Question 1

Which of the following attributes of fiscal policy will most likely be stressed by a proponent of supply-side economics?

Accepted Answer

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

Question 2

The supply-side effects of a reduction in taxes are the result of

Accepted Answer

A) increases in the disposable income of households accompanying reductions in tax rates. 
B) the stimulus effects of increases in government expenditures. 
C) increased attractiveness of productive activity relative to leisure and tax avoidance. 
D) reductions in interest rates that generally accompany expansionary fiscal policy. 
A) increases in the disposable income of households accompanying reductions in tax rates. 
B) the stimulus effects of increases in government expenditures. 
C) increased attractiveness of productive activity relative to leisure and tax avoidance. 
D) reductions in interest rates that generally accompany expansionary fiscal policy.

Question 3

Which of the following is a consensus view among economists with regard to fiscal policy?

Accepted Answer

A) Changes in fiscal policy exert a strong influence on real output,just as the basic Keynesian model suggests. 
B) Expansionary fiscal policy will not help promote recovery from a recession. 
C) Restrictive fiscal policy is a potent anti-inflationary weapon. 
D) Since changes in discretionary policy are difficult to time correctly,fiscal policy should not be altered in response to each minor disturbance. 
A) Changes in fiscal policy exert a strong influence on real output,just as the basic Keynesian model suggests. 
B) Expansionary fiscal policy will not help promote recovery from a recession. 
C) Restrictive fiscal policy is a potent anti-inflationary weapon. 
D) Since changes in discretionary policy are difficult to time correctly,fiscal policy should not be altered in response to each minor disturbance.

Question 4

If a reduction in government borrowing leads to lower real interest rates in the United States,

Accepted Answer

A) U.S.investors will decrease their investments abroad. 
B) U.S.exports will decrease relative to imports. 
C) the inflow of loanable funds from abroad will moderate the fall in the real rate of interest. 
D) the dollar will depreciate in the foreign exchange market. 
A) U.S.investors will decrease their investments abroad. 
B) U.S.exports will decrease relative to imports. 
C) the inflow of loanable funds from abroad will moderate the fall in the real rate of interest. 
D) the dollar will depreciate in the foreign exchange market.

Question 5

The new classical model implies that the effect of government increasing expenditures by debt financing

Accepted Answer

A) has the same effect as if it was financed by raising current taxes. 
B) is highly expansionary on aggregate demand and the economy. 
C) will result in higher real interest rates. 
D) will result in lower personal savings. 
A) has the same effect as if it was financed by raising current taxes. 
B) is highly expansionary on aggregate demand and the economy. 
C) will result in higher real interest rates. 
D) will result in lower personal savings.

Question 6

The new classical model implies that a shift to a more expansionary fiscal policy will

Accepted Answer

A) stimulate aggregate demand and employment. 
B) retard aggregate demand and employment. 
C) increase the real rate of interest. 
D) exert little or no impact on the real interest rate,aggregate demand,and employment. 
A) stimulate aggregate demand and employment. 
B) retard aggregate demand and employment. 
C) increase the real rate of interest. 
D) exert little or no impact on the real interest rate,aggregate demand,and employment.

Question 7

Historically,Keynesian economists have argued that government spending will stimulate aggregate demand more than tax cuts because

Accepted Answer

A) government spending will stimulate aggregate demand more quickly than a tax cut. 
B) there are fewer adverse side effects to an increase in government spending. 
C) all of the spending will add to aggregate demand,but a portion of the tax cut will be saved. 
D) an increase in government spending can quickly be reversed once the economy has recovered. 
A) government spending will stimulate aggregate demand more quickly than a tax cut. 
B) there are fewer adverse side effects to an increase in government spending. 
C) all of the spending will add to aggregate demand,but a portion of the tax cut will be saved. 
D) an increase in government spending can quickly be reversed once the economy has recovered.

Question 8

The fiscal policy response to the recession of 2008-2009 was

Accepted Answer

A) a substantial increase in the budget deficit just as Keynesian analysis would recommend. 
B) a balanced budget,just as Keynesian analysis would recommend. 
C) a substantial increase in the budget deficit,which was highly inconsistent with Keynesian analysis. 
D) a shift of the federal budget toward a large surplus,which reflected the views of the critics of Keynesian economics. 
A) a substantial increase in the budget deficit just as Keynesian analysis would recommend. 
B) a balanced budget,just as Keynesian analysis would recommend. 
C) a substantial increase in the budget deficit,which was highly inconsistent with Keynesian analysis. 
D) a shift of the federal budget toward a large surplus,which reflected the views of the critics of Keynesian economics.

Question 9

Government spending programs that create jobs are often popular because

Accepted Answer

A) the created jobs are highly visible,while the secondary effects of lost jobs in other areas,higher interest rates,and higher future taxes are less visible. 
B) if a spending program is approved by Congress,it means that the value of what is produced is greater than the value of the resources used to produce it. 
C) the benefits of job creation are always greater than the costs.Jobs are the key to economic progress. 
D) when spending programs are funded by the government there are no secondary effects. 
A) the created jobs are highly visible,while the secondary effects of lost jobs in other areas,higher interest rates,and higher future taxes are less visible. 
B) if a spending program is approved by Congress,it means that the value of what is produced is greater than the value of the resources used to produce it. 
C) the benefits of job creation are always greater than the costs.Jobs are the key to economic progress. 
D) when spending programs are funded by the government there are no secondary effects.

Question 10

The crowding-out effect implies that budget deficits will

Accepted Answer

A) increase real interest rates and lower the future stock of private capital. 
B) decrease real interest rates and increase the future stock of private capital. 
C) increase the productivity of workers in the future. 
D) lead to higher levels of income for workers in the future. 
A) increase real interest rates and lower the future stock of private capital. 
B) decrease real interest rates and increase the future stock of private capital. 
C) increase the productivity of workers in the future. 
D) lead to higher levels of income for workers in the future.

Question 11

The crowding-out effect stresses that increased government borrowing to cover a budget deficit will cause

Accepted Answer

A) a higher interest rate and depreciation of the U.S.dollar. 
B) a higher interest rate and appreciation of the U.S.dollar. 
C) a lower interest rate and depreciation of the U.S.dollar. 
D) a lower interest rate and appreciation of the U.S.dollar. 
E) no change in the interest rate and depreciation of the U.S.dollar. 
A) a higher interest rate and depreciation of the U.S.dollar. 
B) a higher interest rate and appreciation of the U.S.dollar. 
C) a lower interest rate and depreciation of the U.S.dollar. 
D) a lower interest rate and appreciation of the U.S.dollar. 
E) no change in the interest rate and depreciation of the U.S.dollar.

Question 12

Supply-side economic policies are best viewed as

Accepted Answer

A) a short-run countercyclical tool. 
B) a long-run strategy to promote economic growth. 
C) a strategy for the control of long-run inflation. 
D) a stabilization tool to smooth the ups and downs of the business cycle. 
A) a short-run countercyclical tool. 
B) a long-run strategy to promote economic growth. 
C) a strategy for the control of long-run inflation. 
D) a stabilization tool to smooth the ups and downs of the business cycle.

Question 13

Which of the following most clearly states the "paradox of thrift"?

Accepted Answer

A) If households simultaneously attempt to increase their savings,the result may be a reduction in demand,output,and total savings. 
B) A strong,healthy economy can be achieved if most households are heavily in debt. 
C) A high savings rate will provide the funds for investment,which is a driving force of long-term economic growth. 
D) A reduction in savings and an increase in consumption will expand output and employment. 
A) If households simultaneously attempt to increase their savings,the result may be a reduction in demand,output,and total savings. 
B) A strong,healthy economy can be achieved if most households are heavily in debt. 
C) A high savings rate will provide the funds for investment,which is a driving force of long-term economic growth. 
D) A reduction in savings and an increase in consumption will expand output and employment.

Question 14

If the government cuts the tax rate,workers get to keep

Accepted Answer

A) less of each additional dollar they earn,so work effort increases,and aggregate supply shifts right. 
B) less of each additional dollar they earn,so work effort decreases,and aggregate supply shifts left. 
C) more of each additional dollar they earn,so work effort increases,and aggregate supply shifts right. 
D) more of each additional dollar they earn,so work effort decreases,and aggregate supply shifts left. 
A) less of each additional dollar they earn,so work effort increases,and aggregate supply shifts right. 
B) less of each additional dollar they earn,so work effort decreases,and aggregate supply shifts left. 
C) more of each additional dollar they earn,so work effort increases,and aggregate supply shifts right. 
D) more of each additional dollar they earn,so work effort decreases,and aggregate supply shifts left.

Question 15

The crowding-out effect refers to the possibility that an

Accepted Answer

A) increase in the money supply will result in a decline in taxes. 
B) increase in consumption spending will crowd out government spending. 
C) increase in private savings will crowd out the taxable income of households. 
D) increase in government borrowing will result in higher interest rates,which will crowd out private investment and consumption. 
A) increase in the money supply will result in a decline in taxes. 
B) increase in consumption spending will crowd out government spending. 
C) increase in private savings will crowd out the taxable income of households. 
D) increase in government borrowing will result in higher interest rates,which will crowd out private investment and consumption.

Question 16

How will a high level of saving impact long-run economic growth?

Accepted Answer

A) Saving will drive interest rates higher,and thereby increase the returns to investment and stimulate growth. 
B) Saving provides the source of investment capital that allows businesses to expand production and the economy to grow. 
C) Saving will reduce consumption,and thereby retard economic growth. 
D) Saving will reduce the funds available for investment and thereby retard entrepreneurship and economic growth. 
A) Saving will drive interest rates higher,and thereby increase the returns to investment and stimulate growth. 
B) Saving provides the source of investment capital that allows businesses to expand production and the economy to grow. 
C) Saving will reduce consumption,and thereby retard economic growth. 
D) Saving will reduce the funds available for investment and thereby retard entrepreneurship and economic growth.

Question 17

Reductions in personal income tax rates that increase labor supply and work effort,can be expected to also

Accepted Answer

A) decrease consumption spending. 
B) increase consumption spending. 
C) decrease investment spending. 
D) increase export sales. 
A) decrease consumption spending. 
B) increase consumption spending. 
C) decrease investment spending. 
D) increase export sales.

Question 18

The crowding-out effect implies that restrictive fiscal policy will

Accepted Answer

A) increase aggregate demand and employment. 
B) lead to a significant increase in the natural rate of unemployment. 
C) be highly effective against inflation. 
D) reduce real interest rates. 
A) increase aggregate demand and employment. 
B) lead to a significant increase in the natural rate of unemployment. 
C) be highly effective against inflation. 
D) reduce real interest rates.

Question 19

The new classical model states that a

Accepted Answer

A) budget surplus will effectively retard inflation that comes from excess demand. 
B) budget deficit will have no impact on real interest rates. 
C) budget deficit will increase the real interest rate. 
D) substitution of debt for tax financing will increase aggregate demand and real output. 
A) budget surplus will effectively retard inflation that comes from excess demand. 
B) budget deficit will have no impact on real interest rates. 
C) budget deficit will increase the real interest rate. 
D) substitution of debt for tax financing will increase aggregate demand and real output.

Question 20

Increases in government expenditures and large budget deficits are projected for 2010-2019.If the economic recovery is weak and growth is sluggish during this decade,this will be

Accepted Answer

A) supportive of the Keynesian view,but inconsistent with the crowding-out,new classical,and supply-side theories. 
B) inconsistent with the Keynesian view,but supportive of the crowding-out,new classical,and supply-side theories. 
C) inconsistent with both Keynesian and non-Keynesian theories. 
D) supportive of both Keynesian and non-Keynesian theories. 
A) supportive of the Keynesian view,but inconsistent with the crowding-out,new classical,and supply-side theories. 
B) inconsistent with the Keynesian view,but supportive of the crowding-out,new classical,and supply-side theories. 
C) inconsistent with both Keynesian and non-Keynesian theories. 
D) supportive of both Keynesian and non-Keynesian theories.

Exam 12: Fiscal Policy, incentives, and Secondary Effects

Which of the following attributes of fiscal policy will most likely be stressed by a proponent of supply-side economics?

The supply-side effects of a reduction in taxes are the result of

Which of the following is a consensus view among economists with regard to fiscal policy?

If a reduction in government borrowing leads to lower real interest rates in the United States,

The new classical model implies that the effect of government increasing expenditures by debt financing

The new classical model implies that a shift to a more expansionary fiscal policy will

Historically,Keynesian economists have argued that government spending will stimulate aggregate demand more than tax cuts because

The fiscal policy response to the recession of 2008-2009 was

Government spending programs that create jobs are often popular because

The crowding-out effect implies that budget deficits will

The crowding-out effect stresses that increased government borrowing to cover a budget deficit will cause

Supply-side economic policies are best viewed as

Which of the following most clearly states the "paradox of thrift"?

If the government cuts the tax rate,workers get to keep

The crowding-out effect refers to the possibility that an

How will a high level of saving impact long-run economic growth?

Reductions in personal income tax rates that increase labor supply and work effort,can be expected to also

The crowding-out effect implies that restrictive fiscal policy will

The new classical model states that a

Increases in government expenditures and large budget deficits are projected for 2010-2019.If the economic recovery is weak and growth is sluggish during this decade,this will be

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