Question 1

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

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 the budget surplus relative to GDP 
D) an increase in the nominal (dollar)size of the budget deficit 
A) an increase in the budget deficit relative to GDP 
B) a reduction in the budget deficit relative to GDP 
C) an increase in the budget surplus relative to GDP 
D) an increase in the nominal (dollar)size of the budget deficit

Question 2

If the government ran a major budget deficit,and there was no noticeable effect on the level of GDP,this could be taken as evidence of

Accepted Answer

A) Laffer curve effect. 
B) structural deficit. 
C) crowding-out. 
D) monetary policy ineffectiveness. 
A) Laffer curve effect. 
B) structural deficit. 
C) crowding-out. 
D) monetary policy ineffectiveness.

Question 3

How do new classical economists differ from Keynesian economists in their assumptions about how government borrowing affects household consumption and borrowing patterns?

Accepted Answer

Keynesian economists believe households

Question 4

"A reduction in marginal tax rates will increase the incentive of individuals to (1)save and invest and (2)apply their productive energy in a manner that yields taxable income,while (3)reducing the incentive of individuals to engage in wasteful tax-avoidance activities." Which of the following groups would most likely stress the importance of these factors?

Accepted Answer

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

Question 5

Politicians often instruct households to spend in order to help the economy.This advice overlooks the fact that

Accepted Answer

A) increases in consumption will make it easier for households to deal with unanticipated future expenses. 
B) increases in consumption will provide more loanable funds for investment. 
C) you cannot have a strong economy if all or most households are spending just about everything they earn. 
D) consumer spending is less than two-thirds of GDP. 
A) increases in consumption will make it easier for households to deal with unanticipated future expenses. 
B) increases in consumption will provide more loanable funds for investment. 
C) you cannot have a strong economy if all or most households are spending just about everything they earn. 
D) consumer spending is less than two-thirds of GDP.

Question 6

As more politically directed spending leads to more rent-seeking activity,

Accepted Answer

A) the spending will increase GDP,but only if it is directed toward productive activity. 
B) the spending will decrease GDP,but only if it is directed toward unproductive activity. 
C) resources will be channeled toward unproductive activity and away from productive activity. 
D) resources will be channeled toward productive activity and away from unproductive activity. 
A) the spending will increase GDP,but only if it is directed toward productive activity. 
B) the spending will decrease GDP,but only if it is directed toward unproductive activity. 
C) resources will be channeled toward unproductive activity and away from productive activity. 
D) resources will be channeled toward productive activity and away from unproductive activity.

Question 7

Which is more likely to stimulate aggregate demand in a timely manner?

Accepted Answer

A) a tax cut,because households will increase their consumption by the full amount of their tax reduction 
B) a tax cut,because disbursement can take place quickly while spending increases are generally spread out over several years 
C) a spending increase,because disbursement can take place quickly while a tax cut will be spread out over several years 
D) a spending increase,because it can be easily reversed once the economy has recovered 
A) a tax cut,because households will increase their consumption by the full amount of their tax reduction 
B) a tax cut,because disbursement can take place quickly while spending increases are generally spread out over several years 
C) a spending increase,because disbursement can take place quickly while a tax cut will be spread out over several years 
D) a spending increase,because it can be easily reversed once the economy has recovered

Question 8

Which of the following helped transform the budget deficits of the early 1990s into surpluses later in the decade?

Accepted Answer

A) rapid growth in the number of persons moving into the retirement phase of life during the 1990s 
B) a reduction in defense expenditures following the end of the Cold War 
C) a 1997 increase in the tax rate imposed on income derived from capital gains 
D) a reduction in Social Security and health-care benefits during the 1990s 
A) rapid growth in the number of persons moving into the retirement phase of life during the 1990s 
B) a reduction in defense expenditures following the end of the Cold War 
C) a 1997 increase in the tax rate imposed on income derived from capital gains 
D) a reduction in Social Security and health-care benefits during the 1990s

Question 9

What effect will expansionary fiscal policy have on the economy,according to new classical economists?

Accepted Answer

According the new classical theory,a tax

Question 10

What is supply-side economics,and how does it differ from the Keynesian emphasis on fiscal policy?

Accepted Answer

Supply-side economics focuses on reducti

Question 11

New classical economists believe that an increase in deficit financing by the government will

Accepted Answer

A) reduce government spending. 
B) increase consumption. 
C) reduce future taxes. 
D) increase savings. 
A) reduce government spending. 
B) increase consumption. 
C) reduce future taxes. 
D) increase savings.

Question 12

In a world where capital moves rapidly across national boundaries,if a larger budget deficit leads to higher real interest rates,

Accepted Answer

A) there will be an inflow of foreign capital,which will cause the dollar to appreciate and net exports to decline. 
B) there will be an outflow of foreign capital,which will cause the dollar to depreciate and net exports to increase. 
C) there will be an inflow of foreign capital,which will cause the dollar to depreciate and net exports to increase. 
D) there will be an outflow of foreign capital,which will cause the dollar to appreciate and net exports to decline. 
A) there will be an inflow of foreign capital,which will cause the dollar to appreciate and net exports to decline. 
B) there will be an outflow of foreign capital,which will cause the dollar to depreciate and net exports to increase. 
C) there will be an inflow of foreign capital,which will cause the dollar to depreciate and net exports to increase. 
D) there will be an outflow of foreign capital,which will cause the dollar to appreciate and net exports to decline.

Question 13

In 2007,the debt-to-income ratio of American households was

Accepted Answer

A) approximately double the level of the mid-1980s. 
B) only about half the level of the mid-1980s. 
C) virtually unchanged from the mid-1980s. 
D) substantially lower than during the 1960s and 1970s. 
A) approximately double the level of the mid-1980s. 
B) only about half the level of the mid-1980s. 
C) virtually unchanged from the mid-1980s. 
D) substantially lower than during the 1960s and 1970s.

Question 14

Spending programs that substantially alter the composition of aggregate demand will tend to

Accepted Answer

A) decrease the rate of unemployment. 
B) increase the rate of unemployment. 
C) promote a more rapid recovery. 
D) reduce structural unemployment. 
A) decrease the rate of unemployment. 
B) increase the rate of unemployment. 
C) promote a more rapid recovery. 
D) reduce structural unemployment.

Question 15

Use the figure below to answer the following question(s).
Figure 12-1
  
-Refer to Figure 12-1.If the output of the economy is Y₁,which of the following would a Keynesian economist be most likely to favor?

Accepted Answer

A) a reduction in government expenditures 
B) an increase in government expenditures 
C) an increase in taxes 
D) continuation of the current tax and expenditure policies 
A) a reduction in government expenditures 
B) an increase in government expenditures 
C) an increase in taxes 
D) continuation of the current tax and expenditure policies

Question 16

According to the new classical view,a $20 billion increase in government expenditures financed by a budget deficit will

Accepted Answer

A) stimulate output by $20 billion. 
B) stimulate output more than $20 billion. 
C) stimulate output but by less than $20 billion. 
D) leave output unchanged. 
A) stimulate output by $20 billion. 
B) stimulate output more than $20 billion. 
C) stimulate output but by less than $20 billion. 
D) leave output unchanged.

Question 17

Raising taxes as an element of discretionary fiscal policy is intended to reduce aggregate demand,but it can also reduce aggregate supply if

Accepted Answer

A) the higher taxes lead workers to seek out a second job. 
B) the higher taxes cause workers to work less. 
C) the government purchases goods with the additional revenue. 
D) the government uses the additional revenue to retire some of the federal debt. 
E) the higher taxes cause people to save less. 
A) the higher taxes lead workers to seek out a second job. 
B) the higher taxes cause workers to work less. 
C) the government purchases goods with the additional revenue. 
D) the government uses the additional revenue to retire some of the federal debt. 
E) the higher taxes cause people to save less.

Question 18

Which of the following reflects a coordination problem in aggregate demand?

Accepted Answer

A) Congress approves increases in government spending that are insufficient to stimulate aggregate demand. 
B) Congress wants to maintain balanced budgets during a recession rather than running budget deficits. 
C) Congress increases spending in areas that are already at or near full-employment. 
D) Automatic stabilizers shift the budget toward a surplus during an expansion and a deficit during a recession without Congressional action. 
A) Congress approves increases in government spending that are insufficient to stimulate aggregate demand. 
B) Congress wants to maintain balanced budgets during a recession rather than running budget deficits. 
C) Congress increases spending in areas that are already at or near full-employment. 
D) Automatic stabilizers shift the budget toward a surplus during an expansion and a deficit during a recession without Congressional action.

Question 19

Within the framework of the AD-AS model,an increase in savings by households will

Accepted Answer

A) increase the supply of loanable funds and reduce interest rates. 
B) be offset by a decrease in savings by businesses. 
C) cause long-run fluctuations in the rate of consumption. 
D) result in a decline in aggregate demand,output,and employment. 
A) increase the supply of loanable funds and reduce interest rates. 
B) be offset by a decrease in savings by businesses. 
C) cause long-run fluctuations in the rate of consumption. 
D) result in a decline in aggregate demand,output,and employment.

Question 20

Use the figure below to answer the following question(s).
Figure 12-1
  
-Refer to Figure 12-2.Which of the following will most likely be favored by a Keynesian economist if the economy is operating at point a?

Accepted Answer

A) a balanced budget 
B) restrictive fiscal policy 
C) expansionary fiscal policy 
D) continuation of the current tax and expenditure policies (dependence on the economy's self-correcting mechanism to restore full employment) 
A) a balanced budget 
B) restrictive fiscal policy 
C) expansionary fiscal policy 
D) continuation of the current tax and expenditure policies (dependence on the economy's self-correcting mechanism to restore full employment)

Exam 12: Fiscal Policy, incentives, and Secondary Effects

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

If the government ran a major budget deficit,and there was no noticeable effect on the level of GDP,this could be taken as evidence of

How do new classical economists differ from Keynesian economists in their assumptions about how government borrowing affects household consumption and borrowing patterns?

Politicians often instruct households to spend in order to help the economy.This advice overlooks the fact that

As more politically directed spending leads to more rent-seeking activity,

Which is more likely to stimulate aggregate demand in a timely manner?

Which of the following helped transform the budget deficits of the early 1990s into surpluses later in the decade?

What effect will expansionary fiscal policy have on the economy,according to new classical economists?

What is supply-side economics,and how does it differ from the Keynesian emphasis on fiscal policy?

New classical economists believe that an increase in deficit financing by the government will

In a world where capital moves rapidly across national boundaries,if a larger budget deficit leads to higher real interest rates,

In 2007,the debt-to-income ratio of American households was

Spending programs that substantially alter the composition of aggregate demand will tend to

Use the figure below to answer the following question(s). Figure 12-1 -Refer to Figure 12-1.If the output of the economy is Y₁,which of the following would a Keynesian economist be most likely to favor?

According to the new classical view,a $20 billion increase in government expenditures financed by a budget deficit will

Raising taxes as an element of discretionary fiscal policy is intended to reduce aggregate demand,but it can also reduce aggregate supply if

Which of the following reflects a coordination problem in aggregate demand?

Within the framework of the AD-AS model,an increase in savings by households will

Use the figure below to answer the following question(s). Figure 12-1 -Refer to Figure 12-2.Which of the following will most likely be favored by a Keynesian economist if the economy is operating at point a?

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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