Question 1

Recent studies on the effectiveness of fiscal policy tend to suggest that increases in government spending are more effective than tax cuts in stimulating real GDP.

Accepted Answer

A) True 
 B)False

Question 2

Military spending is a good example of an automatic stabilizer.

Accepted Answer

A) True 
 B)False

Question 3

After a substantial tax rebate program in early 2008, surveys showed that most households _____

Accepted Answer

A)  spent the tax rebate. 
B)  saved the tax rebate or paid down debt. 
C)  spent the tax rebate and took on more debt. 
D)  looked on the tax rebate as permanent income. 
E)  looked on the tax rebate as permanent income only if was large. 
A)  spent the tax rebate. 
B)  saved the tax rebate or paid down debt. 
C)  spent the tax rebate and took on more debt. 
D)  looked on the tax rebate as permanent income. 
E)  looked on the tax rebate as permanent income only if was large.

Question 4

Exhibit 11.1
  
-Refer to Exhibit 11.1, which shows the relationship between the price level and the real GDP. Which of the following sets of policies would unambiguously move the economy to full employment?

Accepted Answer

A)  increase in government purchases, increase in taxes, and decrease in transfer payments 
B)  decrease in government purchases, increase in taxes, and decrease in transfer payments 
C)  increase in government purchases, decrease in taxes, and increase in transfer payments 
D)  increase in government purchases, increase in taxes, and increase in transfer payments 
E)  decrease in government purchases, decrease in taxes, and decrease in transfer payments 
A)  increase in government purchases, increase in taxes, and decrease in transfer payments 
B)  decrease in government purchases, increase in taxes, and decrease in transfer payments 
C)  increase in government purchases, decrease in taxes, and increase in transfer payments 
D)  increase in government purchases, increase in taxes, and increase in transfer payments 
E)  decrease in government purchases, decrease in taxes, and decrease in transfer payments

Question 5

Because the income tax structure is progressive, the amount of taxes paid is a _____

Accepted Answer

A)  constant fraction of income throughout the business cycle. 
B)  larger fraction of income in expansions than in contractions. 
C)  smaller fraction of income in expansions than in contractions. 
D)  decreasing function of income in both expansions and contractions. 
E)  constant amount at all levels of output and income. 
A)  constant fraction of income throughout the business cycle. 
B)  larger fraction of income in expansions than in contractions. 
C)  smaller fraction of income in expansions than in contractions. 
D)  decreasing function of income in both expansions and contractions. 
E)  constant amount at all levels of output and income.

Question 6

The U.S. federal income tax is progressive, which means that _____

Accepted Answer

A)  tax receipts grow at the same rate that income does. 
B)  tax receipts grow at the same rate that government spending does. 
C)  middle-income individuals pay more in taxes than either high-income or low-income individuals. 
D)  the tax rate decreases with increases in income. 
E)  high-income individuals are taxed at a higher rate than low-income individuals. 
A)  tax receipts grow at the same rate that income does. 
B)  tax receipts grow at the same rate that government spending does. 
C)  middle-income individuals pay more in taxes than either high-income or low-income individuals. 
D)  the tax rate decreases with increases in income. 
E)  high-income individuals are taxed at a higher rate than low-income individuals.

Question 7

Which of the following groups did Clinton target after his stimulus package failed in 1993?

Accepted Answer

A)  high-income households 
B)  low-income households 
C)  foreign investors 
D)  only industrial workers 
E)  households with the lowest MPC 
A)  high-income households 
B)  low-income households 
C)  foreign investors 
D)  only industrial workers 
E)  households with the lowest MPC

Question 8

People will be likely to spend a smaller percentage of any additional income when _____

Accepted Answer

A)  they believe that the increase is permanent. 
B)  they believe that the increase is temporary. 
C)  the increase is large. 
D)  the increase is small. 
E)  interest rates on savings accounts are rising. 
A)  they believe that the increase is permanent. 
B)  they believe that the increase is temporary. 
C)  the increase is large. 
D)  the increase is small. 
E)  interest rates on savings accounts are rising.

Question 9

Which of the following is a difference between the theories of John Maynard Keynes and the classical economists?

Accepted Answer

A)  Unlike Keynesian economists, classical economists believed that unemployment was a serious long-term problem. 
B)  Unlike Keynesian economists, classical economists advocated that the economy was always in equilibrium. 
C)  Unlike Keynesian economists, classical economists believed that the economy would always settle at full employment. 
D)  Unlike Keynesian economists, classical economists did not believe that the economy was always in equilibrium. 
E)  Unlike Keynesian economists, classical economists believed a glut created an unemployment problem for the economy. 
A)  Unlike Keynesian economists, classical economists believed that unemployment was a serious long-term problem. 
B)  Unlike Keynesian economists, classical economists advocated that the economy was always in equilibrium. 
C)  Unlike Keynesian economists, classical economists believed that the economy would always settle at full employment. 
D)  Unlike Keynesian economists, classical economists did not believe that the economy was always in equilibrium. 
E)  Unlike Keynesian economists, classical economists believed a glut created an unemployment problem for the economy.

Question 10

Exhibit 11.1
  
-Refer to Exhibit 11.1, which shows the relationship between the price level and the real GDP. If the government wants the economy to be at full employment, it should _____

Accepted Answer

A)  increase taxes. 
B)  decrease transfer payments. 
C)  decrease government purchases. 
D)  wait for the SRAS curve to shift to the left. 
E)  increase its purchases. 
A)  increase taxes. 
B)  decrease transfer payments. 
C)  decrease government purchases. 
D)  wait for the SRAS curve to shift to the left. 
E)  increase its purchases.

Question 11

The Golden Age of fiscal policy was during _____

Accepted Answer

A)  the 1920s. 
B)  World War II. 
C)  the Eisenhower years. 
D)  the 1960s. 
E)  the Reagan administration years. 
A)  the 1920s. 
B)  World War II. 
C)  the Eisenhower years. 
D)  the 1960s. 
E)  the Reagan administration years.

Question 12

A federal budget deficit occurs when _____

Accepted Answer

A)  there is deflation. 
B)  federal government purchases exceed net taxes. 
C)  there is inflation. 
D)  aggregate demand is greater than aggregate supply. 
E)  aggregate supply is greater than aggregate demand. 
A)  there is deflation. 
B)  federal government purchases exceed net taxes. 
C)  there is inflation. 
D)  aggregate demand is greater than aggregate supply. 
E)  aggregate supply is greater than aggregate demand.

Question 13

What happened to Lehman Brothers in September 2008?

Accepted Answer

A)  The firm was bailed out by the U.S. government. 
B)  The firm announced the largest takeover in U.S. history. 
C)  The firm announced the largest merger in U.S. history. 
D)  The firm filed for bankruptcy, which was the smallest bankruptcy in U.S. history. 
E)  The firm filed for bankruptcy, which was the largest bankruptcy in U.S. history. 
A)  The firm was bailed out by the U.S. government. 
B)  The firm announced the largest takeover in U.S. history. 
C)  The firm announced the largest merger in U.S. history. 
D)  The firm filed for bankruptcy, which was the smallest bankruptcy in U.S. history. 
E)  The firm filed for bankruptcy, which was the largest bankruptcy in U.S. history.

Question 14

Growing capital spending and privatization were two of the factors that led the U.S. economy to experience a strong recovery in 1994.

Accepted Answer

A) True 
 B)False

Question 15

Government transfer payments are a good example of an automatic stabilizer.

Accepted Answer

A) True 
 B)False

Question 16

The federal surplus grew from _____ in 1998 to _____ in 2000.

Accepted Answer

A)  $25 billion; $75 billion 
B)  $50 billion; $150 billion 
C)  $69 billion; $236 billion 
D)  $77 billion; $280 billion 
E)  $100 billion; $300 billion 
A)  $25 billion; $75 billion 
B)  $50 billion; $150 billion 
C)  $69 billion; $236 billion 
D)  $77 billion; $280 billion 
E)  $100 billion; $300 billion

Question 17

The American Recovery and Reinvestment Act passed in February 2009 was the largest measure of discretionary fiscal policy in U.S. history.

Accepted Answer

A) True 
 B)False

Question 18

Fiscal policy focuses on manipulating _____

Accepted Answer

A)  aggregate demand to smooth out business fluctuations. 
B)  aggregate supply to smooth out business fluctuations. 
C)  both aggregate supply and aggregate demand to smooth out business fluctuations. 
D)  aggregate demand to stimulate the economy and aggregate supply to contract it. 
E)  short-run aggregate supply to stimulate the economy and aggregate demand to contract it. 
A)  aggregate demand to smooth out business fluctuations. 
B)  aggregate supply to smooth out business fluctuations. 
C)  both aggregate supply and aggregate demand to smooth out business fluctuations. 
D)  aggregate demand to stimulate the economy and aggregate supply to contract it. 
E)  short-run aggregate supply to stimulate the economy and aggregate demand to contract it.

Question 19

Suppose government purchases increase by $100 million in an economy, which leads to total output increasing by $500 million. The size of the multiplier is _____

Accepted Answer

A)  $400. 
B)  5. 
C)  $500. 
D)  0.5. 
E)  50. 
A)  $400. 
B)  5. 
C)  $500. 
D)  0.5. 
E)  50.

Question 20

Automatic stabilizers _____

Accepted Answer

A)  deliberately manipulate government purchases, transfer payments, and taxes to promote macroeconomic goals. 
B)  are revenue and spending programs in the federal budget that automatically adjust with the ups and downs of the economy. 
C)  are a method of emergency manipulation of government purchases, transfer payments, and taxes to promote macroeconomic goals. 
D)  are revenue and spending programs in the federal budget that never adjust with the ups and downs of the economy. 
E)  are monetary policy changes. 
A)  deliberately manipulate government purchases, transfer payments, and taxes to promote macroeconomic goals. 
B)  are revenue and spending programs in the federal budget that automatically adjust with the ups and downs of the economy. 
C)  are a method of emergency manipulation of government purchases, transfer payments, and taxes to promote macroeconomic goals. 
D)  are revenue and spending programs in the federal budget that never adjust with the ups and downs of the economy. 
E)  are monetary policy changes.

Recent studies on the effectiveness of fiscal policy tend to suggest that increases in government spending are more effective than tax cuts in stimulating real GDP.

Military spending is a good example of an automatic stabilizer.

After a substantial tax rebate program in early 2008, surveys showed that most households _____

Exhibit 11.1 -Refer to Exhibit 11.1, which shows the relationship between the price level and the real GDP. Which of the following sets of policies would unambiguously move the economy to full employment?

Because the income tax structure is progressive, the amount of taxes paid is a _____

The U.S. federal income tax is progressive, which means that _____

Which of the following groups did Clinton target after his stimulus package failed in 1993?

People will be likely to spend a smaller percentage of any additional income when _____

Which of the following is a difference between the theories of John Maynard Keynes and the classical economists?

Exhibit 11.1 -Refer to Exhibit 11.1, which shows the relationship between the price level and the real GDP. If the government wants the economy to be at full employment, it should _____

The Golden Age of fiscal policy was during _____

A federal budget deficit occurs when _____

What happened to Lehman Brothers in September 2008?

Growing capital spending and privatization were two of the factors that led the U.S. economy to experience a strong recovery in 1994.

Government transfer payments are a good example of an automatic stabilizer.

The federal surplus grew from _ in 1998 to _ in 2000.

The American Recovery and Reinvestment Act passed in February 2009 was the largest measure of discretionary fiscal policy in U.S. history.

Fiscal policy focuses on manipulating _____

Suppose government purchases increase by $100 million in an economy, which leads to total output increasing by $500 million. The size of the multiplier is _____

Automatic stabilizers _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

Productivity and Growth.

Aggregate Demand.

Aggregate Supply.

Federal Budgets and Public Policy.

Money and the Financial System.

Banking and the Money Supply.

Monetary Theory and Policy.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

Filters

Exam 11: Fiscal Policy.

Recent studies on the effectiveness of fiscal policy tend to suggest that increases in government spending are more effective than tax cuts in stimulating real GDP.

Military spending is a good example of an automatic stabilizer.

After a substantial tax rebate program in early 2008, surveys showed that most households _____

Exhibit 11.1 -Refer to Exhibit 11.1, which shows the relationship between the price level and the real GDP. Which of the following sets of policies would unambiguously move the economy to full employment?

Because the income tax structure is progressive, the amount of taxes paid is a _____

The U.S. federal income tax is progressive, which means that _____

Which of the following groups did Clinton target after his stimulus package failed in 1993?

People will be likely to spend a smaller percentage of any additional income when _____

Which of the following is a difference between the theories of John Maynard Keynes and the classical economists?

Exhibit 11.1 -Refer to Exhibit 11.1, which shows the relationship between the price level and the real GDP. If the government wants the economy to be at full employment, it should _____

The Golden Age of fiscal policy was during _____

A federal budget deficit occurs when _____

What happened to Lehman Brothers in September 2008?

Growing capital spending and privatization were two of the factors that led the U.S. economy to experience a strong recovery in 1994.

Government transfer payments are a good example of an automatic stabilizer.

The federal surplus grew from _____ in 1998 to _____ in 2000.

The American Recovery and Reinvestment Act passed in February 2009 was the largest measure of discretionary fiscal policy in U.S. history.

Fiscal policy focuses on manipulating _____

Suppose government purchases increase by $100 million in an economy, which leads to total output increasing by $500 million. The size of the multiplier is _____

Automatic stabilizers _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

Productivity and Growth.

Aggregate Demand.

Aggregate Supply.

Federal Budgets and Public Policy.

Money and the Financial System.

Banking and the Money Supply.

Monetary Theory and Policy.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

Filters

The federal surplus grew from _ in 1998 to _ in 2000.