Question 1

To eliminate an inflationary gap using fiscal policy, the government could

Accepted Answer

A)  increase government expenditure on goods and services and simultaneously increase taxes by an equal amount. 
B)  only decrease taxes. 
C)  increase government expenditure on goods and services and simultaneously decrease taxes by an equal amount. 
D)  increase taxes. 
E)  decrease the quantity of money. 
A)  increase government expenditure on goods and services and simultaneously increase taxes by an equal amount. 
B)  only decrease taxes. 
C)  increase government expenditure on goods and services and simultaneously decrease taxes by an equal amount. 
D)  increase taxes. 
E)  decrease the quantity of money.

Question 2

The figure above shows a labor market with an income tax.
-In the figure above, the tax wedge is equal ________ per hour, the after-tax real wage rate is equal to ________, and the before-tax real wage rate is equal to ________.

Accepted Answer

A)  $10; $30; $30 
B)  $15; $20; $35 
C)  $20; $30; $35 
D)  $20; $30; $35. 
E)  $30; $20; $35. 
A)  $10; $30; $30 
B)  $15; $20; $35 
C)  $20; $30; $35 
D)  $20; $30; $35. 
E)  $30; $20; $35.

Question 3

In 2009, Congress passed tax laws to reduce income tax rates for some taxpayers.This action is called

Accepted Answer

A)  a discretionary fiscal policy. 
B)  a discretionary revenue policy. 
C)  an automatic fiscal policy. 
D)  an annual tax policy. 
E)  induced tax policy. 
A)  a discretionary fiscal policy. 
B)  a discretionary revenue policy. 
C)  an automatic fiscal policy. 
D)  an annual tax policy. 
E)  induced tax policy.

Question 4

An example of automatic fiscal policy is

Accepted Answer

A)  Congress passing a tax rate reduction package. 
B)  the federal government expanding spending at the Department of Education. 
C)  expenditure for unemployment compensation increasing as economic growth slows. 
D)  the Federal Reserve reducing interest rates as economic growth slows. 
E)  a change in taxes that has no multiplier effect. 
A)  Congress passing a tax rate reduction package. 
B)  the federal government expanding spending at the Department of Education. 
C)  expenditure for unemployment compensation increasing as economic growth slows. 
D)  the Federal Reserve reducing interest rates as economic growth slows. 
E)  a change in taxes that has no multiplier effect.

Question 5

When comparing a $100 billion increase in government expenditure to a $100 billion decrease in tax revenue, the effect of the increase in government expenditure on aggregate demand is

Accepted Answer

A)  greater than the effect of the tax decrease. 
B)  equal to the effect of the tax decrease. 
C)  less than the effect of the tax decrease. 
D)  positive whereas the effect of the tax decrease is negative. 
E)  negative whereas the effect of the tax decrease is positive. 
A)  greater than the effect of the tax decrease. 
B)  equal to the effect of the tax decrease. 
C)  less than the effect of the tax decrease. 
D)  positive whereas the effect of the tax decrease is negative. 
E)  negative whereas the effect of the tax decrease is positive.

Question 6

An income tax cut ________ aggregate demand and ________ aggregate supply.

Accepted Answer

A)  increases; increases 
B)  increases; decreases 
C)  decreases; increases 
D)  decreases; decreases 
E)  does not change;increases 
A)  increases; increases 
B)  increases; decreases 
C)  decreases; increases 
D)  decreases; decreases 
E)  does not change;increases

Question 7

If government expenditures on goods and services increases by $20 billion, then aggregate demand

Accepted Answer

A)  increases by $20 billion. 
B)  increases by more than $20 billion. 
C)  decreases by $20 billion. 
D)  decreases by more than $20 billion. 
E)  increases by less than $20 billion. 
A)  increases by $20 billion. 
B)  increases by more than $20 billion. 
C)  decreases by $20 billion. 
D)  decreases by more than $20 billion. 
E)  increases by less than $20 billion.

Question 8

The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP.
-In the figure above, the ________ gap is one trillion dollars. To close the gap, the government can ________ government expenditure and/or ________ taxes.

Accepted Answer

A)  recessionary; increase; decrease 
B)  inflationary; decrease; increase 
C)  inflationary; increase; increase 
D)  recessionary; decrease; decrease 
E)  recessionary; decrease; increase 
A)  recessionary; increase; decrease 
B)  inflationary; decrease; increase 
C)  inflationary; increase; increase 
D)  recessionary; decrease; decrease 
E)  recessionary; decrease; increase

Question 9

The figure above shows an economy's aggregate demand curve, aggregate supply curve, and potential GDP.
-In the figure above, the ________ gap is one trillion dollars. To close the gap, the government can ________ government expenditure and/or ________ taxes.

Accepted Answer

A)  recessionary; increase; decrease 
B)  inflationary; decrease; increase 
C)  inflationary; increase; increase 
D)  recessionary; decrease; decrease 
E)  recessionary; decrease; increase 
A)  recessionary; increase; decrease 
B)  inflationary; decrease; increase 
C)  inflationary; increase; increase 
D)  recessionary; decrease; decrease 
E)  recessionary; decrease; increase

Question 10

What are law-making lags?
 What effect do they have on the use of discretionary fiscal policy?

Accepted Answer

Law-making lags refer to the fact that b

Question 11

Mainstream economists believe that Keynesian economist overstate the effect of the multiplier effect.Which of the following statements would a mainstream economists NOT consider to be accurate.

Accepted Answer

A)  effects of a fiscal stimulus are small and short lived 
B)  effects of a fiscal stimulus are incapable of working fast enough to make a difference 
C)  a fiscals stimulus does not provide a 'free lunch' but does 'crowd out' private consumption expenditure and investment 
D)  a fiscal stimulus results in bigger government, lower potential GDP, and slower real GDP growth 
E)  a fiscal stimulus is a vital tool to fight recession and depression due to the multiplier effect 
A)  effects of a fiscal stimulus are small and short lived 
B)  effects of a fiscal stimulus are incapable of working fast enough to make a difference 
C)  a fiscals stimulus does not provide a 'free lunch' but does 'crowd out' private consumption expenditure and investment 
D)  a fiscal stimulus results in bigger government, lower potential GDP, and slower real GDP growth 
E)  a fiscal stimulus is a vital tool to fight recession and depression due to the multiplier effect

Question 12

The federal budget is decided upon by the

Accepted Answer

A)  President of the United States and the Federal Reserve system. 
B)  President of the United States and the United States Treasury. 
C)  President of the United States and the United States Congress. 
D)  United States Congress and the Federal Reserve System. 
E)  the United States Treasury alone. 
A)  President of the United States and the Federal Reserve system. 
B)  President of the United States and the United States Treasury. 
C)  President of the United States and the United States Congress. 
D)  United States Congress and the Federal Reserve System. 
E)  the United States Treasury alone.

Question 13

In order to reduce inflationary pressure on the economy, what fiscal policy can the government use?

Accepted Answer

A)  raise taxes 
B)  cut taxes 
C)  increase government expenditure on goods and services 
D)  cut interest rates 
E)  increase the quantity of money 
A)  raise taxes 
B)  cut taxes 
C)  increase government expenditure on goods and services 
D)  cut interest rates 
E)  increase the quantity of money

Question 14

During a recession, unemployment compensation payments increase without the need for any government action.This increase is an example of

Accepted Answer

A)  discretionary monetary policy. 
B)  automatic monetary policy. 
C)  automatic fiscal policy. 
D)  discretionary fiscal policy. 
E)  government expenditure but it is not an example of either discretionary or automatic policy. 
A)  discretionary monetary policy. 
B)  automatic monetary policy. 
C)  automatic fiscal policy. 
D)  discretionary fiscal policy. 
E)  government expenditure but it is not an example of either discretionary or automatic policy.

Question 15

The last U.S.president to be in office when the government had a budget surplus was

Accepted Answer

A)  George H.Bush 
B)  George W.Bush 
C)  Ronald Reagan 
D)  Dwight D.Eisenhower 
E)  Bill Clinton 
A)  George H.Bush 
B)  George W.Bush 
C)  Ronald Reagan 
D)  Dwight D.Eisenhower 
E)  Bill Clinton

Question 16

The balanced budget multiplier is based on the point that the ________ multiplier is larger than the ________ multiplier so that an equal increase in government expenditure and taxes ________ aggregate demand.

Accepted Answer

A)  tax; expenditure; does not change 
B)  expenditure; tax; does not change 
C)  expenditure; tax; decreases 
D)  expenditure; tax; increases 
E)  tax; expenditure; decreases 
A)  tax; expenditure; does not change 
B)  expenditure; tax; does not change 
C)  expenditure; tax; decreases 
D)  expenditure; tax; increases 
E)  tax; expenditure; decreases

Question 17

The figure above shows an economy aggregate demand curve and aggregate supply curves.
-Suppose the shift from AD₀ to AD₁ and from AS₀ to AS₁ is the result of fiscal policy.Which of the policies below could lead to these shifts?
i. An increase in government expenditure
ii. A tax cut
iii. A decrease in government expenditure
iv. A tax hike

Accepted Answer

A)  i only 
B)  iv only 
C)  i and ii 
D)  iii and iv 
E)  i and iv 
A)  i only 
B)  iv only 
C)  i and ii 
D)  iii and iv 
E)  i and iv

Question 18

Ignoring any supply-side effects, how does the magnitude of the government expenditure multiplier compare to the magnitude of the tax multiplier?
 Explain your answer.

Accepted Answer

The magnitude of the government expendit

Question 19

An increase in taxes on labor income shifts the labor supply curve ________ and the ________.

Accepted Answer

A)  leftward; after-tax wage rate falls 
B)  rightward; before-tax wage rate rises 
C)  leftward; after-tax wage rate does not change 
D)  leftward; after-tax wage rate rises 
E)  leftward; before-tax wage rate does not change 
A)  leftward; after-tax wage rate falls 
B)  rightward; before-tax wage rate rises 
C)  leftward; after-tax wage rate does not change 
D)  leftward; after-tax wage rate rises 
E)  leftward; before-tax wage rate does not change

Question 20

Looking at the supply-side effects on aggregate supply shows that a tax hike on labor income

Accepted Answer

A)  weakens the incentive to work. 
B)  decreases potential GDP. 
C)  increases potential GDP because people work more to pay the higher taxes. 
D)  Both answers A and B are correct. 
E)  None of the above is correct. 
A)  weakens the incentive to work. 
B)  decreases potential GDP. 
C)  increases potential GDP because people work more to pay the higher taxes. 
D)  Both answers A and B are correct. 
E)  None of the above is correct.

To eliminate an inflationary gap using fiscal policy, the government could

The figure above shows a labor market with an income tax. -In the figure above, the tax wedge is equal per hour, the after-tax real wage rate is equal to , and the before-tax real wage rate is equal to .

In 2009, Congress passed tax laws to reduce income tax rates for some taxpayers.This action is called

An example of automatic fiscal policy is

When comparing a $100 billion increase in government expenditure to a $100 billion decrease in tax revenue, the effect of the increase in government expenditure on aggregate demand is

An income tax cut aggregate demand and aggregate supply.

If government expenditures on goods and services increases by $20 billion, then aggregate demand

The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, the gap is one trillion dollars. To close the gap, the government can government expenditure and/or taxes.

The figure above shows an economy's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, the gap is one trillion dollars. To close the gap, the government can government expenditure and/or taxes.

What are law-making lags? What effect do they have on the use of discretionary fiscal policy?

Mainstream economists believe that Keynesian economist overstate the effect of the multiplier effect.Which of the following statements would a mainstream economists NOT consider to be accurate.

The federal budget is decided upon by the

In order to reduce inflationary pressure on the economy, what fiscal policy can the government use?

During a recession, unemployment compensation payments increase without the need for any government action.This increase is an example of

The last U.S.president to be in office when the government had a budget surplus was

The balanced budget multiplier is based on the point that the multiplier is larger than the multiplier so that an equal increase in government expenditure and taxes aggregate demand.

Ignoring any supply-side effects, how does the magnitude of the government expenditure multiplier compare to the magnitude of the tax multiplier? Explain your answer.

An increase in taxes on labor income shifts the labor supply curve and the .

Looking at the supply-side effects on aggregate supply shows that a tax hike on labor income

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and the Natural Unemployment Rate

Economic Growth

Finance, Saving, and Investment

The Monetary System

Money, Interest, and Inflation

Aggregate Supply and Aggregate Demand

Aggregate Expenditure Multiplier

The Short-Run Policy Tradeoff

Monetary Policy

International Trade Policy

International Finance

Filters

Exam 16: Fiscal Policy

To eliminate an inflationary gap using fiscal policy, the government could

The figure above shows a labor market with an income tax. -In the figure above, the tax wedge is equal ________ per hour, the after-tax real wage rate is equal to ________, and the before-tax real wage rate is equal to ________.

In 2009, Congress passed tax laws to reduce income tax rates for some taxpayers.This action is called

An example of automatic fiscal policy is

When comparing a $100 billion increase in government expenditure to a $100 billion decrease in tax revenue, the effect of the increase in government expenditure on aggregate demand is

An income tax cut ________ aggregate demand and ________ aggregate supply.

If government expenditures on goods and services increases by $20 billion, then aggregate demand

The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, the ________ gap is one trillion dollars. To close the gap, the government can ________ government expenditure and/or ________ taxes.

The figure above shows an economy's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, the ________ gap is one trillion dollars. To close the gap, the government can ________ government expenditure and/or ________ taxes.

What are law-making lags? What effect do they have on the use of discretionary fiscal policy?

Mainstream economists believe that Keynesian economist overstate the effect of the multiplier effect.Which of the following statements would a mainstream economists NOT consider to be accurate.

The federal budget is decided upon by the

In order to reduce inflationary pressure on the economy, what fiscal policy can the government use?

During a recession, unemployment compensation payments increase without the need for any government action.This increase is an example of

The last U.S.president to be in office when the government had a budget surplus was

The balanced budget multiplier is based on the point that the ________ multiplier is larger than the ________ multiplier so that an equal increase in government expenditure and taxes ________ aggregate demand.

Ignoring any supply-side effects, how does the magnitude of the government expenditure multiplier compare to the magnitude of the tax multiplier? Explain your answer.

An increase in taxes on labor income shifts the labor supply curve ________ and the ________.

Looking at the supply-side effects on aggregate supply shows that a tax hike on labor income

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and the Natural Unemployment Rate

Economic Growth

Finance, Saving, and Investment

The Monetary System

Money, Interest, and Inflation

Aggregate Supply and Aggregate Demand

Aggregate Expenditure Multiplier

The Short-Run Policy Tradeoff

Monetary Policy

International Trade Policy

International Finance

Filters

The figure above shows a labor market with an income tax. -In the figure above, the tax wedge is equal per hour, the after-tax real wage rate is equal to , and the before-tax real wage rate is equal to .

An income tax cut aggregate demand and aggregate supply.

The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, the gap is one trillion dollars. To close the gap, the government can government expenditure and/or taxes.

The figure above shows an economy's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, the gap is one trillion dollars. To close the gap, the government can government expenditure and/or taxes.

The balanced budget multiplier is based on the point that the multiplier is larger than the multiplier so that an equal increase in government expenditure and taxes aggregate demand.

An increase in taxes on labor income shifts the labor supply curve and the .