Question 1

From 1990 to the year 2000,real federal spending rose about 21 percent,while from 2000 to 2010,real federal spending rose by about

Accepted Answer

A) 17 percent. 
B) 30 percent. 
C) 59 percent. 
D) 112 percent. 
A) 17 percent. 
B) 30 percent. 
C) 59 percent. 
D) 112 percent.

Question 2

Which of the following is part of the synthesis view of fiscal policy?

Accepted Answer

A) During a severe recession,the best policy is a "balanced budget policy." 
B) During a recession,higher real interest rates and lower net exports will help direct the economy back to full employment. 
C) Since changes in discretionary policy are easy to time,fiscal policy should be altered in response to each minor disturbance. 
D) Automatic stabilizers help reduce the fluctuations in aggregate demand and output. 
A) During a severe recession,the best policy is a "balanced budget policy." 
B) During a recession,higher real interest rates and lower net exports will help direct the economy back to full employment. 
C) Since changes in discretionary policy are easy to time,fiscal policy should be altered in response to each minor disturbance. 
D) Automatic stabilizers help reduce the fluctuations in aggregate demand and output.

Question 3

According to the Keynesian view,the proper response to a severe recession would be

Accepted Answer

A) an increase in taxes in order to reduce the budget deficit. 
B) an increase in government spending financed by borrowing. 
C) a shift toward a restrictive monetary policy to reduce aggregate demand. 
D) reliance on automatic stabilizers to direct the economy toward full employment. 
A) an increase in taxes in order to reduce the budget deficit. 
B) an increase in government spending financed by borrowing. 
C) a shift toward a restrictive monetary policy to reduce aggregate demand. 
D) reliance on automatic stabilizers to direct the economy toward full employment.

Question 4

How will an increase in government expenditures during a recession be reflected in GDP?

Accepted Answer

A) An increase in government spending will reduce aggregate demand and decrease GDP. 
B) An increase in government spending will not affect GDP. 
C) An increase in government spending will increase GDP,but only if it is directed toward economically productive projects. 
D) The government spending will increase GDP even if the spending encourages rent seeking and other unproductive activities. 
A) An increase in government spending will reduce aggregate demand and decrease GDP. 
B) An increase in government spending will not affect GDP. 
C) An increase in government spending will increase GDP,but only if it is directed toward economically productive projects. 
D) The government spending will increase GDP even if the spending encourages rent seeking and other unproductive activities.

Question 5

According to new classical economists,the most appropriate policy during a recession would be for the government to

Accepted Answer

A) increase the minimum wage. 
B) impose wage and price controls. 
C) cut taxes and increase the budget deficit. 
D) do nothing. 
A) increase the minimum wage. 
B) impose wage and price controls. 
C) cut taxes and increase the budget deficit. 
D) do nothing.

Question 6

Which one of the following is an area of agreement among modern macroeconomists with regard to the use of fiscal policy?

Accepted Answer

A) Congressional action is necessary if automatic stabilizers are going to be an effective stabilization tool. 
B) It is difficult to time changes in discretionary fiscal policy in a manner that will promote stability. 
C) Fiscal policy is more potent than the early Keynesian view implied. 
D) Budget deficits are a highly effective tool with which to combat a severe recession. 
A) Congressional action is necessary if automatic stabilizers are going to be an effective stabilization tool. 
B) It is difficult to time changes in discretionary fiscal policy in a manner that will promote stability. 
C) Fiscal policy is more potent than the early Keynesian view implied. 
D) Budget deficits are a highly effective tool with which to combat a severe recession.

Question 7

Compared to a reduction in tax rates,a one-time tax rebate will exert

Accepted Answer

A) a weaker impact on aggregate demand because the increase in the incentive to earn and impact on long-term income will be smaller for the temporary tax cut. 
B) a stronger impact on aggregate demand because both the increase in the incentive to earn and impact on long-term income will be larger for the temporary tax cut. 
C) an identical impact on aggregate demand because the size of the budget deficit will be the same regardless of whether the tax cut is temporary or permanent. 
D) an identical impact on aggregate demand because the incentive effects of a tax cut will be the same regardless of whether it is temporary or permanent. 
A) a weaker impact on aggregate demand because the increase in the incentive to earn and impact on long-term income will be smaller for the temporary tax cut. 
B) a stronger impact on aggregate demand because both the increase in the incentive to earn and impact on long-term income will be larger for the temporary tax cut. 
C) an identical impact on aggregate demand because the size of the budget deficit will be the same regardless of whether the tax cut is temporary or permanent. 
D) an identical impact on aggregate demand because the incentive effects of a tax cut will be the same regardless of whether it is temporary or permanent.

Question 8

When the tax rates imposed on the rich are high,a reduction in these rates

Accepted Answer

A) will always lead to a reduction in the tax revenue collected from the rich. 
B) will not affect the tax revenue collected from the rich. 
C) will increase the reported incomes of the rich and it may also lead to an increase in tax revenue collected from them. 
D) will decrease the reported incomes of the rich,and thereby reduce the tax revenue collected from them. 
A) will always lead to a reduction in the tax revenue collected from the rich. 
B) will not affect the tax revenue collected from the rich. 
C) will increase the reported incomes of the rich and it may also lead to an increase in tax revenue collected from them. 
D) will decrease the reported incomes of the rich,and thereby reduce the tax revenue collected from them.

Question 9

Which of the following is the best test of whether a government program should be undertaken?

Accepted Answer

A) the total number of jobs created by the program 
B) value generated by the government program that exceeds the value of the production it crowds out 
C) the increase in GDP as a result of the government program 
D) approval by a majority in each of the two branches of Congress 
A) the total number of jobs created by the program 
B) value generated by the government program that exceeds the value of the production it crowds out 
C) the increase in GDP as a result of the government program 
D) approval by a majority in each of the two branches of Congress

Question 10

Which of the following statements is true?

Accepted Answer

A) The empirical evidence indicates that countries with higher marginal tax rates have higher economic growth rates. 
B) Unlike other policies,supply-side tax cuts have their full impact on an economy instantaneously. 
C) The supply-side effects of changes in marginal tax rates take place over lengthy time periods. 
D) In the 1960s and 1980s,when the marginal tax rates were reduced,the share of income taxes paid by high-income taxpayers fell. 
A) The empirical evidence indicates that countries with higher marginal tax rates have higher economic growth rates. 
B) Unlike other policies,supply-side tax cuts have their full impact on an economy instantaneously. 
C) The supply-side effects of changes in marginal tax rates take place over lengthy time periods. 
D) In the 1960s and 1980s,when the marginal tax rates were reduced,the share of income taxes paid by high-income taxpayers fell.

Question 11

Which of the following is an argument for tax cuts rather than government spending as a way to promote recovery from a recession?

Accepted Answer

A) Tax cuts are better suited to direct resources into projects that consumers value more highly than the resources required for their production. 
B) 100 percent of a tax cut will stimulate aggregate demand,but this will not be the case for an increase in government expenditures. 
C) Tax cuts will encourage rent seeking;increases in government spending will not. 
D) Tax cuts will change the structure of aggregate demand more than increases in government spending. 
A) Tax cuts are better suited to direct resources into projects that consumers value more highly than the resources required for their production. 
B) 100 percent of a tax cut will stimulate aggregate demand,but this will not be the case for an increase in government expenditures. 
C) Tax cuts will encourage rent seeking;increases in government spending will not. 
D) Tax cuts will change the structure of aggregate demand more than increases in government spending.

Question 12

Which of the following is true?

Accepted Answer

A) Modern forecasting methods make it relatively easy to time fiscal policy changes in a manner that will help stabilize the economy. 
B) Legislative action is necessary if automatic stabilizers are going to smooth the ups and downs of the business cycle. 
C) Proper timing of changes in discretionary fiscal policy is both crucially important and difficult to achieve. 
D) Both the crowding-out and new classical theories indicate that expansionary fiscal policy will exert a powerful impact on aggregate demand. 
A) Modern forecasting methods make it relatively easy to time fiscal policy changes in a manner that will help stabilize the economy. 
B) Legislative action is necessary if automatic stabilizers are going to smooth the ups and downs of the business cycle. 
C) Proper timing of changes in discretionary fiscal policy is both crucially important and difficult to achieve. 
D) Both the crowding-out and new classical theories indicate that expansionary fiscal policy will exert a powerful impact on aggregate demand.

Question 13

Which one of the following is an area of continued disagreement among modern macroeconomists with regard to the use of fiscal policy?

Accepted Answer

A) Automatic stabilizers help reduce the fluctuations in aggregate demand and output. 
B) It is difficult to time changes in discretionary fiscal policy in a manner that will promote stability. 
C) Fiscal policy is much less potent than the early Keynesian view implied. 
D) Budget deficits are a highly effective tool with which to combat a severe recession. 
A) Automatic stabilizers help reduce the fluctuations in aggregate demand and output. 
B) It is difficult to time changes in discretionary fiscal policy in a manner that will promote stability. 
C) Fiscal policy is much less potent than the early Keynesian view implied. 
D) Budget deficits are a highly effective tool with which to combat a severe recession.

Question 14

Which of the following provides the clearest statement of the Ricardian equivalence theorem?

Accepted Answer

A) Both an increase in government expenditures and a reduction in taxes will provide a substantial stimulus for aggregate demand. 
B) When additional debt is used to finance a tax cut,the lower taxes and higher interest rates will exert an equivalent impact on aggregate demand. 
C) The finance of government spending with additional debt is essentially the same thing as finance with higher taxes because the larger debt implies higher taxes in the future. 
D) A 10 percent reduction in tax rates will reduce tax revenues by 10 percent. 
A) Both an increase in government expenditures and a reduction in taxes will provide a substantial stimulus for aggregate demand. 
B) When additional debt is used to finance a tax cut,the lower taxes and higher interest rates will exert an equivalent impact on aggregate demand. 
C) The finance of government spending with additional debt is essentially the same thing as finance with higher taxes because the larger debt implies higher taxes in the future. 
D) A 10 percent reduction in tax rates will reduce tax revenues by 10 percent.

Question 15

Since the mid-1980s,the debt-to-income ratio of American households

Accepted Answer

A) has remained about the same as the previous 25 years. 
B) has been slowly declining. 
C) has fluctuated between about 55 and 70 percent of after-tax income. 
D) has rapidly increased. 
A) has remained about the same as the previous 25 years. 
B) has been slowly declining. 
C) has fluctuated between about 55 and 70 percent of after-tax income. 
D) has rapidly increased.

Question 16

Measured as a share of GDP,the net federal debt

Accepted Answer

A) increased during the 1990s,but fell sharply during 2001-2011. 
B) fell during most of the 1990s,but rose sharply during 2001-2011. 
C) was virtually unchanged during the 1990s,but fell sharply during 2001-2011. 
D) fell during the 1990s,but was virtually unchanged during 2001-2011. 
A) increased during the 1990s,but fell sharply during 2001-2011. 
B) fell during most of the 1990s,but rose sharply during 2001-2011. 
C) was virtually unchanged during the 1990s,but fell sharply during 2001-2011. 
D) fell during the 1990s,but was virtually unchanged during 2001-2011.

Question 17

It will be difficult to institute fiscal policy in a stabilizing manner because politicians will find

Accepted Answer

A) it more attractive to raise taxes than to increase spending. 
B) it attractive to increase taxes during a recession,but they will be reluctant to reduce them during an expansion. 
C) budget deficits attractive during a recession,but they will be reluctant to run budget surpluses during an expansion. 
D) budget surpluses attractive during a recession,but they will be reluctant to run budget deficits during an expansion. 
A) it more attractive to raise taxes than to increase spending. 
B) it attractive to increase taxes during a recession,but they will be reluctant to reduce them during an expansion. 
C) budget deficits attractive during a recession,but they will be reluctant to run budget surpluses during an expansion. 
D) budget surpluses attractive during a recession,but they will be reluctant to run budget deficits during an expansion.

Question 18

Kelly sells life insurance and is considering buying a $60,000 Mercedes for business purposes (thus,the expense reduces her taxable income).If Kelly 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) $24,000 
B) $36,000 
C) $30,000 
D) $84,000 
A) $24,000 
B) $36,000 
C) $30,000 
D) $84,000

Question 19

The most effective fiscal stimulus will

Accepted Answer

A) create jobs,even if the employment is on unproductive projects. 
B) substantially change the composition of aggregate demand. 
C) encourage interest groups to lobby more intensely and make larger political contributions. 
D) direct the economy to full employment and direct resources toward economically productive projects. 
A) create jobs,even if the employment is on unproductive projects. 
B) substantially change the composition of aggregate demand. 
C) encourage interest groups to lobby more intensely and make larger political contributions. 
D) direct the economy to full employment and direct resources toward economically productive projects.

Question 20

A supply-side economist would stress which of the following attributes of fiscal policy?

Accepted Answer

A) the impact of marginal tax rates on the supply and productivity of resources 
B) the impact of government spending on aggregate demand,output,and employment 
C) the impact of budget deficits on interest rates and aggregate demand 
D) the impact of budget deficits on the rate of taxation in the future 
A) the impact of marginal tax rates on the supply and productivity of resources 
B) the impact of government spending on aggregate demand,output,and employment 
C) the impact of budget deficits on interest rates and aggregate demand 
D) the impact of budget deficits on the rate of taxation in the future

Exam 12: Fiscal Policy, incentives, and Secondary Effects

From 1990 to the year 2000,real federal spending rose about 21 percent,while from 2000 to 2010,real federal spending rose by about

Which of the following is part of the synthesis view of fiscal policy?

According to the Keynesian view,the proper response to a severe recession would be

How will an increase in government expenditures during a recession be reflected in GDP?

According to new classical economists,the most appropriate policy during a recession would be for the government to

Which one of the following is an area of agreement among modern macroeconomists with regard to the use of fiscal policy?

Compared to a reduction in tax rates,a one-time tax rebate will exert

When the tax rates imposed on the rich are high,a reduction in these rates

Which of the following is the best test of whether a government program should be undertaken?

Which of the following statements is true?

Which of the following is an argument for tax cuts rather than government spending as a way to promote recovery from a recession?

Which of the following is true?

Which one of the following is an area of continued disagreement among modern macroeconomists with regard to the use of fiscal policy?

Which of the following provides the clearest statement of the Ricardian equivalence theorem?

Since the mid-1980s,the debt-to-income ratio of American households

Measured as a share of GDP,the net federal debt

It will be difficult to institute fiscal policy in a stabilizing manner because politicians will find

Kelly sells life insurance and is considering buying a $60,000 Mercedes for business purposes (thus,the expense reduces her taxable income).If Kelly 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?

The most effective fiscal stimulus will

A supply-side economist would stress which of the following attributes of fiscal policy?

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