Question 1

A decrease in the tax rate will ________ the disposable income of households and ________ the size of the multiplier effect.

Accepted Answer

A) increase; increase 
B) decrease; increase 
C) increase; decrease 
D) decrease; decrease 
E) increase; not change 
A) increase; increase 
B) decrease; increase 
C) increase; decrease 
D) decrease; decrease 
E) increase; not change

Question 2

Fiscal policy refers to changes in

Accepted Answer

A) state and local taxes and purchases that are intended to achieve macroeconomic policy objectives. 
B) federal taxes and purchases that are intended to achieve macroeconomic policy objectives. 
C) federal taxes and purchases that are intended to fund the war on terrorism. 
D) the money supply and interest rates that are intended to achieve macroeconomic policy objectives. 
A) state and local taxes and purchases that are intended to achieve macroeconomic policy objectives. 
B) federal taxes and purchases that are intended to achieve macroeconomic policy objectives. 
C) federal taxes and purchases that are intended to fund the war on terrorism. 
D) the money supply and interest rates that are intended to achieve macroeconomic policy objectives.

Question 3

What is meant by crowding out? Explain the difference between crowding out in the short run and in the long run.

Accepted Answer

Crowding out refers to a decline in priv

Question 4

Figure 18-11
  
-Refer to Figure 18-11.In the graph above,the shift from AD₁ to AD₂ represents the total change in aggregate demand.If government purchases increased by $50 billion,then the distance from point A to point B ________ $50 billion.

Accepted Answer

A) would be equal to 
B) would be greater than 
C) would be less than 
D) may be greater than or less than 
A) would be equal to 
B) would be greater than 
C) would be less than 
D) may be greater than or less than

Question 5

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

Accepted Answer

A) automatic stabilizers. 
B) discretionary fiscal policy. 
C) discretionary monetary policy. 
D) automatic monetary policy. 
A) automatic stabilizers. 
B) discretionary fiscal policy. 
C) discretionary monetary policy. 
D) automatic monetary policy.

Question 6

In preparing their estimates of the stimulus package's effect on GDP,Obama administration economists estimated a government purchases multiplier of 1.57.This indicates that a $1 billion increase in government purchases would increase equilibrium real GDP by

Accepted Answer

A) $1 billion. 
B) $1.57 billion. 
C) $15.7 billion. 
D) $157 billion. 
A) $1 billion. 
B) $1.57 billion. 
C) $15.7 billion. 
D) $157 billion.

Question 7

During recessions,government expenditure automatically

Accepted Answer

A) falls because of programs such as unemployment insurance and Medicaid. 
B) rises because of programs such as unemployment insurance and Medicaid. 
C) falls because of the progressive income tax system. 
D) rises because of the progressive income tax system. 
A) falls because of programs such as unemployment insurance and Medicaid. 
B) rises because of programs such as unemployment insurance and Medicaid. 
C) falls because of the progressive income tax system. 
D) rises because of the progressive income tax system.

Question 8

Contractionary fiscal policy involves decreasing government purchases or increasing taxes.

Accepted Answer

A) True 
 B)False

Question 9

If real GDP is $300 billion below potential GDP and the tax multiplier equals -1.5,then how much would the government need to change taxes to bring the economy to equilibrium at potential?

Accepted Answer

The government would need to c

Question 10

An increase in individual income taxes ________ disposable income,which ________ consumption spending.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; decreases 
A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; decreases

Question 11

The fastest growing category of government expenditure is

Accepted Answer

A) grants to state and local governments. 
B) defense spending. 
C) transfer payments. 
D) government purchases. 
A) grants to state and local governments. 
B) defense spending. 
C) transfer payments. 
D) government purchases.

Question 12

Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability,high rates of economic growth,and high employment.

Accepted Answer

A) taxes; interest rates 
B) taxes; the money supply 
C) interest rates; money supply 
D) taxes; expenditures 
A) taxes; interest rates 
B) taxes; the money supply 
C) interest rates; money supply 
D) taxes; expenditures

Question 13

Following a decrease in government spending,as the price level falls we would expect the level of interest rates to ________ and investment to ________.

Accepted Answer

A) decrease; decrease 
B) decrease; increase 
C) increase; decrease 
D) increase; increase 
A) decrease; decrease 
B) decrease; increase 
C) increase; decrease 
D) increase; increase

Question 14

Which of the following is a reason why we should consider the federal national debt a problem?

Accepted Answer

A) The federal government is in danger of defaulting on its debt. 
B) If the debt drives up interest rates, crowding out will occur. 
C) If the debt was incurred to finance improvements in infrastructure, crowding out will occur. 
D) If the debt was incurred to finance research and development, crowding out will occur. 
A) The federal government is in danger of defaulting on its debt. 
B) If the debt drives up interest rates, crowding out will occur. 
C) If the debt was incurred to finance improvements in infrastructure, crowding out will occur. 
D) If the debt was incurred to finance research and development, crowding out will occur.

Question 15

A decrease in individual income taxes ________ disposable income,which ________ consumption spending.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; decreases 
A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; decreases

Question 16

Table 18-2
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2013 & \$ 14.0 \text { trillion } & \$ 14.0 \text { trillion } & 150 \
\hline 2014 & 14.5 \text { trillion } & 14.8 \text { trillion } & 154 \
\hline
\end{array}$$
-Refer to Table 18-2.Consider the hypothetical information in the table above for potential real GDP,real GDP and the price level in 2013 and in 2014 if the Congress and the president do not use fiscal policy.If the Congress and the president want to keep real GDP at its potential level in 2014,they should

Accepted Answer

A) buy Treasury securities. 
B) conduct expansionary fiscal policy. 
C) decrease government purchases. 
D) decrease the discount rate. 
A) buy Treasury securities. 
B) conduct expansionary fiscal policy. 
C) decrease government purchases. 
D) decrease the discount rate.

Question 17

Table 18-1
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2013 & \$ 14.0 \text { trillion } & \$ 14.0 \text { trillion } & 150 \
\hline 2014 & 14.5 \text { trillion } & 14.2 \text { trillion } & 152 \
\hline
\end{array}$$
-Refer to Table 18-1.Consider the hypothetical information in the table above for potential real GDP,real GDP and the price level in 2013 and in 2014 if the Congress and the president do not use fiscal policy.If the Congress and the president want to keep real GDP at its potential level in 2014,they should

Accepted Answer

A) decrease income taxes. 
B) decrease government purchases. 
C) decrease the money supply. 
D) increase the level of interest rates. 
A) decrease income taxes. 
B) decrease government purchases. 
C) decrease the money supply. 
D) increase the level of interest rates.

Question 18

How can tax simplification be beneficial to the economy?

Accepted Answer

Tax simplification would free up resourc

Question 19

The federal budget was in deficit from 1931 to 1939,except in the year 1937.Given this fact,how do you explain E.Cary Brown's statement,"Fiscal policy,then,seems to have been an unsuccessful recovery device in the 'thirties-not because it did not work,but because it was not tried."

Accepted Answer

Economist E.Cary Brown is arguing that w

Question 20

During the twentieth century,the largest budget deficits as a percentage of GDP occurred

Accepted Answer

A) during the 1990s. 
B) during the 1980s. 
C) during the Vietnam War. 
D) during World Wars I and II. 
A) during the 1990s. 
B) during the 1980s. 
C) during the Vietnam War. 
D) during World Wars I and II.

A decrease in the tax rate will the disposable income of households and the size of the multiplier effect.

Fiscal policy refers to changes in

What is meant by crowding out? Explain the difference between crowding out in the short run and in the long run.

Figure 18-11 -Refer to Figure 18-11.In the graph above,the shift from AD₁ to AD₂ represents the total change in aggregate demand.If government purchases increased by $50 billion,then the distance from point A to point B ________ $50 billion.

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

In preparing their estimates of the stimulus package's effect on GDP,Obama administration economists estimated a government purchases multiplier of 1.57.This indicates that a $1 billion increase in government purchases would increase equilibrium real GDP by

During recessions,government expenditure automatically

Contractionary fiscal policy involves decreasing government purchases or increasing taxes.

If real GDP is $300 billion below potential GDP and the tax multiplier equals -1.5,then how much would the government need to change taxes to bring the economy to equilibrium at potential?

An increase in individual income taxes disposable income,which consumption spending.

The fastest growing category of government expenditure is

Fiscal policy is defined as changes in federal and to achieve macroeconomic objectives such as price stability,high rates of economic growth,and high employment.

Following a decrease in government spending,as the price level falls we would expect the level of interest rates to and investment to .

Which of the following is a reason why we should consider the federal national debt a problem?

A decrease in individual income taxes disposable income,which consumption spending.

How can tax simplification be beneficial to the economy?

The federal budget was in deficit from 1931 to 1939,except in the year 1937.Given this fact,how do you explain E.Cary Brown's statement,"Fiscal policy,then,seems to have been an unsuccessful recovery device in the 'thirties-not because it did not work,but because it was not tried."

During the twentieth century,the largest budget deficits as a percentage of GDP occurred

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Exam 18: Fiscal Policy

A decrease in the tax rate will ________ the disposable income of households and ________ the size of the multiplier effect.

Fiscal policy refers to changes in

What is meant by crowding out? Explain the difference between crowding out in the short run and in the long run.

Figure 18-11 -Refer to Figure 18-11.In the graph above,the shift from AD₁ to AD₂ represents the total change in aggregate demand.If government purchases increased by $50 billion,then the distance from point A to point B ________ $50 billion.

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

In preparing their estimates of the stimulus package's effect on GDP,Obama administration economists estimated a government purchases multiplier of 1.57.This indicates that a $1 billion increase in government purchases would increase equilibrium real GDP by

During recessions,government expenditure automatically

Contractionary fiscal policy involves decreasing government purchases or increasing taxes.

If real GDP is $300 billion below potential GDP and the tax multiplier equals -1.5,then how much would the government need to change taxes to bring the economy to equilibrium at potential?

An increase in individual income taxes ________ disposable income,which ________ consumption spending.

The fastest growing category of government expenditure is

Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability,high rates of economic growth,and high employment.

Following a decrease in government spending,as the price level falls we would expect the level of interest rates to ________ and investment to ________.

Which of the following is a reason why we should consider the federal national debt a problem?

A decrease in individual income taxes ________ disposable income,which ________ consumption spending.

How can tax simplification be beneficial to the economy?

The federal budget was in deficit from 1931 to 1939,except in the year 1937.Given this fact,how do you explain E.Cary Brown's statement,"Fiscal policy,then,seems to have been an unsuccessful recovery device in the 'thirties-not because it did not work,but because it was not tried."

During the twentieth century,the largest budget deficits as a percentage of GDP occurred

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

A decrease in the tax rate will the disposable income of households and the size of the multiplier effect.

An increase in individual income taxes disposable income,which consumption spending.

Fiscal policy is defined as changes in federal and to achieve macroeconomic objectives such as price stability,high rates of economic growth,and high employment.

Following a decrease in government spending,as the price level falls we would expect the level of interest rates to and investment to .

A decrease in individual income taxes disposable income,which consumption spending.