Question 1

Which of the following statements is true of government spending?

Accepted Answer

A)  An increase in government spending raises the equilibrium level of income by a multiple of the original spending increase. 
B)  Government spending is a part of monetary policy, not fiscal policy. 
C)  A decline in government spending brings about an expansion in the economy. 
D)  An increase in government spending increases the recessionary gap in the economy. 
E)  An increase in government spending shifts the aggregate demand curve downward by a fraction of the rise in government spending. 
A)  An increase in government spending raises the equilibrium level of income by a multiple of the original spending increase. 
B)  Government spending is a part of monetary policy, not fiscal policy. 
C)  A decline in government spending brings about an expansion in the economy. 
D)  An increase in government spending increases the recessionary gap in the economy. 
E)  An increase in government spending shifts the aggregate demand curve downward by a fraction of the rise in government spending.

Question 2

Fiscal policy is most effective in controlling inflation when the economy operates in the _____ region of the aggregate supply curve.

Accepted Answer

A)  horizontal 
B)  vertical 
C)  upward rising 
D)  downward sloping 
E)  backward bending 
A)  horizontal 
B)  vertical 
C)  upward rising 
D)  downward sloping 
E)  backward bending

Question 3

Compared to the government in a typical industrial country, the government in a typical developing country:

Accepted Answer

A)  plays the same role in investment spending. 
B)  plays a larger role in investment spending. 
C)  plays a smaller role in investment spending. 
D)  plays no role in investment spending. 
E)  plays a more negative role in investment spending. 
A)  plays the same role in investment spending. 
B)  plays a larger role in investment spending. 
C)  plays a smaller role in investment spending. 
D)  plays no role in investment spending. 
E)  plays a more negative role in investment spending.

Question 4

Under a progressive tax system:

Accepted Answer

A)  the average tax rate increases with increases in real GDP. 
B)  the average tax rate remains constant with changes in real GDP. 
C)  the average tax rate falls with increases in real GDP. 
D)  government tax receipts increase when the economy is in a recession. 
E)  government tax receipts decrease when the economy is expanding. 
A)  the average tax rate increases with increases in real GDP. 
B)  the average tax rate remains constant with changes in real GDP. 
C)  the average tax rate falls with increases in real GDP. 
D)  government tax receipts increase when the economy is in a recession. 
E)  government tax receipts decrease when the economy is expanding.

Question 5

The figure given below shows the macroeconomic equilibria of a country.?Figure 11.1
  
-Refer to Figure 11.1. If the economy is in equilibrium at point C, then, other things equal, an increase in government spending will:

Accepted Answer

A)  decrease the price level. 
B)  lower real GDP and leave the price level unchanged. 
C)  lower real GDP and increase the price level. 
D)  increase the price level and leave real GDP unchanged. 
E)  have no effect on real GDP or the price level. 
A)  decrease the price level. 
B)  lower real GDP and leave the price level unchanged. 
C)  lower real GDP and increase the price level. 
D)  increase the price level and leave real GDP unchanged. 
E)  have no effect on real GDP or the price level.

Question 6

The sum of the unemployment rate and the inflation rate is known as:

Accepted Answer

A)  the macroeconomic index. 
B)  the mortality rate. 
C)  the market index. 
D)  the misery index. 
E)  a coincident indicator. 
A)  the macroeconomic index. 
B)  the mortality rate. 
C)  the market index. 
D)  the misery index. 
E)  a coincident indicator.

Question 7

When the price level increases, the effect of a change in government spending on real GDP will be understated.

Accepted Answer

A) True 
 B)False

Question 8

Starting with a situation where there is a substantial budget deficit, when tax revenues grow faster than federal expenditures, the government will experience:

Accepted Answer

A)  a balanced budget. 
B)  an increasing national debt. 
C)  a declining budget surplus. 
D)  a declining budget deficit. 
E)  an increasing budget deficit. 
A)  a balanced budget. 
B)  an increasing national debt. 
C)  a declining budget surplus. 
D)  a declining budget deficit. 
E)  an increasing budget deficit.

Question 9

A progressive tax system is one in which the tax rate actually increases as income rises.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following does not qualify as an automatic stabilizer in the economy?

Accepted Answer

A)  Lump-sum taxes 
B)  Food stamps 
C)  Welfare payments 
D)  Progressive income taxes 
E)  Unemployment compensation 
A)  Lump-sum taxes 
B)  Food stamps 
C)  Welfare payments 
D)  Progressive income taxes 
E)  Unemployment compensation

Question 11

A drop in consumption or investment spending caused by increased government spending is referred to as:

Accepted Answer

A)  the multiplier effect. 
B)  an expansionary gap. 
C)  Ricardian equivalence. 
D)  the paradox of thrift. 
E)  crowding out. 
A)  the multiplier effect. 
B)  an expansionary gap. 
C)  Ricardian equivalence. 
D)  the paradox of thrift. 
E)  crowding out.

Question 12

Critics of the supply-side tax cuts proposed by the Reagan administration argued that lower taxes would:

Accepted Answer

A)  increase the budget deficit. 
B)  decrease money supply in the economy. 
C)  reduce the aggregate price level. 
D)  reduce the disposable income of households. 
E)  reduce the volume of international trade. 
A)  increase the budget deficit. 
B)  decrease money supply in the economy. 
C)  reduce the aggregate price level. 
D)  reduce the disposable income of households. 
E)  reduce the volume of international trade.

Question 13

Which of the following is not a means of financing government spending?

Accepted Answer

A)  Government subsidies 
B)  Personal income taxes 
C)  Printing new money 
D)  Issuing government bonds 
E)  Capital gains taxes 
A)  Government subsidies 
B)  Personal income taxes 
C)  Printing new money 
D)  Issuing government bonds 
E)  Capital gains taxes

Question 14

The flatter the aggregate supply curve, the less the amount of government spending necessary to close a $1 billion GDP gap.

Accepted Answer

A) True 
 B)False

Question 15

The ratio of U.S. government spending to GDP reached its peak during:

Accepted Answer

A)  World War I. 
B)  World War II. 
C)  the Great Depression. 
D)  the real estate crisis. 
E)  the bursting of the stock market bubble. 
A)  World War I. 
B)  World War II. 
C)  the Great Depression. 
D)  the real estate crisis. 
E)  the bursting of the stock market bubble.

Question 16

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 the tax rate were 100 percent, then:

Accepted Answer

A)  tax revenue would be maximized. 
B)  no one would be willing to work. 
C)  there would be a strong incentive to work. 
D)  tax revenue would be greater than if the tax rate were 70 percent. 
E)  tax revenue would be less than if the tax rate were zero percent. 
A)  tax revenue would be maximized. 
B)  no one would be willing to work. 
C)  there would be a strong incentive to work. 
D)  tax revenue would be greater than if the tax rate were 70 percent. 
E)  tax revenue would be less than if the tax rate were zero percent.

Question 17

Which of the following can be considered as an automatic stabilizer in the economy?

Accepted Answer

A)  Real exchange rate 
B)  Real interest rate 
C)  Unemployment insurance 
D)  Money supply 
E)  Disposable income 
A)  Real exchange rate 
B)  Real interest rate 
C)  Unemployment insurance 
D)  Money supply 
E)  Disposable income

Question 18

If the private sector anticipates higher future taxes as a result of a current budget deficit, current autonomous saving will decline.

Accepted Answer

A) True 
 B)False

Question 19

If all U.S. government bonds are held by U.S. citizens, then:

Accepted Answer

A)  the bondholders will not earn interest on the bonds. 
B)  there is no tax liability for funding the U.S. government's debt. 
C)  there is no net change in national wealth when the national debt changes. 
D)  the tax liability for funding the debt is not offset by the interest earnings of bondholders. 
E)  the tax rates are not increased to repay the outstanding debts. 
A)  the bondholders will not earn interest on the bonds. 
B)  there is no tax liability for funding the U.S. government's debt. 
C)  there is no net change in national wealth when the national debt changes. 
D)  the tax liability for funding the debt is not offset by the interest earnings of bondholders. 
E)  the tax rates are not increased to repay the outstanding debts.

Question 20

Suppose the real interest rate in the economy is 3% and the nominal interest rate is 6%, what is the current inflation rate?

Accepted Answer

A)  18% 
B)  9% 
C)  2% 
D)  3% 
E)  2.5% 
A)  18% 
B)  9% 
C)  2% 
D)  3% 
E)  2.5%

Exam 11: Fiscal Policy

Which of the following statements is true of government spending?

Fiscal policy is most effective in controlling inflation when the economy operates in the _____ region of the aggregate supply curve.

Compared to the government in a typical industrial country, the government in a typical developing country:

Under a progressive tax system:

The figure given below shows the macroeconomic equilibria of a country.?Figure 11.1 -Refer to Figure 11.1. If the economy is in equilibrium at point C, then, other things equal, an increase in government spending will:

The sum of the unemployment rate and the inflation rate is known as:

When the price level increases, the effect of a change in government spending on real GDP will be understated.

Starting with a situation where there is a substantial budget deficit, when tax revenues grow faster than federal expenditures, the government will experience:

A progressive tax system is one in which the tax rate actually increases as income rises.

Which of the following does not qualify as an automatic stabilizer in the economy?

A drop in consumption or investment spending caused by increased government spending is referred to as:

Critics of the supply-side tax cuts proposed by the Reagan administration argued that lower taxes would:

Which of the following is not a means of financing government spending?

The flatter the aggregate supply curve, the less the amount of government spending necessary to close a $1 billion GDP gap.

The ratio of U.S. government spending to GDP reached its peak during:

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 the tax rate were 100 percent, then:

Which of the following can be considered as an automatic stabilizer in the economy?

If the private sector anticipates higher future taxes as a result of a current budget deficit, current autonomous saving will decline.

If all U.S. government bonds are held by U.S. citizens, then:

Suppose the real interest rate in the economy is 3% and the nominal interest rate is 6%, what is the current inflation rate?

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

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