Question 1

Measured as a share of GDP,federal spending during 2001-2010

Accepted Answer

A) increased more rapidly than during the 1990s. 
B) increased less rapidly than during the 1990s. 
C) declined after increasing rapidly during the 1990s. 
D) was virtually unchanged during the decade. 
A) increased more rapidly than during the 1990s. 
B) increased less rapidly than during the 1990s. 
C) declined after increasing rapidly during the 1990s. 
D) was virtually unchanged during the decade.

Question 2

Budget projections for 2010-2019 indicate both higher levels of government spending and large budget deficits.Non-Keynesian economists argue that this will lead to

Accepted Answer

A) lower taxes,which will reduce aggregate supply and retard long-term growth. 
B) growth rates above the historic average for the decade. 
C) an increase in aggregate demand and real output. 
D) higher interest rates,higher taxes,and sluggish future growth. 
A) lower taxes,which will reduce aggregate supply and retard long-term growth. 
B) growth rates above the historic average for the decade. 
C) an increase in aggregate demand and real output. 
D) higher interest rates,higher taxes,and sluggish future growth.

Question 3

In the new classical model,a $100 billion increase in government purchases financed by borrowing will

Accepted Answer

A) increase the real interest rate,which will crowd out private spending. 
B) lead to a $100 billion increase in real GDP. 
C) lead to a $400 billion increase in real GDP if the marginal propensity to consume is three-fourths. 
D) leave the interest rate,aggregate demand,and real output unchanged. 
A) increase the real interest rate,which will crowd out private spending. 
B) lead to a $100 billion increase in real GDP. 
C) lead to a $400 billion increase in real GDP if the marginal propensity to consume is three-fourths. 
D) leave the interest rate,aggregate demand,and real output unchanged.

Question 4

According to the Keynesian view,the rapid increase in government spending and large budget deficits in response to the recession of 2008-2009 would

Accepted Answer

A) slow the recovery process and result in weak long-term growth of real GDP. 
B) speed the recovery process and provide the foundation for strong long-term growth of real GDP. 
C) stimulate a more rapid recovery,but cause the economy to fall back into a recession in the near future. 
D) slow the recovery process,but provide the foundation for rapid long-term growth of real GDP. 
A) slow the recovery process and result in weak long-term growth of real GDP. 
B) speed the recovery process and provide the foundation for strong long-term growth of real GDP. 
C) stimulate a more rapid recovery,but cause the economy to fall back into a recession in the near future. 
D) slow the recovery process,but provide the foundation for rapid long-term growth of real GDP.

Question 5

Which of the following most accurately indicates the political incentive to spend and/or tax?

Accepted Answer

A) Politicians will find tax increases more attractive than increases in government expenditures. 
B) Voters will generally support higher taxes in order to eliminate budget deficits. 
C) Politicians are rewarded for raising taxes and punished for providing programs that benefit their constituents. 
D) Politicians are rewarded for providing programs that benefit their constituents and punished for raising taxes. 
A) Politicians will find tax increases more attractive than increases in government expenditures. 
B) Voters will generally support higher taxes in order to eliminate budget deficits. 
C) Politicians are rewarded for raising taxes and punished for providing programs that benefit their constituents. 
D) Politicians are rewarded for providing programs that benefit their constituents and punished for raising taxes.

Question 6

Keynesians and non-Keynesians would largely agree on which one of the following statements?

Accepted Answer

A) Expansionary fiscal policy will tend to substantially increase current real output. 
B) Proper timing of discretionary fiscal policy is difficult to achieve. 
C) The use of discretionary fiscal policy is an important stabilization tool. 
D) Market forces will automatically direct the economy toward full employment. 
A) Expansionary fiscal policy will tend to substantially increase current real output. 
B) Proper timing of discretionary fiscal policy is difficult to achieve. 
C) The use of discretionary fiscal policy is an important stabilization tool. 
D) Market forces will automatically direct the economy toward full employment.

Question 7

The paradox of excessive consumption argues that when households spend all they earn,

Accepted Answer

A) actual output and potential output will be in equilibrium. 
B) the financial anxiety of families will be low. 
C) the economy will achieve rapid,sustainable growth. 
D) consumption can stagnate because families are in a poor position to deal with increases in debt and financial setbacks. 
A) actual output and potential output will be in equilibrium. 
B) the financial anxiety of families will be low. 
C) the economy will achieve rapid,sustainable growth. 
D) consumption can stagnate because families are in a poor position to deal with increases in debt and financial setbacks.

Question 8

Critics of the Keynesian view argue that increases in government spending financed by borrowing will hamper the recovery from a recession and slow long term growth because

Accepted Answer

A) more spending and debt will lead to higher future taxes to cover the cost of government and the interest on the debt. 
B) government spending is directed by political forces,rather than efficient cost-revenue comparisons. 
C) more political spending will lead to more wasteful rent-seeking activities and less production of goods and services that people value. 
D) All of the above are true. 
A) more spending and debt will lead to higher future taxes to cover the cost of government and the interest on the debt. 
B) government spending is directed by political forces,rather than efficient cost-revenue comparisons. 
C) more political spending will lead to more wasteful rent-seeking activities and less production of goods and services that people value. 
D) All of the above are true.

Question 9

According to the crowding-out effect,expansionary fiscal policy will lead to

Accepted Answer

A) higher interest rates,an appreciated dollar,and reduced net exports. 
B) higher interest rates,an appreciated dollar,and increased net exports. 
C) reduced interest rates,an appreciated dollar,and reduced net exports. 
D) reduced interest rates,an appreciated dollar,and increased net exports. 
A) higher interest rates,an appreciated dollar,and reduced net exports. 
B) higher interest rates,an appreciated dollar,and increased net exports. 
C) reduced interest rates,an appreciated dollar,and reduced net exports. 
D) reduced interest rates,an appreciated dollar,and increased net exports.

Question 10

Are jobs the key to economic progress and the achievement of high income levels?

Accepted Answer

A) Yes,as long as people are working,real income levels will be high. 
B) Yes,when full employment is present,income levels will be at their maximum. 
C) No,it is not just employment,but employment that expands production of goods and services that others value highly relative to cost. 
D) Uncertain,additional employment will increase real income only when the general level of prices is unchanged. 
A) Yes,as long as people are working,real income levels will be high. 
B) Yes,when full employment is present,income levels will be at their maximum. 
C) No,it is not just employment,but employment that expands production of goods and services that others value highly relative to cost. 
D) Uncertain,additional employment will increase real income only when the general level of prices is unchanged.

Question 11

Fiscal stimulus is most likely to direct resources into productive projects when spending decisions are left in the hands of

Accepted Answer

A) government agencies. 
B) consumers. 
C) Congress. 
D) lobbyists and special-interest groups. 
A) government agencies. 
B) consumers. 
C) Congress. 
D) lobbyists and special-interest groups.

Question 12

Susan sells life insurance and is considering buying a $50,000 Mercedes for business purposes (thus,the expense reduces her taxable income).If Susan is in the 40 percent marginal tax bracket,how much after-tax income will she have to give up in order to enjoy the Mercedes?

Accepted Answer

A) $20,000 
B) $30,000 
C) $25,000 
D) $70,000 
A) $20,000 
B) $30,000 
C) $25,000 
D) $70,000

Question 13

When government spending flows to areas where resources are already fully employed,

Accepted Answer

A) the additional spending will stimulate strong growth in those areas. 
B) aggregate demand will place downward pressure on the general level of prices. 
C) the coordination problem accompanying the composition of aggregate demand is likely to improve. 
D) the coordination problem accompanying the composition of aggregate demand is likely to worsen. 
A) the additional spending will stimulate strong growth in those areas. 
B) aggregate demand will place downward pressure on the general level of prices. 
C) the coordination problem accompanying the composition of aggregate demand is likely to improve. 
D) the coordination problem accompanying the composition of aggregate demand is likely to worsen.

Question 14

During the 1980s,the top marginal tax rate on personal income was reduced from 70 percent to less than 40 percent and it has remained below 40 percent since that time.In recent years,the share of the personal income tax collected from the top one-half of one percent of earners has

Accepted Answer

A) fallen sharply from the level of years prior to 1981. 
B) increased sharply during the Clinton administration,but declined substantially during the administration of George W.Bush. 
C) been virtually unchanged from the level of years prior to 1981. 
D) increased substantially from the level of years prior to 1981. 
A) fallen sharply from the level of years prior to 1981. 
B) increased sharply during the Clinton administration,but declined substantially during the administration of George W.Bush. 
C) been virtually unchanged from the level of years prior to 1981. 
D) increased substantially from the level of years prior to 1981.

Question 15

Which of the following attributes of the recession of 2008-2009 is most supportive of the Keynesian view that the crowding-out effect will be minimal during a severe recession?

Accepted Answer

A) the immediate increase in output and employment generated by the budget deficits of 2008-2009 
B) the decline in the general level of prices during 2009 
C) short-term interest rates falling to near zero,despite growing budget deficits during 2008-2009 
D) short-term interest rates falling to near zero,as the budget deficit declined during 2008-2009 
A) the immediate increase in output and employment generated by the budget deficits of 2008-2009 
B) the decline in the general level of prices during 2009 
C) short-term interest rates falling to near zero,despite growing budget deficits during 2008-2009 
D) short-term interest rates falling to near zero,as the budget deficit declined during 2008-2009

Question 16

According to the critics of Keynesian economics,the rapid increase in government spending and large budget deficits in response to the recession of 2008-2009 would

Accepted Answer

A) slow the recovery process and result in weak long-term growth of real GDP. 
B) speed the recovery process and provide the foundation for strong long-term growth of real GDP. 
C) stimulate a more rapid recovery,but cause the economy to fall back into a recession in the near future. 
D) slow the recovery process,but provide a foundation for rapid long-term growth of real GDP. 
A) slow the recovery process and result in weak long-term growth of real GDP. 
B) speed the recovery process and provide the foundation for strong long-term growth of real GDP. 
C) stimulate a more rapid recovery,but cause the economy to fall back into a recession in the near future. 
D) slow the recovery process,but provide a foundation for rapid long-term growth of real GDP.

Question 17

Which of the following propositions would a proponent of supply-side economics be most likely to stress?

Accepted Answer

A) Because they expand government revenues,higher marginal tax rates will lead to a reduction in the budget deficit and to lower interest rates. 
B) Because they encourage investors to undertake low-productivity projects with substantial tax-avoidance benefits,higher marginal tax rates promote economic inefficiency. 
C) Because they do not consume resources directly,income redistribution payments will exert little impact on real aggregate supply. 
D) The primary impact of a tax reduction on aggregate supply will stem from the influence of the tax change on the size of the budget deficit or surplus. 
A) Because they expand government revenues,higher marginal tax rates will lead to a reduction in the budget deficit and to lower interest rates. 
B) Because they encourage investors to undertake low-productivity projects with substantial tax-avoidance benefits,higher marginal tax rates promote economic inefficiency. 
C) Because they do not consume resources directly,income redistribution payments will exert little impact on real aggregate supply. 
D) The primary impact of a tax reduction on aggregate supply will stem from the influence of the tax change on the size of the budget deficit or surplus.

Question 18

New classical economists stress that an increase in government expenditures financed by borrowing rather than taxes will

Accepted Answer

A) exert a strong expansionary impact on aggregate demand and real output. 
B) affect the timing of taxes but not their magnitude. 
C) lead to higher interest rates. 
D) undermine confidence and reduce the level of private saving. 
A) exert a strong expansionary impact on aggregate demand and real output. 
B) affect the timing of taxes but not their magnitude. 
C) lead to higher interest rates. 
D) undermine confidence and reduce the level of private saving.

Question 19

A substantial decrease in marginal tax rates will encourage individuals to

Accepted Answer

A) increase their earnings and work effort. 
B) save a smaller portion of their income. 
C) take more time off for vacations. 
D) spend more on tax-deductible items. 
A) increase their earnings and work effort. 
B) save a smaller portion of their income. 
C) take more time off for vacations. 
D) spend more on tax-deductible items.

Question 20

The tax reductions,increases in defense expenditures,and budget deficits of the 1980s are characteristic of

Accepted Answer

A) expansionary fiscal policy. 
B) the crowding-out effect. 
C) restrictive fiscal policy. 
D) the paradox of thrift. 
A) expansionary fiscal policy. 
B) the crowding-out effect. 
C) restrictive fiscal policy. 
D) the paradox of thrift.

Exam 12: Fiscal Policy, incentives, and Secondary Effects

Measured as a share of GDP,federal spending during 2001-2010

Budget projections for 2010-2019 indicate both higher levels of government spending and large budget deficits.Non-Keynesian economists argue that this will lead to

In the new classical model,a $100 billion increase in government purchases financed by borrowing will

According to the Keynesian view,the rapid increase in government spending and large budget deficits in response to the recession of 2008-2009 would

Which of the following most accurately indicates the political incentive to spend and/or tax?

Keynesians and non-Keynesians would largely agree on which one of the following statements?

The paradox of excessive consumption argues that when households spend all they earn,

Critics of the Keynesian view argue that increases in government spending financed by borrowing will hamper the recovery from a recession and slow long term growth because

According to the crowding-out effect,expansionary fiscal policy will lead to

Are jobs the key to economic progress and the achievement of high income levels?

Fiscal stimulus is most likely to direct resources into productive projects when spending decisions are left in the hands of

Susan sells life insurance and is considering buying a $50,000 Mercedes for business purposes (thus,the expense reduces her taxable income).If Susan is in the 40 percent marginal tax bracket,how much after-tax income will she have to give up in order to enjoy the Mercedes?

When government spending flows to areas where resources are already fully employed,

During the 1980s,the top marginal tax rate on personal income was reduced from 70 percent to less than 40 percent and it has remained below 40 percent since that time.In recent years,the share of the personal income tax collected from the top one-half of one percent of earners has

Which of the following attributes of the recession of 2008-2009 is most supportive of the Keynesian view that the crowding-out effect will be minimal during a severe recession?

According to the critics of Keynesian economics,the rapid increase in government spending and large budget deficits in response to the recession of 2008-2009 would

Which of the following propositions would a proponent of supply-side economics be most likely to stress?

New classical economists stress that an increase in government expenditures financed by borrowing rather than taxes will

A substantial decrease in marginal tax rates will encourage individuals to

The tax reductions,increases in defense expenditures,and budget deficits of the 1980s are characteristic of

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

Filters