Question 1

Economists who believe the supply-side effects of tax cuts are small essentially believe that

Accepted Answer

A) tax cuts mainly affect aggregate demand. 
B) tax cuts mainly affect aggregate supply. 
C) tax cuts will increase the quantity of labor supplied. 
D) tax cuts will result in relatively small changes in the price level. 
A) tax cuts mainly affect aggregate demand. 
B) tax cuts mainly affect aggregate supply. 
C) tax cuts will increase the quantity of labor supplied. 
D) tax cuts will result in relatively small changes in the price level.

Question 2

The use of fiscal policy to stabilize the economy is limited because

Accepted Answer

A) changes in government spending and tax rates have a small effect on aggregate demand. 
B) changes in government spending and tax rates have a small effect on interest rates. 
C) the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way. 
D) the Internal Revenue Service (IRS)resists changes in tax rates because of all the changes they would have to make to the tax code. 
A) changes in government spending and tax rates have a small effect on aggregate demand. 
B) changes in government spending and tax rates have a small effect on interest rates. 
C) the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way. 
D) the Internal Revenue Service (IRS)resists changes in tax rates because of all the changes they would have to make to the tax code.

Question 3

Long lags associated with the legislative process in implementing fiscal policy make it more difficult to use than monetary policy.

Accepted Answer

A) True 
 B)False

Question 4

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Accepted Answer

A) higher; higher 
B) higher; lower 
C) lower; higher 
D) lower; lower 
A) higher; higher 
B) higher; lower 
C) lower; higher 
D) lower; lower

Question 5

If real equilibrium GDP is above potential GDP,expansionary fiscal policy should be pursued.

Accepted Answer

A) True 
 B)False

Question 6

Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?

Accepted Answer

The tax rate affects how much of the add

Question 7

Figure 18-5
  
-Refer to Figure 18-5.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,Congress and the president would most likely

Accepted Answer

A) decrease government spending. 
B) increase government spending. 
C) increase oil prices. 
D) increase taxes. 
E) lower interest rates. 
A) decrease government spending. 
B) increase government spending. 
C) increase oil prices. 
D) increase taxes. 
E) lower interest rates.

Question 8

Before the Great Depression of the 1930s,the majority of government spending took place at the ________ and after the Great Depression the majority of government spending took place at the ________.

Accepted Answer

A) state and local levels; federal level 
B) local level; federal level 
C) federal level; state and local levels 
D) federal level; state level 
A) state and local levels; federal level 
B) local level; federal level 
C) federal level; state and local levels 
D) federal level; state level

Question 9

The Federal Reserve plays a larger role than Congress and the president in stabilizing the economy because

Accepted Answer

A) the Federal Reserve can more quickly change monetary policy than the president and the Congress can change fiscal policy. 
B) the Federal Reserve can immediately recognize when real GDP is below or above potential GDP. 
C) changes in interest rates have a considerably larger effect on the economy than changes in government purchases or taxes. 
D) changes in interest rates have their full effect on the economy in a short period of time, whereas changes in government spending and taxes have their full effect over a long period of time. 
A) the Federal Reserve can more quickly change monetary policy than the president and the Congress can change fiscal policy. 
B) the Federal Reserve can immediately recognize when real GDP is below or above potential GDP. 
C) changes in interest rates have a considerably larger effect on the economy than changes in government purchases or taxes. 
D) changes in interest rates have their full effect on the economy in a short period of time, whereas changes in government spending and taxes have their full effect over a long period of time.

Question 10

The tax multiplier

Accepted Answer

A) is negative. 
B) is larger in absolute value as compared to the government spending multiplier. 
C) is a measure of how much taxes will fall when income is falling. 
D) is always less than one. 
A) is negative. 
B) is larger in absolute value as compared to the government spending multiplier. 
C) is a measure of how much taxes will fall when income is falling. 
D) is always less than one.

Question 11

Suppose the government spending multiplier is 2.The federal government cuts spending by $40 billion.What is the change in GDP if the price level is not held constant?

Accepted Answer

A) an increase of less than $80 billion 
B) an increase equal to $80 billion 
C) an increase of greater than $80 billion 
D) a decrease of less than $80 billion 
E) a decrease of more than $80 billion 
A) an increase of less than $80 billion 
B) an increase equal to $80 billion 
C) an increase of greater than $80 billion 
D) a decrease of less than $80 billion 
E) a decrease of more than $80 billion

Question 12

What is the difference between fiscal policy and monetary policy?

Accepted Answer

Fiscal policy involves changes in federa

Question 13

In the case of an upward-sloping aggregate supply curve,the change in real GDP brought about by a change in government spending will be less than that predicted by the simple government purchases multiplier.

Accepted Answer

A) True 
 B)False

Question 14

Social Security began as a "pay-as-you-go" system,meaning that payments to current retirees were paid

Accepted Answer

A) from taxes collected from current workers. 
B) from taxes collected from retired workers. 
C) as long as the government had funds available. 
D) as the government collected revenues from tariffs and excise taxes in the years Social Security payments were made. 
A) from taxes collected from current workers. 
B) from taxes collected from retired workers. 
C) as long as the government had funds available. 
D) as the government collected revenues from tariffs and excise taxes in the years Social Security payments were made.

Question 15

What are the key differences between how we illustrate an expansionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

Accepted Answer

In the basic aggregate demand and aggreg

Question 16

Historically,the largest U.S.federal budget deficits as a percentage of GDP in the 20th century occurred during

Accepted Answer

A) World War I and World War II. 
B) the Great Depression. 
C) 1970-1997. 
D) the Vietnam war. 
E) 1998-1999. 
A) World War I and World War II. 
B) the Great Depression. 
C) 1970-1997. 
D) the Vietnam war. 
E) 1998-1999.

Question 17

Illustrate and explain the effects of tax reduction and simplification using the dynamic aggregate demand and supply model.To simplify the analysis,assume that aggregate demand is not affected by the tax cut.

Accepted Answer

@#IMG-DLM& 
The economy's initial equilibrium is a

Question 18

What is fiscal policy,and who is responsible for fiscal policy?

Accepted Answer

Fiscal policy refers to change

Question 19

Tax cuts on business income increase aggregate demand by increasing

Accepted Answer

A) business investment spending. 
B) consumption spending. 
C) government spending. 
D) wage rates. 
A) business investment spending. 
B) consumption spending. 
C) government spending. 
D) wage rates.

Question 20

If policy makers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply,the appropriate fiscal policy response is to

Accepted Answer

A) increase taxes. 
B) increase government spending. 
C) use expansionary fiscal policy. 
D) increase interest rates. 
A) increase taxes. 
B) increase government spending. 
C) use expansionary fiscal policy. 
D) increase interest rates.

Economists who believe the supply-side effects of tax cuts are small essentially believe that

The use of fiscal policy to stabilize the economy is limited because

Long lags associated with the legislative process in implementing fiscal policy make it more difficult to use than monetary policy.

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be and real GDP to be .

If real equilibrium GDP is above potential GDP,expansionary fiscal policy should be pursued.

Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?

Figure 18-5 -Refer to Figure 18-5.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,Congress and the president would most likely

Before the Great Depression of the 1930s,the majority of government spending took place at the and after the Great Depression the majority of government spending took place at the .

The Federal Reserve plays a larger role than Congress and the president in stabilizing the economy because

The tax multiplier

Suppose the government spending multiplier is 2.The federal government cuts spending by $40 billion.What is the change in GDP if the price level is not held constant?

What is the difference between fiscal policy and monetary policy?

In the case of an upward-sloping aggregate supply curve,the change in real GDP brought about by a change in government spending will be less than that predicted by the simple government purchases multiplier.

Social Security began as a "pay-as-you-go" system,meaning that payments to current retirees were paid

What are the key differences between how we illustrate an expansionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

Historically,the largest U.S.federal budget deficits as a percentage of GDP in the 20th century occurred during

Illustrate and explain the effects of tax reduction and simplification using the dynamic aggregate demand and supply model.To simplify the analysis,assume that aggregate demand is not affected by the tax cut.

What is fiscal policy,and who is responsible for fiscal policy?

Tax cuts on business income increase aggregate demand by increasing

If policy makers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply,the appropriate fiscal policy response is to

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

Economists who believe the supply-side effects of tax cuts are small essentially believe that

The use of fiscal policy to stabilize the economy is limited because

Long lags associated with the legislative process in implementing fiscal policy make it more difficult to use than monetary policy.

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

If real equilibrium GDP is above potential GDP,expansionary fiscal policy should be pursued.

Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?

Figure 18-5 -Refer to Figure 18-5.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,Congress and the president would most likely

Before the Great Depression of the 1930s,the majority of government spending took place at the ________ and after the Great Depression the majority of government spending took place at the ________.

The Federal Reserve plays a larger role than Congress and the president in stabilizing the economy because

The tax multiplier

Suppose the government spending multiplier is 2.The federal government cuts spending by $40 billion.What is the change in GDP if the price level is not held constant?

What is the difference between fiscal policy and monetary policy?

In the case of an upward-sloping aggregate supply curve,the change in real GDP brought about by a change in government spending will be less than that predicted by the simple government purchases multiplier.

Social Security began as a "pay-as-you-go" system,meaning that payments to current retirees were paid

What are the key differences between how we illustrate an expansionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

Historically,the largest U.S.federal budget deficits as a percentage of GDP in the 20th century occurred during

Illustrate and explain the effects of tax reduction and simplification using the dynamic aggregate demand and supply model.To simplify the analysis,assume that aggregate demand is not affected by the tax cut.

What is fiscal policy,and who is responsible for fiscal policy?

Tax cuts on business income increase aggregate demand by increasing

If policy makers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply,the appropriate fiscal policy response is to

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

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be and real GDP to be .

Before the Great Depression of the 1930s,the majority of government spending took place at the and after the Great Depression the majority of government spending took place at the .