Question 1

_____ refers to the changes in government spending and taxation that are aimed at achieving a policy goal.

Accepted Answer

A)  Discretionary monetary policy 
B)  Discretionary fiscal policy 
C)  Discretionary foreign trade policy 
D)  Discretionary exchange rate policy 
E)  Discretionary interest rate policy 
A)  Discretionary monetary policy 
B)  Discretionary fiscal policy 
C)  Discretionary foreign trade policy 
D)  Discretionary exchange rate policy 
E)  Discretionary interest rate policy B

Question 2

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

Accepted Answer

A) True 
 B)False  False

Question 3

Which of the following is true of U.S. national debt between 1958 and 2010?

Accepted Answer

A)  Total debt in the U.S. crossed $104 trillion in 2009. 
B)  Debt as a percentage of GDP was the highest in the year 1978. 
C)  Net interest payable by the U.S. government was the highest in the year 1990. 
D)  Interest payment as a percentage of total government spending was the highest in 2009. 
E)  Net interest payable by the U.S. government crossed $250 billion in 2009. 
A)  Total debt in the U.S. crossed $104 trillion in 2009. 
B)  Debt as a percentage of GDP was the highest in the year 1978. 
C)  Net interest payable by the U.S. government was the highest in the year 1990. 
D)  Interest payment as a percentage of total government spending was the highest in 2009. 
E)  Net interest payable by the U.S. government crossed $250 billion in 2009. A

Question 4

If government spending in a country declines by $10 billion and, at the same time, taxes increase by an equal amount, what is the total effect in the economy?

Accepted Answer

A)  Equilibrium real GDP increases 
B)  Equilibrium real GDP increases by $20 billion 
C)  Equilibrium real GDP is unchanged 
D)  Equilibrium real GDP decreases by more than $10 billion and less than $20 billion 
E)  Equilibrium real GDP decreases by more than $20 billion 
A)  Equilibrium real GDP increases 
B)  Equilibrium real GDP increases by $20 billion 
C)  Equilibrium real GDP is unchanged 
D)  Equilibrium real GDP decreases by more than $10 billion and less than $20 billion 
E)  Equilibrium real GDP decreases by more than $20 billion

Question 5

Higher taxes affect real GDP indirectly through both the consumption channel and the output supply channel.

Accepted Answer

A) True 
 B)False

Question 6

The U.S. government deficit as a percentage of GDP was much larger during World War II than it was in the 1980s and 1990s.

Accepted Answer

A) True 
 B)False

Question 7

Assume that fewer businesses offer new bonds to raise investment funds when government borrowing increases interest rates. This would be an example of:

Accepted Answer

A)  Ricardian equivalence. 
B)  overestimating the tax multiplier. 
C)  crowding out. 
D)  increased consumption. 
E)  the balanced-budget multiplier. 
A)  Ricardian equivalence. 
B)  overestimating the tax multiplier. 
C)  crowding out. 
D)  increased consumption. 
E)  the balanced-budget multiplier.

Question 8

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

Question 9

_____, the lesser will be the effect of an increase in government spending on real GDP.

Accepted Answer

A)  The smaller the crowding-out effect 
B)  The smaller the percentage of government spending financed by tax increases 
C)  The larger the government budget surplus 
D)  The more rapidly money is converted into goods 
E)  The steeper the aggregate supply curve 
A)  The smaller the crowding-out effect 
B)  The smaller the percentage of government spending financed by tax increases 
C)  The larger the government budget surplus 
D)  The more rapidly money is converted into goods 
E)  The steeper the aggregate supply curve

Question 10

The figure given below depicts the tax revenue for different tax rates applied by the government.?Figure 11.2
  
-Refer to Figure 11.2. If you were a member of the Congress that aims to increase tax revenue collections, what would you recommend if the current tax rate was 80 percent?

Accepted Answer

A)  Increasing the tax rate to 100 percent 
B)  Decreasing the tax rate to 30 percent 
C)  Decreasing the tax rate to 70 percent 
D)  Increasing the tax rate to 90 percent 
E)  Decreasing the tax rate to zero percent 
A)  Increasing the tax rate to 100 percent 
B)  Decreasing the tax rate to 30 percent 
C)  Decreasing the tax rate to 70 percent 
D)  Increasing the tax rate to 90 percent 
E)  Decreasing the tax rate to zero percent

Question 11

If consumers spend _____ of a change in their disposable income, then a tax increase of $100 would lower consumption by $70.

Accepted Answer

A)  35 percent 
B)  100 percent 
C)  80 percent 
D)  70 percent 
E)  50 percent 
A)  35 percent 
B)  100 percent 
C)  80 percent 
D)  70 percent 
E)  50 percent

Question 12

A balanced budget would not affect income because an increase in government spending is exactly matched by an increase in taxes.

Accepted Answer

A) True 
 B)False

Question 13

Most industrial countries have adopted the regressive tax system.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is true about automatic stabilizers?

Accepted Answer

A)  Automatic stabilizers are a part of discretionary fiscal policy. 
B)  The federal funds rate is an example of an automatic stabilizer. 
C)  An automatic stabilizer is any program that responds to fluctuations in the business cycle in a way that moderates the effects of those fluctuations. 
D)  Any kind of trade policy adopted by the government will be considered as an automatic stabilizer. 
E)  When income rises, automatic stabilizers increase/boost spending. 
A)  Automatic stabilizers are a part of discretionary fiscal policy. 
B)  The federal funds rate is an example of an automatic stabilizer. 
C)  An automatic stabilizer is any program that responds to fluctuations in the business cycle in a way that moderates the effects of those fluctuations. 
D)  Any kind of trade policy adopted by the government will be considered as an automatic stabilizer. 
E)  When income rises, automatic stabilizers increase/boost spending.

Question 15

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

Question 16

Which of the following would not be considered an indirect tax?

Accepted Answer

A)  A value-added tax 
B)  A tax on wheat export 
C)  A tax on imported automobiles 
D)  A tax on the income of a computer manufacturer 
E)  A sales tax on cigarettes 
A)  A value-added tax 
B)  A tax on wheat export 
C)  A tax on imported automobiles 
D)  A tax on the income of a computer manufacturer 
E)  A sales tax on cigarettes

Question 17

The figure given below shows the macroeconomic equilibria of a country.?Figure 11.1
  
-Refer to Figure 11.1. A decrease in government spending would be most effective in reducing the price level if:

Accepted Answer

A)  the economy were in equilibrium at point A. 
B)  the economy were in equilibrium at point B. 
C)  there is a rightward shift in the aggregate supply curve. 
D)  the economy were in equilibrium at point C. 
E)  there is a leftward shift in the aggregate supply curve. 
A)  the economy were in equilibrium at point A. 
B)  the economy were in equilibrium at point B. 
C)  there is a rightward shift in the aggregate supply curve. 
D)  the economy were in equilibrium at point C. 
E)  there is a leftward shift in the aggregate supply curve.

Question 18

_____ are elements of fiscal policy that automatically change in value as national income changes.

Accepted Answer

A)  Statistical discrepancies 
B)  Exchange rates 
C)  Budget deficits 
D)  Automatic stabilizers 
E)  Supply-side shocks 
A)  Statistical discrepancies 
B)  Exchange rates 
C)  Budget deficits 
D)  Automatic stabilizers 
E)  Supply-side shocks

Question 19

Transfer payments that use income to establish eligibility act as automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 20

In the presence of the crowding out effect, the purchase of Treasury bonds by the government will result in:

Accepted Answer

A)  an increase in the interest rates. 
B)  a decrease in the price of bonds. 
C)  a decline in the private sector spending. 
D)  an increase in the private sector spending. 
E)  a decrease in the rate of inflation. 
A)  an increase in the interest rates. 
B)  a decrease in the price of bonds. 
C)  a decline in the private sector spending. 
D)  an increase in the private sector spending. 
E)  a decrease in the rate of inflation.

Exam 11: Fiscal Policy

_____ refers to the changes in government spending and taxation that are aimed at achieving a policy goal.

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

Which of the following is true of U.S. national debt between 1958 and 2010?

If government spending in a country declines by $10 billion and, at the same time, taxes increase by an equal amount, what is the total effect in the economy?

Higher taxes affect real GDP indirectly through both the consumption channel and the output supply channel.

The U.S. government deficit as a percentage of GDP was much larger during World War II than it was in the 1980s and 1990s.

Assume that fewer businesses offer new bonds to raise investment funds when government borrowing increases interest rates. This would be an example of:

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.

_____, the lesser will be the effect of an increase in government spending on real GDP.

The figure given below depicts the tax revenue for different tax rates applied by the government.?Figure 11.2 -Refer to Figure 11.2. If you were a member of the Congress that aims to increase tax revenue collections, what would you recommend if the current tax rate was 80 percent?

If consumers spend _____ of a change in their disposable income, then a tax increase of $100 would lower consumption by $70.

A balanced budget would not affect income because an increase in government spending is exactly matched by an increase in taxes.

Most industrial countries have adopted the regressive tax system.

Which of the following is true about automatic stabilizers?

Which of the following constitutes a transfer payment?

Which of the following would not be considered an indirect tax?

The figure given below shows the macroeconomic equilibria of a country.?Figure 11.1 -Refer to Figure 11.1. A decrease in government spending would be most effective in reducing the price level if:

_____ are elements of fiscal policy that automatically change in value as national income changes.

Transfer payments that use income to establish eligibility act as automatic stabilizers.

In the presence of the crowding out effect, the purchase of Treasury bonds by the government will result in:

The Wealth of Nations: Ownership and Economic Freedom

Scarcity and Opportunity Costs

The Market and Price System

The Aggregate Economy

National Income Accounting

An Introduction to the Foreign Exchapterange 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

Exchapterange Rates and Financial Links Between Countries

Filters