Question 1

According to Keynesian economics, what impact would a balanced budget amendment to our constitution have on our national economy?

Accepted Answer

A balanced budget amendment would destab

Question 2

Suppose the economy is on the classical range of the aggregate supply curve and has a problem with inflation. According to Keynesian theory, which of the following is an appropriate discretionary fiscal policy to use in this situation?

Accepted Answer

A)  A reduction in the money supply. 
B)  Less government regulation. 
C)  Increase federal spending. 
D)  Higher taxes. 
A)  A reduction in the money supply. 
B)  Less government regulation. 
C)  Increase federal spending. 
D)  Higher taxes.

Question 3

The change in consumption divided by a change in income is called the:

Accepted Answer

A)  consumption function. 
B)  marginal propensity to consume. 
C)  marginal propensity to spend. 
D)  spending function. 
E)  changing propensity to consume. 
A)  consumption function. 
B)  marginal propensity to consume. 
C)  marginal propensity to spend. 
D)  spending function. 
E)  changing propensity to consume.

Question 4

Automatic stabilizers are government programs that tend to push the federal budget toward surplus as the real GDP rises and toward deficit as the real GDP falls.

Accepted Answer

A) True 
 B)False

Question 5

If the marginal propensity to consume (MPC) is 0.50, the value of the spending multiplier is:

Accepted Answer

A)  5. 
B)  1. 
C)  2. 
D)  5 
A)  5. 
B)  1. 
C)  2. 
D)  5

Question 6

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 7

Income tax collections:

Accepted Answer

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

Question 8

Exhibit 15-1  Disposable income and consumption data   In Exhibit 15-1, when disposable income is increased from $2,000 to $3,000 to $4,000,

Accepted Answer

A)  total consumption increases by $1,000. 
B)  the marginal propensity to consume remains constant. 
C)  the marginal propensity to consume increases from 0.6 to 0.7. 
D)  the marginal propensity to consume decreases from 0.8 to 0.7. 
E)  the marginal propensity to consume decreases from 0.7 to 0.6. 
A)  total consumption increases by $1,000. 
B)  the marginal propensity to consume remains constant. 
C)  the marginal propensity to consume increases from 0.6 to 0.7. 
D)  the marginal propensity to consume decreases from 0.8 to 0.7. 
E)  the marginal propensity to consume decreases from 0.7 to 0.6.

Question 9

Fiscal policy is the manipulation of government spending and taxes.

Accepted Answer

A) True 
 B)False

Question 10

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 11

Find the tax multiplier if the MPC is 0.75.

Accepted Answer

A)  − 4. 
B)  − 3. 
C)  0.33. 
D)  3. 
E)  4. 
A)  − 4. 
B)  − 3. 
C)  0.33. 
D)  3. 
E)  4.

Question 12

Exhibit 15-7  Aggregate demand and supply model   Beginning at equilibrium E1 in Exhibit 15-7, assume the marginal propensity to consume (MPC) is 0.90 and the government increases taxes by $100 billion. The aggregate demand curve will shift to the:

Accepted Answer

A)  left by $1,000 billion. 
B)  right by $1,000 billion. 
C)  right by $900 billion. 
D)  left by $900 billion. 
A)  left by $1,000 billion. 
B)  right by $1,000 billion. 
C)  right by $900 billion. 
D)  left by $900 billion.

Question 13

If an inflationary boom exists, the appropriate fiscal policy is to:

Accepted Answer

A)  increase the budget deficit. 
B)  increase government spending and hold taxes constant. 
C)  decrease government spending and/or raise taxes. 
D)  hold government spending constant and decrease taxes. 
A)  increase the budget deficit. 
B)  increase government spending and hold taxes constant. 
C)  decrease government spending and/or raise taxes. 
D)  hold government spending constant and decrease taxes.

Question 14

Which of the following would most likely occur if the federal government increased its spending and enlarged the size of the budget deficit during a period of full employment?

Accepted Answer

A)  The rate of inflation would decline. 
B)  The rate of inflation would rise. 
C)  A recession would develop. 
D)  Interest rates would fall. 
A)  The rate of inflation would decline. 
B)  The rate of inflation would rise. 
C)  A recession would develop. 
D)  Interest rates would fall.

Question 15

Exhibit 15-1  Disposable income and consumption data   In Exhibit 15-1, when disposable income (Y) is increased from $1,000 to $2,000, the marginal propensity to consume is:

Accepted Answer

A)  0.2. 
B)  0.6. 
C)  0.8. 
D)  1.0. 
E)  1.25. 
A)  0.2. 
B)  0.6. 
C)  0.8. 
D)  1.0. 
E)  1.25.

Question 16

Assume the marginal propensity to consume (MPC) is 0.80 and the government cuts taxes by $100 billion. The aggregate demand curve will shift to the:

Accepted Answer

A)  right by $80 billion. 
B)  left by $200 billion. 
C)  right by $400 billion. 
D)  left by $400 billion. 
E)  None of the above. 
A)  right by $80 billion. 
B)  left by $200 billion. 
C)  right by $400 billion. 
D)  left by $400 billion. 
E)  None of the above.

Question 17

Assume that an economy's real GDP multiplier is 4. If this economy is in equilibrium at $2,000 billion, then which one of the following actions will bring it to a full-employment equilibrium of $1,500 billion?

Accepted Answer

A)  $500 billion spending cut. 
B)  $500 billion spending increase. 
C)  $125 billion spending cut. 
D)  $125 billion spending increase. 
E)  $2,000 billion spending cut. 
A)  $500 billion spending cut. 
B)  $500 billion spending increase. 
C)  $125 billion spending cut. 
D)  $125 billion spending increase. 
E)  $2,000 billion spending cut.

Question 18

Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC) is 0.50, and the government follows Keynesian economics by using expansionary fiscal policy to increase aggregate demand (total spending). If an increase of $1,000 billion aggregate demand can restore full employment, the government should:

Accepted Answer

A)  increase spending by $250 billion. 
B)  decrease spending by $500 billion. 
C)  increase spending by $1,000 billion. 
D)  increase spending by $500 billion. 
A)  increase spending by $250 billion. 
B)  decrease spending by $500 billion. 
C)  increase spending by $1,000 billion. 
D)  increase spending by $500 billion.

Question 19

Exhibit 15-3  Aggregate demand and supply model   Beginning at equilibrium E1 in Exhibit 15-3, when the government increases spending or cuts taxes the economy will experience:

Accepted Answer

A)  an inflationary recession. 
B)  stagflation. 
C)  cost-push inflation. 
D)  demand-pull inflation. 
A)  an inflationary recession. 
B)  stagflation. 
C)  cost-push inflation. 
D)  demand-pull inflation.

Question 20

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) ].

Exam 15: Fiscal Policy

According to Keynesian economics, what impact would a balanced budget amendment to our constitution have on our national economy?

Suppose the economy is on the classical range of the aggregate supply curve and has a problem with inflation. According to Keynesian theory, which of the following is an appropriate discretionary fiscal policy to use in this situation?

The change in consumption divided by a change in income is called the:

Automatic stabilizers are government programs that tend to push the federal budget toward surplus as the real GDP rises and toward deficit as the real GDP falls.

If the marginal propensity to consume (MPC) is 0.50, the value of the spending multiplier is:

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

Income tax collections:

Exhibit 15-1 Disposable income and consumption data In Exhibit 15-1, when disposable income is increased from $2,000 to $3,000 to $4,000,

Fiscal policy is the manipulation of government spending and taxes.

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? ​

Find the tax multiplier if the MPC is 0.75.

Exhibit 15-7 Aggregate demand and supply model Beginning at equilibrium E1 in Exhibit 15-7, assume the marginal propensity to consume (MPC) is 0.90 and the government increases taxes by $100 billion. The aggregate demand curve will shift to the:

If an inflationary boom exists, the appropriate fiscal policy is to:

Which of the following would most likely occur if the federal government increased its spending and enlarged the size of the budget deficit during a period of full employment?

Exhibit 15-1 Disposable income and consumption data In Exhibit 15-1, when disposable income (Y) is increased from $1,000 to $2,000, the marginal propensity to consume is:

Assume the marginal propensity to consume (MPC) is 0.80 and the government cuts taxes by $100 billion. The aggregate demand curve will shift to the:

Assume that an economy's real GDP multiplier is 4. If this economy is in equilibrium at $2,000 billion, then which one of the following actions will bring it to a full-employment equilibrium of $1,500 billion?

Exhibit 15-3 Aggregate demand and supply model Beginning at equilibrium E1 in Exhibit 15-3, when the government increases spending or cuts taxes the economy will experience:

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

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

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?

Exhibit 15-7 Aggregate demand and supply model Beginning at equilibrium E₁ in Exhibit 15-7, assume the marginal propensity to consume (MPC) is 0.90 and the government increases taxes by $100 billion. The aggregate demand curve will shift to the:

Exhibit 15-3 Aggregate demand and supply model Beginning at equilibrium E₁ in Exhibit 15-3, when the government increases spending or cuts taxes the economy will experience: