Question 1

Fiscal stimulus is most likely to direct resources into productive projects when spending decisions are left in the hands of

Accepted Answer

A)  government agencies. 
B)  consumers. 
C)  Congress. 
D)  lobbyists and special-interest groups. 
A)  government agencies. 
B)  consumers. 
C)  Congress. 
D)  lobbyists and special-interest groups.

Question 2

Between 1986 and 2010, the top marginal personal income tax rate was 40 percent or less compared to 70 percent or more prior to 1981.  Compared to the earlier time period, in recent years the share of personal income taxes paid by high income taxpayers

Accepted Answer

A)  has been lower. 
B)  has been virtually unchanged. 
C)  has been higher. 
D)  increased in the late 1980s, but has been falling ever since. 
A)  has been lower. 
B)  has been virtually unchanged. 
C)  has been higher. 
D)  increased in the late 1980s, but has been falling ever since.

Question 3

A supply-side economist would stress which of the following attributes of fiscal policy?

Accepted Answer

A)  the impact of marginal tax rates on the supply and productivity of resources 
B)  the impact of government spending on aggregate demand, output, and employment 
C)  the impact of budget deficits on interest rates and aggregate demand 
D)  the impact of budget deficits on the rate of taxation in the future 
A)  the impact of marginal tax rates on the supply and productivity of resources 
B)  the impact of government spending on aggregate demand, output, and employment 
C)  the impact of budget deficits on interest rates and aggregate demand 
D)  the impact of budget deficits on the rate of taxation in the future

Question 4

The crowding-out effect indicates that budget deficits

Accepted Answer

A)  will stimulate aggregate demand and, therefore, exert a strong impact on output and employment. 
B)  will lead to additional borrowing and higher interest rates that will reduce the level of private spending. 
C)  are highly appropriate when the threat of inflation is present. 
D)  are highly appropriate when the threat of recession is present. 
A)  will stimulate aggregate demand and, therefore, exert a strong impact on output and employment. 
B)  will lead to additional borrowing and higher interest rates that will reduce the level of private spending. 
C)  are highly appropriate when the threat of inflation is present. 
D)  are highly appropriate when the threat of recession is present.

Question 5

According to the Keynesian view, the large budget deficits of 2008-2015 resulted in

Accepted Answer

A)  an increase in aggregate supply during that period. 
B)  weak aggregate demand and a continuation of recessionary conditions. 
C)  an increase in aggregate demand and higher real output during that period. 
D)  higher interest rates and taxes that slowed economic growth. 
A)  an increase in aggregate supply during that period. 
B)  weak aggregate demand and a continuation of recessionary conditions. 
C)  an increase in aggregate demand and higher real output during that period. 
D)  higher interest rates and taxes that slowed economic growth.

Question 6

Which of the following will be most likely to dampen the expansionary effects of an increase in government spending financed by borrowing?

Accepted Answer

A)  The budget deficit will cause business decision makers to become more optimistic. 
B)  The increase in demand for loanable funds as the result of borrowing will cause interest rates to rise and private investment to fall. 
C)  The increase in government spending will cause the money supply to expand, thereby causing an inflationary boom. 
D)  The additional borrowing will cause the central bank to buy more bonds, which will reduce aggregate demand. 
A)  The budget deficit will cause business decision makers to become more optimistic. 
B)  The increase in demand for loanable funds as the result of borrowing will cause interest rates to rise and private investment to fall. 
C)  The increase in government spending will cause the money supply to expand, thereby causing an inflationary boom. 
D)  The additional borrowing will cause the central bank to buy more bonds, which will reduce aggregate demand.

Question 7

Use the figure below to answer the following question(s). Figure 12-2
  Refer to Figure 12-2. When the economy is operating at point a, reliance on the self-correcting mechanism will

Accepted Answer

A)  result in higher resource prices and a shift to the left in the SRAS curve. 
B)  result in lower resource prices and a shift to the right in the SRAS curve. 
C)  lead to lower interest rates and a shift to the right in the AD curve. 
D)  lead to higher interest rates and a shift to the left in the AD curve. 
E)  do both b and c. 
A)  result in higher resource prices and a shift to the left in the SRAS curve. 
B)  result in lower resource prices and a shift to the right in the SRAS curve. 
C)  lead to lower interest rates and a shift to the right in the AD curve. 
D)  lead to higher interest rates and a shift to the left in the AD curve. 
E)  do both b and c.

Question 8

Both the crowding-out effect and new classical model indicate that

Accepted Answer

A)  expansionary fiscal policy is a highly effective weapon with which to fight an economic downturn. 
B)  restrictive fiscal policy is a highly effective weapon with which to control inflation caused by excess demand. 
C)  there are side effects of budget deficits that will substantially, if not entirely, offset their expansionary impact on aggregate demand. 
D)  fiscal policy can be used effectively to restrain inflation but it is largely ineffective as a weapon against recession. 
A)  expansionary fiscal policy is a highly effective weapon with which to fight an economic downturn. 
B)  restrictive fiscal policy is a highly effective weapon with which to control inflation caused by excess demand. 
C)  there are side effects of budget deficits that will substantially, if not entirely, offset their expansionary impact on aggregate demand. 
D)  fiscal policy can be used effectively to restrain inflation but it is largely ineffective as a weapon against recession.

Question 9

It will be difficult to institute fiscal policy in a stabilizing manner because politicians will find

Accepted Answer

A)  it more attractive to raise taxes than to increase spending. 
B)  it attractive to increase taxes during a recession, but they will be reluctant to reduce them during an expansion. 
C)  budget deficits attractive during a recession, but they will be reluctant to run budget surpluses during an expansion. 
D)  budget surpluses attractive during a recession, but they will be reluctant to run budget deficits during an expansion. 
A)  it more attractive to raise taxes than to increase spending. 
B)  it attractive to increase taxes during a recession, but they will be reluctant to reduce them during an expansion. 
C)  budget deficits attractive during a recession, but they will be reluctant to run budget surpluses during an expansion. 
D)  budget surpluses attractive during a recession, but they will be reluctant to run budget deficits during an expansion.

Question 10

Which of the following best explains why high marginal tax rates retard output?

Accepted Answer

A)  High marginal tax rates reduce the incentive to earn, invest, and use resources efficiently. 
B)  High marginal tax rates will encourage foreign investment. 
C)  High marginal tax rates will reduce budget deficits and lower interest rates. 
D)  High marginal tax rates encourage people to substitute more-desired nondeductible goods for less-desired tax-deductible goods. 
A)  High marginal tax rates reduce the incentive to earn, invest, and use resources efficiently. 
B)  High marginal tax rates will encourage foreign investment. 
C)  High marginal tax rates will reduce budget deficits and lower interest rates. 
D)  High marginal tax rates encourage people to substitute more-desired nondeductible goods for less-desired tax-deductible goods.

Question 11

Which one of the following is an area of agreement among modern macroeconomists with regard to the use of fiscal policy?

Accepted Answer

A)  Congressional action is necessary if automatic stabilizers are going to be an effective stabilization tool. 
B)  It is difficult to time changes in discretionary fiscal policy in a manner that will promote stability. 
C)  Fiscal policy is more potent than the early Keynesian view implied. 
D)  Budget deficits are a highly effective tool with which to combat a severe recession. 
A)  Congressional action is necessary if automatic stabilizers are going to be an effective stabilization tool. 
B)  It is difficult to time changes in discretionary fiscal policy in a manner that will promote stability. 
C)  Fiscal policy is more potent than the early Keynesian view implied. 
D)  Budget deficits are a highly effective tool with which to combat a severe recession.

Question 12

Which of the following best describes the crowding-out effect?

Accepted Answer

A)  An increase in government expenditures will cause taxes to rise, which will reduce both aggregate demand and output. 
B)  An increase in borrowing by the government will push interest rates upward, which will lead to a reduction in private spending. 
C)  An increase in borrowing by the government will decrease the money supply and, thereby, reduce aggregate demand. 
D)  An increase in government expenditures will cause the general level of prices to fall and, thereby, reduce aggregate demand and output. 
A)  An increase in government expenditures will cause taxes to rise, which will reduce both aggregate demand and output. 
B)  An increase in borrowing by the government will push interest rates upward, which will lead to a reduction in private spending. 
C)  An increase in borrowing by the government will decrease the money supply and, thereby, reduce aggregate demand. 
D)  An increase in government expenditures will cause the general level of prices to fall and, thereby, reduce aggregate demand and output.

Question 13

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax change smaller than would otherwise be the case?

Accepted Answer

A)  the multiplier effect 
B)  the crowding-out effect 
C)  expansionary monetary policy 
D)  None of the above is correct. 
A)  the multiplier effect 
B)  the crowding-out effect 
C)  expansionary monetary policy 
D)  None of the above is correct.

Question 14

Supply-side economics stresses that

Accepted Answer

A)  budget deficits will stimulate demand, output, and employment. 
B)  budget deficits will lead to higher interest rates, which will weaken their expansionary impact. 
C)  an increase in government expenditures financed by higher tax rates will cause real income to rise. 
D)  changes in marginal tax rates exert important effects on real output and employment. 
A)  budget deficits will stimulate demand, output, and employment. 
B)  budget deficits will lead to higher interest rates, which will weaken their expansionary impact. 
C)  an increase in government expenditures financed by higher tax rates will cause real income to rise. 
D)  changes in marginal tax rates exert important effects on real output and employment.

Question 15

The incentive to consume tax-deductible goods, instead of nondeductible goods, increases when

Accepted Answer

A)  marginal tax rates are high. 
B)  marginal tax rates are low. 
C)  the inflation rate is low and relatively stable. 
D)  This is a trick question: the consumption of tax-deductible goods is not affected by marginal tax rates. 
A)  marginal tax rates are high. 
B)  marginal tax rates are low. 
C)  the inflation rate is low and relatively stable. 
D)  This is a trick question: the consumption of tax-deductible goods is not affected by marginal tax rates.

Question 16

If there is an increase in foreign financial investment in the United States as the result of large U.S. budget deficits and attractive interest yields,

Accepted Answer

A)  fiscal policy will be more expansionary since there will be no crowding-out effect. 
B)  fiscal policy will be more expansionary since U.S. residents will increase their savings, so they can repay the foreigners in the future. 
C)  foreign exchange value of the dollar will depreciate, which will lead to an increase in net exports and aggregate demand. 
D)  foreign exchange value of the dollar will appreciate, which will lead to a decrease in net exports and aggregate demand. 
A)  fiscal policy will be more expansionary since there will be no crowding-out effect. 
B)  fiscal policy will be more expansionary since U.S. residents will increase their savings, so they can repay the foreigners in the future. 
C)  foreign exchange value of the dollar will depreciate, which will lead to an increase in net exports and aggregate demand. 
D)  foreign exchange value of the dollar will appreciate, which will lead to a decrease in net exports and aggregate demand.

Question 17

Which of the following is true of government debt?

Accepted Answer

A)  The interest payments on federal bonds held by Americans will be paid to investors in other countries. 
B)  The share of the federal debt held by foreigners has declined from 34 percent of GDP in 1990 to less than 10 percent of GDP in 2015. 
C)  Between 2000 and 2015, federal debt owed to foreigners has risen from approximately 10 percent to 34 percent of GDP. 
D)  Less than 5 percent of the federal debt is owed to foreigners. 
A)  The interest payments on federal bonds held by Americans will be paid to investors in other countries. 
B)  The share of the federal debt held by foreigners has declined from 34 percent of GDP in 1990 to less than 10 percent of GDP in 2015. 
C)  Between 2000 and 2015, federal debt owed to foreigners has risen from approximately 10 percent to 34 percent of GDP. 
D)  Less than 5 percent of the federal debt is owed to foreigners.

Question 18

Keynesian economists argue that during a recession

Accepted Answer

A)  private sector spending will  rise  and therefore government spending should be reduced in order to help maintain aggregate demand at or near the full employment level. 
B)  private sector spending will  decline, and therefore government spending should increase in order to help maintain a high level  of aggregate demand. 
C)  private sector spending will  decline, and therefore government spending should be reduced in order to avoid the crowding out of  still more private  sector spending. 
D)  private sector spending will  rise  and therefore government spending should be increased in order to provide more stimulus for the economy. 
A)  private sector spending will  rise  and therefore government spending should be reduced in order to help maintain aggregate demand at or near the full employment level. 
B)  private sector spending will  decline, and therefore government spending should increase in order to help maintain a high level  of aggregate demand. 
C)  private sector spending will  decline, and therefore government spending should be reduced in order to avoid the crowding out of  still more private  sector spending. 
D)  private sector spending will  rise  and therefore government spending should be increased in order to provide more stimulus for the economy.

Question 19

The persistence of budget deficits during the last several decades is not surprising because politicians will find

Accepted Answer

A)  budget surpluses more attractive than budget deficits. 
B)  tax increases more attractive than increases in government expenditures. 
C)  budget deficits more attractive than budget surpluses. 
D)  reductions in government expenditures more attractive than tax reductions. 
A)  budget surpluses more attractive than budget deficits. 
B)  tax increases more attractive than increases in government expenditures. 
C)  budget deficits more attractive than budget surpluses. 
D)  reductions in government expenditures more attractive than tax reductions.

Question 20

Which of the following makes it more likely that a country will get caught in a vicious circle of debt financing, higher taxes, and sluggish growth?

Accepted Answer

A)  Politicians like to raise taxes, but they are reluctant to spend on education, health care, and roads. 
B)  High levels of debt will eventually lead to higher taxes just  to pay the interest on the debt, but high taxes will slow economic growth. 
C)  As outstanding debt increases, politicians will be reluctant to run budget deficits, which will cause the economy to slow. 
D)  As outstanding debt increases, short-sighted politicians will want to run large budget surpluses in order to pay off the national debt quickly. 
A)  Politicians like to raise taxes, but they are reluctant to spend on education, health care, and roads. 
B)  High levels of debt will eventually lead to higher taxes just  to pay the interest on the debt, but high taxes will slow economic growth. 
C)  As outstanding debt increases, politicians will be reluctant to run budget deficits, which will cause the economy to slow. 
D)  As outstanding debt increases, short-sighted politicians will want to run large budget surpluses in order to pay off the national debt quickly.

Fiscal stimulus is most likely to direct resources into productive projects when spending decisions are left in the hands of

Between 1986 and 2010, the top marginal personal income tax rate was 40 percent or less compared to 70 percent or more prior to 1981. Compared to the earlier time period, in recent years the share of personal income taxes paid by high income taxpayers

A supply-side economist would stress which of the following attributes of fiscal policy?

The crowding-out effect indicates that budget deficits

According to the Keynesian view, the large budget deficits of 2008-2015 resulted in

Which of the following will be most likely to dampen the expansionary effects of an increase in government spending financed by borrowing?

Use the figure below to answer the following question(s). Figure 12-2 Refer to Figure 12-2. When the economy is operating at point a, reliance on the self-correcting mechanism will

Both the crowding-out effect and new classical model indicate that

It will be difficult to institute fiscal policy in a stabilizing manner because politicians will find

Which of the following best explains why high marginal tax rates retard output?

Which one of the following is an area of agreement among modern macroeconomists with regard to the use of fiscal policy?

Which of the following best describes the crowding-out effect?

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax change smaller than would otherwise be the case?

Supply-side economics stresses that

The incentive to consume tax-deductible goods, instead of nondeductible goods, increases when

If there is an increase in foreign financial investment in the United States as the result of large U.S. budget deficits and attractive interest yields,

Which of the following is true of government debt?

Keynesian economists argue that during a recession

The persistence of budget deficits during the last several decades is not surprising because politicians will find

Which of the following makes it more likely that a country will get caught in a vicious circle of debt financing, higher taxes, and sluggish growth?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

Exam 12: Fiscal Policy: Incentives, and Secondary Effects

Fiscal stimulus is most likely to direct resources into productive projects when spending decisions are left in the hands of

Between 1986 and 2010, the top marginal personal income tax rate was 40 percent or less compared to 70 percent or more prior to 1981. Compared to the earlier time period, in recent years the share of personal income taxes paid by high income taxpayers

A supply-side economist would stress which of the following attributes of fiscal policy?

The crowding-out effect indicates that budget deficits

According to the Keynesian view, the large budget deficits of 2008-2015 resulted in

Which of the following will be most likely to dampen the expansionary effects of an increase in government spending financed by borrowing?

Use the figure below to answer the following question(s). Figure 12-2 Refer to Figure 12-2. When the economy is operating at point a, reliance on the self-correcting mechanism will

Both the crowding-out effect and new classical model indicate that

It will be difficult to institute fiscal policy in a stabilizing manner because politicians will find

Which of the following best explains why high marginal tax rates retard output?

Which one of the following is an area of agreement among modern macroeconomists with regard to the use of fiscal policy?

Which of the following best describes the crowding-out effect?

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax change smaller than would otherwise be the case?

Supply-side economics stresses that

The incentive to consume tax-deductible goods, instead of nondeductible goods, increases when

If there is an increase in foreign financial investment in the United States as the result of large U.S. budget deficits and attractive interest yields,

Which of the following is true of government debt?

Keynesian economists argue that during a recession

The persistence of budget deficits during the last several decades is not surprising because politicians will find

Which of the following makes it more likely that a country will get caught in a vicious circle of debt financing, higher taxes, and sluggish growth?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters