Question 1

When household debt as a share of income is abnormally high,

Accepted Answer

A) rapid growth of consumption is likely to lead the recovery. 
B) the growth prospects of the economy will be excellent because high household debt is the key to a strong economy. 
C) the growth of consumption is likely to remain sluggish even as the economy begins to recover. 
D) consumers will be in a strong position to deal with irregular expenses. 
A) rapid growth of consumption is likely to lead the recovery. 
B) the growth prospects of the economy will be excellent because high household debt is the key to a strong economy. 
C) the growth of consumption is likely to remain sluggish even as the economy begins to recover. 
D) consumers will be in a strong position to deal with irregular expenses.

Question 2

If a fiscal policy change is going to exert a stabilizing impact on the economy,it must

Accepted Answer

A) add demand stimulus during a slowdown but restraint during an economic boom. 
B) exert an expansionary impact during all phases of the business cycle. 
C) restrain aggregate demand during all phases of the business cycle. 
D) keep the government's budget in balance. 
A) add demand stimulus during a slowdown but restraint during an economic boom. 
B) exert an expansionary impact during all phases of the business cycle. 
C) restrain aggregate demand during all phases of the business cycle. 
D) keep the government's budget in balance.

Question 3

The expansionary effects of an increase in government expenditures will tend to be offset,at least partially,if

Accepted Answer

A) government borrowing drives interest rates upward. 
B) taxes are not also increased. 
C) business decision makers and consumers become more optimistic as the result of the fiscal stimulus. 
D) the economy is operating well below its full-employment capacity. 
A) government borrowing drives interest rates upward. 
B) taxes are not also increased. 
C) business decision makers and consumers become more optimistic as the result of the fiscal stimulus. 
D) the economy is operating well below its full-employment capacity.

Question 4

Which of the following is true?

Accepted Answer

A) The expansionary fiscal policy of the 1980s stimulated aggregate demand and led to high rates of inflation during the latter half of the decade. 
B) The restrictive fiscal policy of the 1990s led to sluggish economic growth during the decade. 
C) Even though fiscal policy was highly expansionary during the 1980s,the inflation rate fell and remained at relatively low levels. 
D) Even though fiscal policy was restrictive during the 1990s,the real growth rate of the economy was strong. 
E) Both c and d are true. 
A) The expansionary fiscal policy of the 1980s stimulated aggregate demand and led to high rates of inflation during the latter half of the decade. 
B) The restrictive fiscal policy of the 1990s led to sluggish economic growth during the decade. 
C) Even though fiscal policy was highly expansionary during the 1980s,the inflation rate fell and remained at relatively low levels. 
D) Even though fiscal policy was restrictive during the 1990s,the real growth rate of the economy was strong. 
E) Both c and d are true.

Question 5

The new classical model implies that a

Accepted Answer

A) budget surplus will effectively retard inflation emanating from excess demand. 
B) budget deficit will increase the real interest rate. 
C) substitution of debt for tax financing will leave aggregate demand and real output unchanged. 
D) planned budget deficit will be a highly effective tool to combat a recession. 
A) budget surplus will effectively retard inflation emanating from excess demand. 
B) budget deficit will increase the real interest rate. 
C) substitution of debt for tax financing will leave aggregate demand and real output unchanged. 
D) planned budget deficit will be a highly effective tool to combat a recession.

Question 6

Between 1986 and 2010,the top marginal personal income tax rate was 40 percent or less compared to 70 percent or more prior to 1981.Compared to the earlier time period,in recent years the share of personal income taxes paid by high income taxpayers

Accepted Answer

A) has been lower. 
B) has been virtually unchanged. 
C) has been higher. 
D) increased in the late 1980s,but has been falling ever since. 
A) has been lower. 
B) has been virtually unchanged. 
C) has been higher. 
D) increased in the late 1980s,but has been falling ever since.

Question 7

Other things being constant,countries with higher rates of saving

Accepted Answer

A) will have smaller GDPs than countries with lower rates of saving. 
B) will have higher rates of investment,but slower growth. 
C) will have higher rates of investment and growth. 
D) will be operating at less than full employment and potential output. 
A) will have smaller GDPs than countries with lower rates of saving. 
B) will have higher rates of investment,but slower growth. 
C) will have higher rates of investment and growth. 
D) will be operating at less than full employment and potential output.

Question 8

The Japanese experience during the 1990s indicates that

Accepted Answer

A) budget deficits will promote recovery,but it may take as much as two years for them to be effective. 
B) increases in government expenditures financed by borrowing may not promote recovery. 
C) increases in government expenditures financed by borrowing will promote recovery. 
D) substantial budget surpluses will help promote recovery. 
A) budget deficits will promote recovery,but it may take as much as two years for them to be effective. 
B) increases in government expenditures financed by borrowing may not promote recovery. 
C) increases in government expenditures financed by borrowing will promote recovery. 
D) substantial budget surpluses will help promote recovery.

Question 9

If there is an increase in foreign financial investment in the United States as the result of large U.S.budget deficits and attractive interest yields,

Accepted Answer

A) fiscal policy will be more expansionary since there will be no crowding-out effect. 
B) fiscal policy will be more expansionary since U.S.residents will increase their savings,so they can repay the foreigners in the future. 
C) foreign exchange value of the dollar will depreciate,which will lead to an increase in net exports and aggregate demand. 
D) foreign exchange value of the dollar will appreciate,which will lead to a decrease in net exports and aggregate demand. 
A) fiscal policy will be more expansionary since there will be no crowding-out effect. 
B) fiscal policy will be more expansionary since U.S.residents will increase their savings,so they can repay the foreigners in the future. 
C) foreign exchange value of the dollar will depreciate,which will lead to an increase in net exports and aggregate demand. 
D) foreign exchange value of the dollar will appreciate,which will lead to a decrease in net exports and aggregate demand.

Question 10

Which of the following is true with regard to the use of countercyclical fiscal policy as a stabilization tool?

Accepted Answer

A) Successful fiscal policy would be easy to achieve if Congress had greater access to forecasting tools. 
B) Successful fiscal policy is difficult to achieve because Congress acts slowly and our ability to predict the future is limited. 
C) Successful fiscal policy is easier to achieve today because econometric forecasting models are highly accurate. 
D) Congress and the President have persistently altered fiscal policy in a stabilizing manner. 
A) Successful fiscal policy would be easy to achieve if Congress had greater access to forecasting tools. 
B) Successful fiscal policy is difficult to achieve because Congress acts slowly and our ability to predict the future is limited. 
C) Successful fiscal policy is easier to achieve today because econometric forecasting models are highly accurate. 
D) Congress and the President have persistently altered fiscal policy in a stabilizing manner.

Question 11

Increases in government expenditures and large budget deficits are projected for 2010-2019.If strong growth is observed during this decade,this would be most consistent with

Accepted Answer

A) the Keynesian view. 
B) the supply-side view. 
C) the crowding-out effect. 
D) the new classical theory. 
A) the Keynesian view. 
B) the supply-side view. 
C) the crowding-out effect. 
D) the new classical theory.

Question 12

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 new classical economist if the economy is operating at point a?

Accepted Answer

A) a tax increase to balance the 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 tax increase to balance the 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)

Question 13

If decreased government borrowing drives down real interest rates in the United States,

Accepted Answer

A) private investment will tend to decline. 
B) the dollar will depreciate leading to an increase in net exports. 
C) an inflow of capital will cause the dollar to depreciate. 
D) All of the above are true. 
A) private investment will tend to decline. 
B) the dollar will depreciate leading to an increase in net exports. 
C) an inflow of capital will cause the dollar to depreciate. 
D) All of the above are true.

Question 14

An increase in subsidies and other government spending during a recession is likely to result in

Accepted Answer

A) an increase in rent-seeking activity. 
B) an increase in productive projects and a reduction in unproductive projects. 
C) a decrease in the level of future taxes. 
D) greater reliance on profits and losses in the allocation of resources. 
A) an increase in rent-seeking activity. 
B) an increase in productive projects and a reduction in unproductive projects. 
C) a decrease in the level of future taxes. 
D) greater reliance on profits and losses in the allocation of resources.

Question 15

When resources are allocated politically,rent-seeking will

Accepted Answer

A) channel resources toward government programs that generate large benefits relative to costs. 
B) reduce GDP because it results in the wasteful use of resources. 
C) lead to wasteful,rather than productive,use of resources. 
D) improve the efficiency of resource use. 
A) channel resources toward government programs that generate large benefits relative to costs. 
B) reduce GDP because it results in the wasteful use of resources. 
C) lead to wasteful,rather than productive,use of resources. 
D) improve the efficiency of resource use.

Question 16

Higher standards of living are the result of

Accepted Answer

A) an increase in the general level of prices. 
B) trade restrictions that favor domestic industries over foreign competition. 
C) an increase in the availability of goods and services that people value. 
D) government subsidies that expand employment. 
A) an increase in the general level of prices. 
B) trade restrictions that favor domestic industries over foreign competition. 
C) an increase in the availability of goods and services that people value. 
D) government subsidies that expand employment.

Question 17

Which of the following is a potential drawback of an expansion of government spending projects during a recession?

Accepted Answer

A) Spending projects are easily reversed once the economy has recovered. 
B) Government spending projects are not included in the calculation of GDP. 
C) Those benefiting from spending projects will lobby for a continuation of these projects long after the economy has recovered. 
D) Government spending projects will not encourage rent-seeking activity. 
A) Spending projects are easily reversed once the economy has recovered. 
B) Government spending projects are not included in the calculation of GDP. 
C) Those benefiting from spending projects will lobby for a continuation of these projects long after the economy has recovered. 
D) Government spending projects will not encourage rent-seeking activity.

Question 18

According to the Keynesian view,expansionary fiscal policy will have its greatest impact

Accepted Answer

A) when planned aggregate expenditures equal total output. 
B) during a strong economic expansion. 
C) when widespread unemployment is present. 
D) during a period of severe inflation. 
A) when planned aggregate expenditures equal total output. 
B) during a strong economic expansion. 
C) when widespread unemployment is present. 
D) during a period of severe inflation.

Question 19

The modern synthesis view of fiscal policy stresses

Accepted Answer

A) how easy it is to time fiscal policy changes so they exert a stabilizing influence on the economy. 
B) the ineffectiveness of fiscal policy,even during periods of widespread unemployment. 
C) the difficulties involved in timing fiscal policy changes so they will exert a stabilizing impact on the economy. 
D) that automatic stabilizers do not help smooth fluctuations in the economy. 
A) how easy it is to time fiscal policy changes so they exert a stabilizing influence on the economy. 
B) the ineffectiveness of fiscal policy,even during periods of widespread unemployment. 
C) the difficulties involved in timing fiscal policy changes so they will exert a stabilizing impact on the economy. 
D) that automatic stabilizers do not help smooth fluctuations in the economy.

Question 20

Which of the following will make it difficult to institute fiscal policy in a stabilizing manner?

Accepted Answer

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

Exam 12: Fiscal Policy, incentives, and Secondary Effects

When household debt as a share of income is abnormally high,

If a fiscal policy change is going to exert a stabilizing impact on the economy,it must

The expansionary effects of an increase in government expenditures will tend to be offset,at least partially,if

Which of the following is true?

The new classical model implies that a

Between 1986 and 2010,the top marginal personal income tax rate was 40 percent or less compared to 70 percent or more prior to 1981.Compared to the earlier time period,in recent years the share of personal income taxes paid by high income taxpayers

Other things being constant,countries with higher rates of saving

The Japanese experience during the 1990s indicates that

If there is an increase in foreign financial investment in the United States as the result of large U.S.budget deficits and attractive interest yields,

Which of the following is true with regard to the use of countercyclical fiscal policy as a stabilization tool?

Increases in government expenditures and large budget deficits are projected for 2010-2019.If strong growth is observed during this decade,this would be most consistent with

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 new classical economist if the economy is operating at point a?

If decreased government borrowing drives down real interest rates in the United States,

An increase in subsidies and other government spending during a recession is likely to result in

When resources are allocated politically,rent-seeking will

Higher standards of living are the result of

Which of the following is a potential drawback of an expansion of government spending projects during a recession?

According to the Keynesian view,expansionary fiscal policy will have its greatest impact

The modern synthesis view of fiscal policy stresses

Which of the following will make it difficult to institute fiscal policy in a stabilizing manner?

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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