Question 1

Suppose the government reduces its budget deficit at the same time that energy prices rise sharply. Which of the following is most likely to happen?

Accepted Answer

A)  The price level will rise, since higher energy prices increase the cost of production. 
B)  Real GDP will fall since both events will tend to cause an economic contraction. 
C)  The price level will fall because the aggregate demand curve has shifted leftward. 
D)  Real GDP will rise as less government spending leads to more opportunities for the private sector. 
E)  Both the price level and real GDP will fall. 
A)  The price level will rise, since higher energy prices increase the cost of production. 
B)  Real GDP will fall since both events will tend to cause an economic contraction. 
C)  The price level will fall because the aggregate demand curve has shifted leftward. 
D)  Real GDP will rise as less government spending leads to more opportunities for the private sector. 
E)  Both the price level and real GDP will fall.

Question 2

Fiscal policy used to close a recessionary gap is known as _____

Accepted Answer

A)  discretionary fiscal policy. 
B)  an automatic stabilizer. 
C)  expansionary fiscal policy. 
D)  contractionary fiscal policy. 
E)  monetary policy. 
A)  discretionary fiscal policy. 
B)  an automatic stabilizer. 
C)  expansionary fiscal policy. 
D)  contractionary fiscal policy. 
E)  monetary policy.

Question 3

Which of the following are components of fiscal policy?

Accepted Answer

A)  transfer payments only 
B)  money supply and government purchases 
C)  government purchases only 
D)  government purchases, transfer payments, and taxes 
E)  taxes and money supply 
A)  transfer payments only 
B)  money supply and government purchases 
C)  government purchases only 
D)  government purchases, transfer payments, and taxes 
E)  taxes and money supply

Question 4

All of the following are likely to be effective at eliminating a recessionary gap, except one. Which is the exception?

Accepted Answer

A)  reducing Social Security payments to beneficiaries 
B)  reducing personal income taxes 
C)  increasing government expenditures on the interstate highway network 
D)  increasing farm subsidies 
E)  reducing corporate income taxes 
A)  reducing Social Security payments to beneficiaries 
B)  reducing personal income taxes 
C)  increasing government expenditures on the interstate highway network 
D)  increasing farm subsidies 
E)  reducing corporate income taxes

Question 5

Deliberate manipulation of government spending and taxes to promote macroeconomic goals is known as _____

Accepted Answer

A)  discretionary fiscal policy. 
B)  automatic stabilizers. 
C)  expansionary fiscal policy. 
D)  contractionary fiscal policy. 
E)  monetary policy. 
A)  discretionary fiscal policy. 
B)  automatic stabilizers. 
C)  expansionary fiscal policy. 
D)  contractionary fiscal policy. 
E)  monetary policy.

Question 6

Unemployment insurance is an example of a discretionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 7

During a recession, unemployment insurance ensures that _____

Accepted Answer

A)  the disposable income of those who are unemployed will increase above the usual level. 
B)  disposable income does not fall as much as the decrease in GDP. 
C)  disposable income increases as GDP falls. 
D)  the marginal propensity to consume increases. 
E)  the marginal propensity to consume decreases. 
A)  the disposable income of those who are unemployed will increase above the usual level. 
B)  disposable income does not fall as much as the decrease in GDP. 
C)  disposable income increases as GDP falls. 
D)  the marginal propensity to consume increases. 
E)  the marginal propensity to consume decreases.

Question 8

Which of the following is an example of an automatic stabilizer?

Accepted Answer

A)  a decrease in tax rates by Congress in times of unemployment 
B)  a decrease in tax rates by Congress in times of inflation 
C)  an increase in government defense spending during war 
D)  an increase in unemployment compensation during recession 
E)  a decrease in welfare programs during inflation 
A)  a decrease in tax rates by Congress in times of unemployment 
B)  a decrease in tax rates by Congress in times of inflation 
C)  an increase in government defense spending during war 
D)  an increase in unemployment compensation during recession 
E)  a decrease in welfare programs during inflation

Question 9

Which of the following is a component of aggregate demand?

Accepted Answer

A)  transfer payments from the government 
B)  taxation by the government 
C)  purchases by the government 
D)  borrowing by the government 
E)  saving by consumers 
A)  transfer payments from the government 
B)  taxation by the government 
C)  purchases by the government 
D)  borrowing by the government 
E)  saving by consumers

Question 10

If fiscal policy is used to close an expansionary gap, the _____

Accepted Answer

A)  short-run aggregate supply curve shifts leftward and the price level falls. 
B)  short-run aggregate supply curve shifts rightward and the price level increases. 
C)  short-run aggregate supply curve shifts rightward and the price level falls. 
D)  aggregate demand curve shifts leftward and the price level falls. 
E)  aggregate demand curve shifts rightward and the price level falls. 
A)  short-run aggregate supply curve shifts leftward and the price level falls. 
B)  short-run aggregate supply curve shifts rightward and the price level increases. 
C)  short-run aggregate supply curve shifts rightward and the price level falls. 
D)  aggregate demand curve shifts leftward and the price level falls. 
E)  aggregate demand curve shifts rightward and the price level falls.

Question 11

The combined effect of changes in government purchases and net taxes can be determined by adding their individual effects.

Accepted Answer

A) True 
 B)False

Question 12

Discretionary fiscal policy works by shifting the aggregate demand curve.

Accepted Answer

A) True 
 B)False

Question 13

One disadvantage of discretionary fiscal policy is that it can return the economy to its potential level of output, but at the cost of increasing the price level.

Accepted Answer

A) True 
 B)False

Question 14

The effectiveness of any stimulus program depends on _____

Accepted Answer

A)  the size of the tax cuts. 
B)  the size of the tax increases. 
C)  the size of the tax and spending multipliers. 
D)  the size of the budget deficit. 
E)  the size of the budget surplus. 
A)  the size of the tax cuts. 
B)  the size of the tax increases. 
C)  the size of the tax and spending multipliers. 
D)  the size of the budget deficit. 
E)  the size of the budget surplus.

Question 15

Higher unemployment benefits funded by higher taxes on earnings would _____

Accepted Answer

A)  decrease the aggregate supply in an economy. 
B)  increase the supply of labor in an economy. 
C)  increase the price level in an economy. 
D)  decrease the aggregate demand in an economy. 
E)  increase the opportunity cost of leisure. 
A)  decrease the aggregate supply in an economy. 
B)  increase the supply of labor in an economy. 
C)  increase the price level in an economy. 
D)  decrease the aggregate demand in an economy. 
E)  increase the opportunity cost of leisure.

Question 16

There is substantial evidence that people base their consumption decisions more on their current income than on the average income they expect to receive over a long period of time.

Accepted Answer

A) True 
 B)False

Question 17

_____ when net taxes are reduced.

Accepted Answer

A)  Net exports decrease 
B)  Government purchases remain constant 
C)  Government purchases rise 
D)  Consumption falls 
E)  Consumption rises 
A)  Net exports decrease 
B)  Government purchases remain constant 
C)  Government purchases rise 
D)  Consumption falls 
E)  Consumption rises

Question 18

What effect did the financial crisis have on credit markets around the world?

Accepted Answer

A)  It did not affect the U.S. credit markets. 
B)  It did not affect the global markets. 
C)  It made credit markets more liquid. 
D)  It froze credit markets. 
E)  The crises only affected the stock market, not the credit market. 
A)  It did not affect the U.S. credit markets. 
B)  It did not affect the global markets. 
C)  It made credit markets more liquid. 
D)  It froze credit markets. 
E)  The crises only affected the stock market, not the credit market.

Question 19

A $100 billion increase in government purchases will have the same effect on real GDP as a $100 billion decrease in net taxes.

Accepted Answer

A) True 
 B)False

Question 20

A decrease in government purchases can close an expansionary gap by shifting the aggregate demand curve.

Accepted Answer

A) True 
 B)False

Suppose the government reduces its budget deficit at the same time that energy prices rise sharply. Which of the following is most likely to happen?

Fiscal policy used to close a recessionary gap is known as _____

Which of the following are components of fiscal policy?

All of the following are likely to be effective at eliminating a recessionary gap, except one. Which is the exception?

Deliberate manipulation of government spending and taxes to promote macroeconomic goals is known as _____

Unemployment insurance is an example of a discretionary fiscal policy.

During a recession, unemployment insurance ensures that _____

Which of the following is an example of an automatic stabilizer?

Which of the following is a component of aggregate demand?

If fiscal policy is used to close an expansionary gap, the _____

The combined effect of changes in government purchases and net taxes can be determined by adding their individual effects.

Discretionary fiscal policy works by shifting the aggregate demand curve.

One disadvantage of discretionary fiscal policy is that it can return the economy to its potential level of output, but at the cost of increasing the price level.

The effectiveness of any stimulus program depends on _____

Higher unemployment benefits funded by higher taxes on earnings would _____

There is substantial evidence that people base their consumption decisions more on their current income than on the average income they expect to receive over a long period of time.

_____ when net taxes are reduced.

What effect did the financial crisis have on credit markets around the world?

A $100 billion increase in government purchases will have the same effect on real GDP as a $100 billion decrease in net taxes.

A decrease in government purchases can close an expansionary gap by shifting the aggregate demand curve.

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.

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Exam 11: Fiscal Policy.

Suppose the government reduces its budget deficit at the same time that energy prices rise sharply. Which of the following is most likely to happen?

Fiscal policy used to close a recessionary gap is known as _____

Which of the following are components of fiscal policy?

All of the following are likely to be effective at eliminating a recessionary gap, except one. Which is the exception?

Deliberate manipulation of government spending and taxes to promote macroeconomic goals is known as _____

Unemployment insurance is an example of a discretionary fiscal policy.

During a recession, unemployment insurance ensures that _____

Which of the following is an example of an automatic stabilizer?

Which of the following is a component of aggregate demand?

If fiscal policy is used to close an expansionary gap, the _____

The combined effect of changes in government purchases and net taxes can be determined by adding their individual effects.

Discretionary fiscal policy works by shifting the aggregate demand curve.

One disadvantage of discretionary fiscal policy is that it can return the economy to its potential level of output, but at the cost of increasing the price level.

The effectiveness of any stimulus program depends on _____

Higher unemployment benefits funded by higher taxes on earnings would _____

There is substantial evidence that people base their consumption decisions more on their current income than on the average income they expect to receive over a long period of time.

_____ when net taxes are reduced.

What effect did the financial crisis have on credit markets around the world?

A $100 billion increase in government purchases will have the same effect on real GDP as a $100 billion decrease in net taxes.

A decrease in government purchases can close an expansionary gap by shifting the aggregate demand curve.

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