Question 1

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 2

What is the government purchases multiplier if the tax rate is 0.1 and the marginal propensity to consume is 0.9? Assume the economy is closed.

Accepted Answer

A)  5.3 
B)  10 
C)  11.1 
D)  100 
A)  5.3 
B)  10 
C)  11.1 
D)  100

Question 3

Expansionary fiscal policy ________ the price level and ________ equilibrium real GDP.

Accepted Answer

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

Question 4

A tax rebate,which is expected to be offered in this and all future years,will

Accepted Answer

A)  have a small positive effect on consumption and aggregate demand. 
B)  have no effect on consumption and aggregate demand. 
C)  will have a significant positive effect on consumption and aggregate demand, with aggregate demand growing by a multiple of the tax rebate. 
D)  increase aggregate supply and aggregate demand. 
A)  have a small positive effect on consumption and aggregate demand. 
B)  have no effect on consumption and aggregate demand. 
C)  will have a significant positive effect on consumption and aggregate demand, with aggregate demand growing by a multiple of the tax rebate. 
D)  increase aggregate supply and aggregate demand.

Question 5

The total value of U.S.Treasury bonds outstanding equals

Accepted Answer

A)  the federal government deficit. 
B)  the federal government surplus. 
C)  the federal government debt. 
D)  the cyclically adjusted budget deficit. 
A)  the federal government deficit. 
B)  the federal government surplus. 
C)  the federal government debt. 
D)  the cyclically adjusted budget deficit.

Question 6

Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in a long-run macroeconomic equilibrium. For Year 2,graph aggregate demand,long-run aggregate supply,and short-run aggregate supply such that the condition of the economy will induce the president and the Congress to conduct contractionary fiscal policy. Briefly explain the condition of the economy and what the president and the Congress are attempting to do.

Accepted Answer

The president and the Congress conduct c

Question 7

Figure 27-1
  
-Refer to Figure 27-1.In the graph above,if the economy is at point A,an appropriate fiscal policy by the Congress and the president would be to

Accepted Answer

A)  lower the discount rate of interest. 
B)  execute an open market sale of government securities. 
C)  increase government transfer payments. 
D)  increase marginal income tax rates. 
A)  lower the discount rate of interest. 
B)  execute an open market sale of government securities. 
C)  increase government transfer payments. 
D)  increase marginal income tax rates.

Question 8

Calculate the value of the government purchases multiplier if the marginal propensity to consume equals 0.8,the tax rate equals 0.2,and the marginal propensity to import equals 0.05.

Accepted Answer

Government purchases

Question 9

An increase in government spending may expedite recovery from a recession in the short run,but in the long run this policy may

Accepted Answer

A)  reduce investment in new capital. 
B)  make domestic businesses less competitive in international markets as the dollar appreciates in value. 
C)  raise interest rates and reduce consumer expenditures on automobiles and new houses. 
D)  All of the above are correct. 
A)  reduce investment in new capital. 
B)  make domestic businesses less competitive in international markets as the dollar appreciates in value. 
C)  raise interest rates and reduce consumer expenditures on automobiles and new houses. 
D)  All of the above are correct.

Question 10

The Congressional Budget Office estimates of the effects of the 2009 stimulus package indicate that even $825 billion in increased government spending and tax cuts left the economy with real GDP far from potential GDP.

Accepted Answer

A) True 
 B)False

Question 11

Crowding out will be greater

Accepted Answer

A)  the less sensitive consumption spending is to changes in the interest rate. 
B)  the further equilibrium GDP is below potential GDP. 
C)  the more sensitive investment spending is to changes in the interest rate. 
D)  if the economy is in recession, rather than at full employment. 
A)  the less sensitive consumption spending is to changes in the interest rate. 
B)  the further equilibrium GDP is below potential GDP. 
C)  the more sensitive investment spending is to changes in the interest rate. 
D)  if the economy is in recession, rather than at full employment.

Question 12

Suppose real GDP is $13 trillion and potential real GDP is $13.5 trillion.If Congress and the president increase government purchases by $500 billion,then the economy will be brought to equilibrium at potential real GDP.

Accepted Answer

A) True 
 B)False

Question 13

Borrowing to pay for long-lived capital expenditures makes sense as

Accepted Answer

A)  the benefits are received in the current year so the burden of paying for them should be spread over many years. 
B)  the benefits are received over many years so the burden of paying for them should be spread over many years. 
C)  the benefits are received in the current year so the burden of paying for them should be paid in the current year. 
D)  the benefits are received over many years so the burden of paying for them should be paid in the current year. 
A)  the benefits are received in the current year so the burden of paying for them should be spread over many years. 
B)  the benefits are received over many years so the burden of paying for them should be spread over many years. 
C)  the benefits are received in the current year so the burden of paying for them should be paid in the current year. 
D)  the benefits are received over many years so the burden of paying for them should be paid in the current year.

Question 14

Contractionary fiscal policy to prevent real GDP from rising above 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 15

Assuming a fixed amount of taxes and a closed economy,calculate the value of the government purchases multiplier,the tax multiplier,and the balanced budget multiplier if the marginal propensity to consume equals 0.75.

Accepted Answer

Government purchases multiplie

Question 16

Fiscal policy actions that are intended to have long-run effects on real GDP attempt to increase ________ through changing ________.

Accepted Answer

A)  aggregate demand; government spending 
B)  aggregate supply; taxes 
C)  aggregate demand; taxes 
D)  aggregate supply; government spending 
A)  aggregate demand; government spending 
B)  aggregate supply; taxes 
C)  aggregate demand; taxes 
D)  aggregate supply; government spending

Question 17

Explain why the tax multiplier is different from the government purchases multiplier,in both sign and relative magnitude.

Accepted Answer

A dollar change in government purchases

Question 18

The cyclically adjusted budget is calculated at potential GDP.

Accepted Answer

A) True 
 B)False

Question 19

A change in tax rates

Accepted Answer

A)  has a less complicated effect on GDP than does a tax cut of a fixed amount. 
B)  has a larger multiplier effect the smaller the tax rate. 
C)  will not affect disposable income. 
D)  will not affect the size of the multiplier. 
A)  has a less complicated effect on GDP than does a tax cut of a fixed amount. 
B)  has a larger multiplier effect the smaller the tax rate. 
C)  will not affect disposable income. 
D)  will not affect the size of the multiplier.

Question 20

In recent economic history,the U.S.federal budget was in surplus during

Accepted Answer

A)  2001 through 2005. 
B)  1998 through 2001. 
C)  1990 through 1997. 
D)  1980 through 1989. 
A)  2001 through 2005. 
B)  1998 through 2001. 
C)  1990 through 1997. 
D)  1980 through 1989.

The tax multiplier

What is the government purchases multiplier if the tax rate is 0.1 and the marginal propensity to consume is 0.9? Assume the economy is closed.

Expansionary fiscal policy the price level and equilibrium real GDP.

A tax rebate,which is expected to be offered in this and all future years,will

The total value of U.S.Treasury bonds outstanding equals

Figure 27-1 -Refer to Figure 27-1.In the graph above,if the economy is at point A,an appropriate fiscal policy by the Congress and the president would be to

Calculate the value of the government purchases multiplier if the marginal propensity to consume equals 0.8,the tax rate equals 0.2,and the marginal propensity to import equals 0.05.

An increase in government spending may expedite recovery from a recession in the short run,but in the long run this policy may

The Congressional Budget Office estimates of the effects of the 2009 stimulus package indicate that even $825 billion in increased government spending and tax cuts left the economy with real GDP far from potential GDP.

Crowding out will be greater

Suppose real GDP is $13 trillion and potential real GDP is $13.5 trillion.If Congress and the president increase government purchases by $500 billion,then the economy will be brought to equilibrium at potential real GDP.

Borrowing to pay for long-lived capital expenditures makes sense as

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be and real GDP to be .

Assuming a fixed amount of taxes and a closed economy,calculate the value of the government purchases multiplier,the tax multiplier,and the balanced budget multiplier if the marginal propensity to consume equals 0.75.

Fiscal policy actions that are intended to have long-run effects on real GDP attempt to increase through changing .

Explain why the tax multiplier is different from the government purchases multiplier,in both sign and relative magnitude.

The cyclically adjusted budget is calculated at potential GDP.

A change in tax rates

In recent economic history,the U.S.federal budget was in surplus during

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

Filters

Exam 16: Fiscal Policy

The tax multiplier

What is the government purchases multiplier if the tax rate is 0.1 and the marginal propensity to consume is 0.9? Assume the economy is closed.

Expansionary fiscal policy ________ the price level and ________ equilibrium real GDP.

A tax rebate,which is expected to be offered in this and all future years,will

The total value of U.S.Treasury bonds outstanding equals

Figure 27-1 -Refer to Figure 27-1.In the graph above,if the economy is at point A,an appropriate fiscal policy by the Congress and the president would be to

Calculate the value of the government purchases multiplier if the marginal propensity to consume equals 0.8,the tax rate equals 0.2,and the marginal propensity to import equals 0.05.

An increase in government spending may expedite recovery from a recession in the short run,but in the long run this policy may

The Congressional Budget Office estimates of the effects of the 2009 stimulus package indicate that even $825 billion in increased government spending and tax cuts left the economy with real GDP far from potential GDP.

Crowding out will be greater

Suppose real GDP is $13 trillion and potential real GDP is $13.5 trillion.If Congress and the president increase government purchases by $500 billion,then the economy will be brought to equilibrium at potential real GDP.

Borrowing to pay for long-lived capital expenditures makes sense as

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Assuming a fixed amount of taxes and a closed economy,calculate the value of the government purchases multiplier,the tax multiplier,and the balanced budget multiplier if the marginal propensity to consume equals 0.75.

Fiscal policy actions that are intended to have long-run effects on real GDP attempt to increase ________ through changing ________.

Explain why the tax multiplier is different from the government purchases multiplier,in both sign and relative magnitude.

The cyclically adjusted budget is calculated at potential GDP.

A change in tax rates

In recent economic history,the U.S.federal budget was in surplus during

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

Filters

Expansionary fiscal policy the price level and equilibrium real GDP.

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be and real GDP to be .

Fiscal policy actions that are intended to have long-run effects on real GDP attempt to increase through changing .