Question 1

Both Keynesians and non-Keynesians now recognize

Accepted Answer

A) the limitations of automatic stabilizers as a stabilization tool. 
B) the adverse effects of high marginal tax rates on economic growth. 
C) the difficulties involved in timing discretionary changes in fiscal policy in a stabilizing manner. 
D) the highly expansionary impact of budget deficits. 
A) the limitations of automatic stabilizers as a stabilization tool. 
B) the adverse effects of high marginal tax rates on economic growth. 
C) the difficulties involved in timing discretionary changes in fiscal policy in a stabilizing manner. 
D) the highly expansionary impact of budget deficits.

Question 2

Ted Harper's annual income increased from $20,000 to $25,000.If Ted faces a 40 percent effective marginal tax rate,the $5,000 increase in income will expand his disposable income by

Accepted Answer

A) $2,000. 
B) $3,000. 
C) $3,600. 
D) $5,000. 
A) $2,000. 
B) $3,000. 
C) $3,600. 
D) $5,000.

Question 3

During 1960-1980,those with the highest incomes confronted federal marginal tax rates between 70 and 90 percent.Since 1986,the highest federal income tax rate has been less than 40 percent.Since 1986,the share of the personal income tax collected from the top one-half of one percent of earners has been

Accepted Answer

A) substantially lower than during the 1960s and 1970s. 
B) only slightly lower than during the 1960s and 1970s. 
C) virtually the same as during the 1960s and 1970s. 
D) higher than during the 1960s and 1970s. 
A) substantially lower than during the 1960s and 1970s. 
B) only slightly lower than during the 1960s and 1970s. 
C) virtually the same as during the 1960s and 1970s. 
D) higher than during the 1960s and 1970s.

Question 4

According to non-Keynesians,how will an increase in government spending financed by borrowing during a recession affect recovery?

Accepted Answer

A) Higher future taxes and interest rates will be required to finance the larger debt and this will weaken the recovery. 
B) Repayment of the debt can always be shifted to the future,making it possible to keep tax rates low and thereby strengthen the recovery. 
C) Higher interest payments will increase future government spending,and thereby promote a stronger the recovery. 
D) The increase in government spending will exert a multiplier effect on the economy,leading to a stronger recovery. 
A) Higher future taxes and interest rates will be required to finance the larger debt and this will weaken the recovery. 
B) Repayment of the debt can always be shifted to the future,making it possible to keep tax rates low and thereby strengthen the recovery. 
C) Higher interest payments will increase future government spending,and thereby promote a stronger the recovery. 
D) The increase in government spending will exert a multiplier effect on the economy,leading to a stronger recovery.

Question 5

As measured by the budget deficit as a share of GDP,fiscal policy was

Accepted Answer

A) more expansionary during the 1980s than the 1990s. 
B) more restrictive during the 1980s than the 1990s. 
C) virtually the same in the 1990s as the 1980s. 
D) highly expansionary during both the 1980s and the 1990s. 
A) more expansionary during the 1980s than the 1990s. 
B) more restrictive during the 1980s than the 1990s. 
C) virtually the same in the 1990s as the 1980s. 
D) highly expansionary during both the 1980s and the 1990s.

Question 6

If the crowding-out effect is strong,how will the potency of discretionary fiscal policy be affected?

Accepted Answer

A) It will make fiscal policy more potent. 
B) It will make fiscal policy less potent. 
C) The potency of fiscal policy will be unaffected. 
D) The potency of expansionary fiscal policy will be reduced,but that of restrictive fiscal policy will be enhanced. 
A) It will make fiscal policy more potent. 
B) It will make fiscal policy less potent. 
C) The potency of fiscal policy will be unaffected. 
D) The potency of expansionary fiscal policy will be reduced,but that of restrictive fiscal policy will be enhanced.

Question 7

Other things constant,an increase in marginal tax rates will

Accepted Answer

A) decrease the supply of labor and reduce its productive efficiency. 
B) decrease the supply of capital and decrease its productive efficiency. 
C) encourage individuals to buy goods that are tax deductible instead of those that are more desired but nondeductible. 
D) do all of the above. 
A) decrease the supply of labor and reduce its productive efficiency. 
B) decrease the supply of capital and decrease its productive efficiency. 
C) encourage individuals to buy goods that are tax deductible instead of those that are more desired but nondeductible. 
D) do all of the above.

Question 8

Which of the following would be most likely to maintain that spending increases and larger budget deficits would help promote recovery from the recession of 2008-2009?

Accepted Answer

A) supply-side economists 
B) new classical economists 
C) Keynesian economists 
D) proponents of the crowding-out theory 
A) supply-side economists 
B) new classical economists 
C) Keynesian economists 
D) proponents of the crowding-out theory

Question 9

The crowding-out effect suggests that

Accepted Answer

A) expansionary fiscal policy causes inflation. 
B) restrictive fiscal policy is an effective weapon against inflation. 
C) a reduction in private spending that results from higher interest rates caused by a budget deficit will largely offset the expansionary effects of the deficit. 
D) a tax reduction financed by borrowing will increase the disposable income of households and,thereby,lead to a strong expansion in aggregate demand,output,and employment. 
A) expansionary fiscal policy causes inflation. 
B) restrictive fiscal policy is an effective weapon against inflation. 
C) a reduction in private spending that results from higher interest rates caused by a budget deficit will largely offset the expansionary effects of the deficit. 
D) a tax reduction financed by borrowing will increase the disposable income of households and,thereby,lead to a strong expansion in aggregate demand,output,and employment.

Question 10

The political incentive structure tends to

Accepted Answer

A) encourage a balanced budget regardless of economic conditions. 
B) discourage budget deficits during recessions. 
C) encourage budget surpluses during both recessions and expansions. 
D) encourage budget deficits during both recessions and expansions. 
A) encourage a balanced budget regardless of economic conditions. 
B) discourage budget deficits during recessions. 
C) encourage budget surpluses during both recessions and expansions. 
D) encourage budget deficits during both recessions and expansions.

Question 11

According to the paradox of thrift,if many families decided to save an additional $200 a month,this would lead to

Accepted Answer

A) an increase in both saving and output. 
B) an increase in loanable funds and a reduction in interest rates,leading to an expansion in investment. 
C) a reduction in total output and little or no increase in total saving. 
D) an increase in total saving and no change in total output. 
A) an increase in both saving and output. 
B) an increase in loanable funds and a reduction in interest rates,leading to an expansion in investment. 
C) a reduction in total output and little or no increase in total saving. 
D) an increase in total saving and no change in total output.

Question 12

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 13

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 14

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 15

Which of the following most clearly indicates that fiscal policy is becoming more restrictive?

Accepted Answer

A) an increase in the budget deficit relative to GDP 
B) a reduction in the budget deficit relative to GDP 
C) an increase in government expenditures as a share of GDP 
D) a reduction in tax revenues as a share of GDP 
A) an increase in the budget deficit relative to GDP 
B) a reduction in the budget deficit relative to GDP 
C) an increase in government expenditures as a share of GDP 
D) a reduction in tax revenues as a share of GDP

Question 16

The crowding-out effect suggests that

Accepted Answer

A) restrictive fiscal policy is an effective weapon against inflation. 
B) expansionary fiscal policy will be a highly effective weapon for fighting a recessionary downturn 
C) a budget surplus will cause the demand for loanable funds to decline,interest rates to rise,and aggregate demand to decrease. 
D) budget deficits that lead to higher interest rates reduce private investment spending. 
A) restrictive fiscal policy is an effective weapon against inflation. 
B) expansionary fiscal policy will be a highly effective weapon for fighting a recessionary downturn 
C) a budget surplus will cause the demand for loanable funds to decline,interest rates to rise,and aggregate demand to decrease. 
D) budget deficits that lead to higher interest rates reduce private investment spending.

Question 17

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 18

The crowding-out effect suggests that

Accepted Answer

A) expansionary fiscal policy causes inflation. 
B) high marginal tax rates crowd out tax deductions. 
C) the demand stimulus effects of a budget deficit will be weak because the borrowing to finance the deficit will lead to higher interest rates. 
D) a budget surplus will cause the economy to slip into a major recession. 
A) expansionary fiscal policy causes inflation. 
B) high marginal tax rates crowd out tax deductions. 
C) the demand stimulus effects of a budget deficit will be weak because the borrowing to finance the deficit will lead to higher interest rates. 
D) a budget surplus will cause the economy to slip into a major recession.

Question 19

The crowding-out effect refers to the tendency of

Accepted Answer

A) the additional borrowing accompanying larger budget deficits to increase interest rates and reduce private spending. 
B) higher future taxes accompanying budget deficits to reduce private consumption. 
C) the inflation rate to rise when the unemployment rate is low. 
D) increases in private savings to reduce interest rates and,thereby,crowd-out government expenditures. 
A) the additional borrowing accompanying larger budget deficits to increase interest rates and reduce private spending. 
B) higher future taxes accompanying budget deficits to reduce private consumption. 
C) the inflation rate to rise when the unemployment rate is low. 
D) increases in private savings to reduce interest rates and,thereby,crowd-out government expenditures.

Question 20

Use the figure below to answer the following question(s).
Figure 12-3
  
-Refer to Figure 12-3.If an economy is currently operating at Y₁,which of the following would a new classical economist be most likely to favor?

Accepted Answer

A) higher taxes and reductions in expenditures in order to shift the budget toward a surplus 
B) lower taxes and increase in expenditures in order to shift the budget toward a deficit 
C) a balanced budget 
D) no government action and reliance on the self-corrective mechanism 
A) higher taxes and reductions in expenditures in order to shift the budget toward a surplus 
B) lower taxes and increase in expenditures in order to shift the budget toward a deficit 
C) a balanced budget 
D) no government action and reliance on the self-corrective mechanism

Exam 12: Fiscal Policy, incentives, and Secondary Effects

Both Keynesians and non-Keynesians now recognize

Ted Harper's annual income increased from $20,000 to $25,000.If Ted faces a 40 percent effective marginal tax rate,the $5,000 increase in income will expand his disposable income by

According to non-Keynesians,how will an increase in government spending financed by borrowing during a recession affect recovery?

As measured by the budget deficit as a share of GDP,fiscal policy was

If the crowding-out effect is strong,how will the potency of discretionary fiscal policy be affected?

Other things constant,an increase in marginal tax rates will

Which of the following would be most likely to maintain that spending increases and larger budget deficits would help promote recovery from the recession of 2008-2009?

The crowding-out effect suggests that

The political incentive structure tends to

According to the paradox of thrift,if many families decided to save an additional $200 a month,this would lead to

The crowding-out effect indicates that budget deficits

Keynesian economists argue that during a recession

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?

Which of the following most clearly indicates that fiscal policy is becoming more restrictive?

The crowding-out effect suggests that

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

The crowding-out effect suggests that

The crowding-out effect refers to the tendency of

Use the figure below to answer the following question(s). Figure 12-3 -Refer to Figure 12-3.If an economy is currently operating at Y₁,which of the following would a new classical economist be most likely to favor?

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

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

Fiscal Policy: the Keynesian View and Historical Perspective

Amoney 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

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Government Spending and Taxation

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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