  rise during recessions and thus increase the problem of unemployment.

Question 17

Which of the following favors government policies to stimulate the economy by creating incentives for individuals and businesses to increase their productive efforts?

Accepted Answer

A)  supply-side economics. 
B)  Keynesian economics. 
C)  monetarist economics. 
D)  Marxian economics. 
A)  supply-side economics. 
B)  Keynesian economics. 
C)  monetarist economics. 
D)  Marxian economics.

Question 18

According to Keynesian economics, fiscal policy should create a deficit during economic contractions.

Accepted Answer

A) True 
 B)False

Question 19

"Tax cuts, by providing incentives to work, save, and invest, will raise employment and lower the price level." This argument is made by the:

Accepted Answer

A)  Keynesian economists. 
B)  supply-side economists. 
C)  classical economists. 
D)  monetarists. 
A)  Keynesian economists. 
B)  supply-side economists. 
C)  classical economists. 
D)  monetarists.

Question 20

If the marginal propensity to consume (MPC) is 0.90, the value of the spending multiplier is 90.

Accepted Answer

A) True 
 B)False

Exam 15: Fiscal Policy

Fiscal policy is government action to influence aggregate demand and in turn to influence the level of real GDP and the price level, through:

Automatic stabilizers stabilize the level of real GDP because:

When an economy dips into recession, automatic stabilizers will:

In the _______ range of the aggregate supply curve, expansionary fiscal policy that causes aggregate ______ to increase will lead to a higher price level and a higher equilibrium level of real GDP.

If no fiscal policy changes are made, suppose the current aggregate demand curve will increase horizontally by $1,000 billion and cause inflation. If the marginal propensity to consume is 0.75, federal policymakers could follow Keynesian economics and restrain inflation by decreasing:

According to the Laffer curve, the federal tax rate affects:

The unemployment compensation program:

The greater the marginal propensity to consume in the economy, the smaller the spending multiplier.

Which of the following statements is true ?

The spending multiplier is:

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

As the marginal propensity to consume (MPC) decreases, the spending multiplier:

Using the aggregate demand and supply model, expansionary fiscal policy will not affect the price level, but will restore full-employment GDP.

The curve that reflects the view that when tax rates are too high, lowering them not only creates greater incentive for suppliers to increase production, but ends up generating higher tax revenues, is known as the:

The government is pursuing an expansionary policy if it:

Unemployment compensation payments:

Which of the following favors government policies to stimulate the economy by creating incentives for individuals and businesses to increase their productive efforts?

According to Keynesian economics, fiscal policy should create a deficit during economic contractions.

"Tax cuts, by providing incentives to work, save, and invest, will raise employment and lower the price level." This argument is made by the:

If the marginal propensity to consume (MPC) is 0.90, the value of the spending multiplier is 90.

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Filters

In the _ range of the aggregate supply curve, expansionary fiscal policy that causes aggregate to increase will lead to a higher price level and a higher equilibrium level of real GDP.