Question 1

Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion.To move the economy back to potential GDP,Congress should

Accepted Answer

A)  lower government purchases by an amount less than $200 billion. 
B)  lower government purchases by $200 billion. 
C)  raise taxes by $200 billion. 
D)  lower taxes by $200 billion. 
E)  raise taxes by an amount more than $200 billion. 
A)  lower government purchases by an amount less than $200 billion. 
B)  lower government purchases by $200 billion. 
C)  raise taxes by $200 billion. 
D)  lower taxes by $200 billion. 
E)  raise taxes by an amount more than $200 billion.

Question 2

If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2,does it follow that the federal government acted to raise taxes or cut government spending in Year 2?

Accepted Answer

No,the economy could have been in an exp

Question 3

The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was

Accepted Answer

A)  in a recession. 
B)  in an expansion. 
C)  at potential GDP. 
D)  at potential tax revenue. 
A)  in a recession. 
B)  in an expansion. 
C)  at potential GDP. 
D)  at potential tax revenue.

Question 4

If Congress passed a one-time tax cut in order to stimulate the economy in 2010,and tax rate levels returned to their pre-2010 level in 2011,how should this tax cut affect the economy?

Accepted Answer

A)  Households on average would save an amount equal to the tax cut. 
B)  The tax cut would stimulate spending by households. 
C)  The tax cut would shift the aggregate demand curve to the right. 
D)  The tax cut would raise the price level in 2010. 
A)  Households on average would save an amount equal to the tax cut. 
B)  The tax cut would stimulate spending by households. 
C)  The tax cut would shift the aggregate demand curve to the right. 
D)  The tax cut would raise the price level in 2010.

Question 5

Suppose Political Party A proposes a tax cut on business income to stimulate the economy.Political Party B opposes the tax cut on business income asserting that it would only help businesses,not the average working man and woman.If you were hired as an economist for Political Party A,explain how the tax cut on business income would help the average working man and woman.

Accepted Answer

The multiplier effect would spread the e

Question 6

What is the government purchases multiplier if the tax rate is 0.2 and the marginal propensity to consume is 0.8? Assume the economy is closed.

Accepted Answer

A)  2.78 
B)  5 
C)  6.25 
D)  100 
A)  2.78 
B)  5 
C)  6.25 
D)  100

Question 7

If real GDP exceeded potential real GDP and inflation was increasing,which of the following would be an appropriate fiscal policy?

Accepted Answer

A)  a decrease in the money supply and an increase in the interest rate 
B)  an increase in government spending 
C)  an increase in taxes 
D)  an increase in oil prices 
A)  a decrease in the money supply and an increase in the interest rate 
B)  an increase in government spending 
C)  an increase in taxes 
D)  an increase in oil prices

Question 8

The tax multiplier is smaller in absolute value than the government purchases multiplier because some portion of the

Accepted Answer

A)  decrease in taxes will be saved by households and not spent, and some portion will be spent on imported goods. 
B)  decrease in taxes will be saved by households and not spent, and some portion will be spent on consumer durable goods. 
C)  increase in government purchases will be saved by households and not spent, and some portion will be spent on imported goods. 
D)  increase in government purchases will be saved by households and not spent, and some portion will be spent on consumer durable goods. 
A)  decrease in taxes will be saved by households and not spent, and some portion will be spent on imported goods. 
B)  decrease in taxes will be saved by households and not spent, and some portion will be spent on consumer durable goods. 
C)  increase in government purchases will be saved by households and not spent, and some portion will be spent on imported goods. 
D)  increase in government purchases will be saved by households and not spent, and some portion will be spent on consumer durable goods.

Question 9

From the 1960s to 2010,transfer payments

Accepted Answer

A)  have risen from about 25 percent to 46 percent of federal government expenditures. 
B)  remained the same percentage of total federal government expenditures. 
C)  have declined by half as a percentage of total federal government expenditures. 
D)  have grown very slowly as a percentage of total federal government expenditures. 
A)  have risen from about 25 percent to 46 percent of federal government expenditures. 
B)  remained the same percentage of total federal government expenditures. 
C)  have declined by half as a percentage of total federal government expenditures. 
D)  have grown very slowly as a percentage of total federal government expenditures.

Question 10

In absolute value,the tax multiplier is greater than the government purchases multiplier.

Accepted Answer

A) True 
 B)False

Question 11

How can tax simplification be beneficial to the economy?

Accepted Answer

Tax simplification would free up resourc

Question 12

In an open economy,the government purchases multiplier will be

Accepted Answer

A)  larger as the marginal propensity to import decreases. 
B)  smaller as the marginal propensity to import decreases. 
C)  smaller as the marginal propensity to tax decreases. 
D)  larger as the marginal propensity to consume decreases. 
A)  larger as the marginal propensity to import decreases. 
B)  smaller as the marginal propensity to import decreases. 
C)  smaller as the marginal propensity to tax decreases. 
D)  larger as the marginal propensity to consume decreases.

Question 13

Lowering the individual income tax will increase household disposable income and consumption spending.

Accepted Answer

A) True 
 B)False

Question 14

In early 2008,the housing crisis and rising oil prices increased the risk of recession in the United States.What fiscal policy action was taken by Congress and the president to counter these events?

Accepted Answer

A)  The Federal Reserve cut its target for the federal funds rate. 
B)  There was an increase in government spending on defense and unemployment compensation. 
C)  Taxpayers were given rebates on taxes they already paid. 
D)  Income taxes were raised to reduce the federal budget deficit and reduce interest rates. 
A)  The Federal Reserve cut its target for the federal funds rate. 
B)  There was an increase in government spending on defense and unemployment compensation. 
C)  Taxpayers were given rebates on taxes they already paid. 
D)  Income taxes were raised to reduce the federal budget deficit and reduce interest rates.

Question 15

If Congress and the president pursue an expansionary fiscal policy at the same time as the Federal Reserve pursues an expansionary monetary policy,how might the expansionary monetary policy affect the extent of crowding out in the short run?

Accepted Answer

An expansionary fiscal policy will cause

Question 16

The tax wedge is the difference between the

Accepted Answer

A)  amount of taxes needed to balance the federal budget and the actual amount of taxes. 
B)  amount of taxes needed to pay off the national debt and the actual amount of taxes. 
C)  pretax and posttax returns to an economic activity. 
D)  nominal and real interest rates. 
A)  amount of taxes needed to balance the federal budget and the actual amount of taxes. 
B)  amount of taxes needed to pay off the national debt and the actual amount of taxes. 
C)  pretax and posttax returns to an economic activity. 
D)  nominal and real interest rates.

Question 17

An increase in government purchases will increase aggregate demand because

Accepted Answer

A)  government expenditures are a component of aggregate demand. 
B)  consumption expenditures are a component of aggregate demand. 
C)  the decline in the price level will increase demand. 
D)  the decline in the interest rate will increase demand. 
A)  government expenditures are a component of aggregate demand. 
B)  consumption expenditures are a component of aggregate demand. 
C)  the decline in the price level will increase demand. 
D)  the decline in the interest rate will increase demand.

Question 18

Figure 27-2
  
-Refer to Figure 27-2.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,and no fiscal or monetary policy is pursued,then at point B

Accepted Answer

A)  the unemployment rate is very low. 
B)  firms are operating below capacity. 
C)  the economy is above full employment. 
D)  income and profits are rising. 
E)  there is pressure on wages and prices to rise. 
A)  the unemployment rate is very low. 
B)  firms are operating below capacity. 
C)  the economy is above full employment. 
D)  income and profits are rising. 
E)  there is pressure on wages and prices to rise.

Question 19

The level of crowding out associated with a tax cut will be smaller if the tax change has a supply-side effect than it will be if it only has a demand-side effect.

Accepted Answer

A) True 
 B)False

Question 20

Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion.To move the economy back to potential GDP,Congress should

Accepted Answer

A)  lower taxes by an amount less than $500 billion. 
B)  raise government purchases by $500 billion. 
C)  raise government purchases by more than $500 billion. 
D)  lower taxes by $500 billion. 
E)  lower government purchases by $500 billion. 
A)  lower taxes by an amount less than $500 billion. 
B)  raise government purchases by $500 billion. 
C)  raise government purchases by more than $500 billion. 
D)  lower taxes by $500 billion. 
E)  lower government purchases by $500 billion.

Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion.To move the economy back to potential GDP,Congress should

If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2,does it follow that the federal government acted to raise taxes or cut government spending in Year 2?

The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was

If Congress passed a one-time tax cut in order to stimulate the economy in 2010,and tax rate levels returned to their pre-2010 level in 2011,how should this tax cut affect the economy?

What is the government purchases multiplier if the tax rate is 0.2 and the marginal propensity to consume is 0.8? Assume the economy is closed.

If real GDP exceeded potential real GDP and inflation was increasing,which of the following would be an appropriate fiscal policy?

The tax multiplier is smaller in absolute value than the government purchases multiplier because some portion of the

From the 1960s to 2010,transfer payments

In absolute value,the tax multiplier is greater than the government purchases multiplier.

How can tax simplification be beneficial to the economy?

In an open economy,the government purchases multiplier will be

Lowering the individual income tax will increase household disposable income and consumption spending.

In early 2008,the housing crisis and rising oil prices increased the risk of recession in the United States.What fiscal policy action was taken by Congress and the president to counter these events?

If Congress and the president pursue an expansionary fiscal policy at the same time as the Federal Reserve pursues an expansionary monetary policy,how might the expansionary monetary policy affect the extent of crowding out in the short run?

The tax wedge is the difference between the

An increase in government purchases will increase aggregate demand because

Figure 27-2 -Refer to Figure 27-2.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,and no fiscal or monetary policy is pursued,then at point B

The level of crowding out associated with a tax cut will be smaller if the tax change has a supply-side effect than it will be if it only has a demand-side effect.

Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion.To move the economy back to potential GDP,Congress should

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency,government Price Setting,and Taxes

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,banks,and the Federal Reserve System

Monetary Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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Exam 16: Fiscal Policy

Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion.To move the economy back to potential GDP,Congress should

If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2,does it follow that the federal government acted to raise taxes or cut government spending in Year 2?

The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was

If Congress passed a one-time tax cut in order to stimulate the economy in 2010,and tax rate levels returned to their pre-2010 level in 2011,how should this tax cut affect the economy?

What is the government purchases multiplier if the tax rate is 0.2 and the marginal propensity to consume is 0.8? Assume the economy is closed.

If real GDP exceeded potential real GDP and inflation was increasing,which of the following would be an appropriate fiscal policy?

The tax multiplier is smaller in absolute value than the government purchases multiplier because some portion of the

From the 1960s to 2010,transfer payments

In absolute value,the tax multiplier is greater than the government purchases multiplier.

How can tax simplification be beneficial to the economy?

In an open economy,the government purchases multiplier will be

Lowering the individual income tax will increase household disposable income and consumption spending.

In early 2008,the housing crisis and rising oil prices increased the risk of recession in the United States.What fiscal policy action was taken by Congress and the president to counter these events?

If Congress and the president pursue an expansionary fiscal policy at the same time as the Federal Reserve pursues an expansionary monetary policy,how might the expansionary monetary policy affect the extent of crowding out in the short run?

The tax wedge is the difference between the

An increase in government purchases will increase aggregate demand because

Figure 27-2 -Refer to Figure 27-2.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,and no fiscal or monetary policy is pursued,then at point B

The level of crowding out associated with a tax cut will be smaller if the tax change has a supply-side effect than it will be if it only has a demand-side effect.

Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion.To move the economy back to potential GDP,Congress should

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency,government Price Setting,and Taxes

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,banks,and the Federal Reserve System

Monetary Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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