Question 1

According to the new classical view,budget deficits will

Accepted Answer

A) cause real interest rates to rise,which will decrease aggregate demand,output,and employment. 
B) lead to an expansion in spending,which will stimulate both real output and employment. 
C) fail to stimulate aggregate demand because people will save more in order to pay the higher future taxes implied by the expansion in government debt. 
D) lead to inflation because the deficits expand the money supply. 
A) cause real interest rates to rise,which will decrease aggregate demand,output,and employment. 
B) lead to an expansion in spending,which will stimulate both real output and employment. 
C) fail to stimulate aggregate demand because people will save more in order to pay the higher future taxes implied by the expansion in government debt. 
D) lead to inflation because the deficits expand the money supply.

Question 2

Public choice analysis indicates that politicians will find

Accepted Answer

A) budget deficits more attractive than budget surpluses. 
B) budget surpluses more attractive than budget deficits. 
C) budget deficits attractive during an economic boom,but surpluses attractive during a recession. 
D) tax increases more attractive than increases in government spending. 
A) budget deficits more attractive than budget surpluses. 
B) budget surpluses more attractive than budget deficits. 
C) budget deficits attractive during an economic boom,but surpluses attractive during a recession. 
D) tax increases more attractive than increases in government spending.

Question 3

The crowding-out effect implies that a

Accepted Answer

A) budget surplus will be highly effective against inflation. 
B) budget deficit is likely to stimulate aggregate demand and cause inflation. 
C) budget deficit will increase real interest rates and,thereby,retard private spending. 
D) budget surplus will retard aggregate demand and throw the economy into a downward spiral. 
A) budget surplus will be highly effective against inflation. 
B) budget deficit is likely to stimulate aggregate demand and cause inflation. 
C) budget deficit will increase real interest rates and,thereby,retard private spending. 
D) budget surplus will retard aggregate demand and throw the economy into a downward spiral.

Question 4

If policymakers cut taxes because they perceive that recession is a major threat,a proponent of the new classical view will be most likely to argue that the tax cut is

Accepted Answer

A) highly appropriate because it will stimulate aggregate demand and,thereby,help to strengthen the economy. 
B) highly inappropriate because it will exert a restrictive impact on aggregate demand,output,and employment. 
C) not very important because the "demand stimulus effects" of the tax cut will be largely offset by additional borrowing and higher interest rates. 
D) not very important because the "demand stimulus effects" of lower current taxes will be largely offset by the expectation of higher taxes in the future. 
A) highly appropriate because it will stimulate aggregate demand and,thereby,help to strengthen the economy. 
B) highly inappropriate because it will exert a restrictive impact on aggregate demand,output,and employment. 
C) not very important because the "demand stimulus effects" of the tax cut will be largely offset by additional borrowing and higher interest rates. 
D) not very important because the "demand stimulus effects" of lower current taxes will be largely offset by the expectation of higher taxes in the future.

Question 5

Which of the following is most likely to increase the incentive to invest,produce,and employ others?

Accepted Answer

A) an increase in government expenditures to provide subsidies for large banks that made bad investment decisions 
B) an increase in government expenditures that changes the composition of aggregate demand 
C) a reduction in tax rates 
D) an increase in payments to unemployed workers financed by borrowing 
A) an increase in government expenditures to provide subsidies for large banks that made bad investment decisions 
B) an increase in government expenditures that changes the composition of aggregate demand 
C) a reduction in tax rates 
D) an increase in payments to unemployed workers financed by borrowing

Question 6

Supply-side economics concentrates on the benefits of reducing marginal tax rates.Describe three ways that high marginal tax rates are likely to retard output growth.

Accepted Answer

The most direct way that high tax rates

Question 7

Expansionary fiscal policy financed by government borrowing can lead to

Accepted Answer

A) higher interest rates and lower private investment under the crowding-out view. 
B) an increase in aggregate demand under the Keynesian view. 
C) no change in aggregate demand under the new classical view. 
D) all of the above. 
A) higher interest rates and lower private investment under the crowding-out view. 
B) an increase in aggregate demand under the Keynesian view. 
C) no change in aggregate demand under the new classical view. 
D) all of the above.

Question 8

During 2001-2011,the federal budget deficit

Accepted Answer

A) expanded and real government spending increased rapidly,indicating that fiscal policy was restrictive. 
B) expanded and real government spending increased rapidly,indicating that fiscal policy was expansionary. 
C) declined and real government spending fell,indicating that fiscal policy was restrictive. 
D) declined and real government spending fell,indicating that fiscal policy was expansionary. 
A) expanded and real government spending increased rapidly,indicating that fiscal policy was restrictive. 
B) expanded and real government spending increased rapidly,indicating that fiscal policy was expansionary. 
C) declined and real government spending fell,indicating that fiscal policy was restrictive. 
D) declined and real government spending fell,indicating that fiscal policy was expansionary.

Question 9

The coordination problem accompanying expansionary fiscal policy refers to

Accepted Answer

A) the tendency of increases in government expenditures to expand private sector output by an even larger amount. 
B) the possibility that demand stimulus programs will direct resources toward unproductive projects and areas of full employment. 
C) the possibility that borrowing to finance current spending will lead to lower future interest rates. 
D) the reluctance of Congress to approve increases in government spending during a recession. 
A) the tendency of increases in government expenditures to expand private sector output by an even larger amount. 
B) the possibility that demand stimulus programs will direct resources toward unproductive projects and areas of full employment. 
C) the possibility that borrowing to finance current spending will lead to lower future interest rates. 
D) the reluctance of Congress to approve increases in government spending during a recession.

Question 10

Budget projections for 2010-2019 indicate both higher levels of government spending and large budget deficits.According to the Keynesian view,this will lead to

Accepted Answer

A) an increase in aggregate supply during that decade. 
B) weak aggregate demand and a continuation of recessionary conditions. 
C) an increase in aggregate demand and real output. 
D) higher interest rates and taxes that will retard future growth. 
A) an increase in aggregate supply during that decade. 
B) weak aggregate demand and a continuation of recessionary conditions. 
C) an increase in aggregate demand and real output. 
D) higher interest rates and taxes that will retard future growth.

Question 11

Increases in government expenditures and large budget deficits are projected for 2010-2019.The crowding-out and new classical views indicate this fiscal policy will lead to

Accepted Answer

A) lower interest rates and tax rates that will enhance economic growth. 
B) higher interest rates and tax rates that will slow economic growth. 
C) increases in aggregate demand that will lead to strong economic growth. 
D) high rates of future inflation. 
A) lower interest rates and tax rates that will enhance economic growth. 
B) higher interest rates and tax rates that will slow economic growth. 
C) increases in aggregate demand that will lead to strong economic growth. 
D) high rates of future inflation.

Exam 12: Fiscal Policy, incentives, and Secondary Effects

According to the new classical view,budget deficits will

Public choice analysis indicates that politicians will find

The crowding-out effect implies that a

If policymakers cut taxes because they perceive that recession is a major threat,a proponent of the new classical view will be most likely to argue that the tax cut is

Which of the following is most likely to increase the incentive to invest,produce,and employ others?

Supply-side economics concentrates on the benefits of reducing marginal tax rates.Describe three ways that high marginal tax rates are likely to retard output growth.

Expansionary fiscal policy financed by government borrowing can lead to

During 2001-2011,the federal budget deficit

The coordination problem accompanying expansionary fiscal policy refers to

Budget projections for 2010-2019 indicate both higher levels of government spending and large budget deficits.According to the Keynesian view,this will lead to

Increases in government expenditures and large budget deficits are projected for 2010-2019.The crowding-out and new classical views indicate this fiscal policy will lead to

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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