Question 1

If government expenditure on goods and services increase by $100 billion, then aggregate demand

Accepted Answer

A)  increases by $100 billion. 
B)  increases by less than $100 billion. 
C)  increases by more than $100 billion. 
D)  remains unchanged. 
E)  decreases by more than $100 billion. 
A)  increases by $100 billion. 
B)  increases by less than $100 billion. 
C)  increases by more than $100 billion. 
D)  remains unchanged. 
E)  decreases by more than $100 billion.

Question 2

$$\begin{array} { c c c } 
& \begin{array} { c } 
\text { Country A } \
\text { Government } \
\text { outlays }
\end{array} & \
& \begin{array} { c } 
\text { Tax revenue } \
\text { (trillions of } \
\text { (trillions of }
\end{array} \
\text { Year } & \text { 2005 dollars) } & \text { 2005 dollars) } \
\hline 2005 & 0.75 & 0.80 \
2006 & 0.80 & 0.83 \
2007 & 0.87 & 0.86 \
2008 & 0.95 & 0.95 \
2009 & 1.06 & 1.02 \
\hline
\end{array}$$ 
 $$\begin{array} { c c c } 
& \begin{array} { c } 
\text { Country B } \
\text { Government } \
\text { outlays }
\end{array} & \
& \begin{array} { c } 
\text { Tax revenue } \
\text { (trillions of } \
\text { (trillions of }
\end{array} \
\text { Year } & \text { 2005 dollars) } & \text { 2005 dollars) } \
\hline 2005 & 1.05 & 1.10 \
2006 & 0.90 & 0.92 \
2007 & 0.87 & 0.88 \
2008 & 0.85 & 0.83 \
2009 & 0.70 & 0.75 \
\hline
\end{array}$$
-The above table gives the government outlays and tax revenue from 2005 through 2009 for two countries.In 2007 country A had a ________ and country B had a ________.

Accepted Answer

A)  budget deficit; budget deficit 
B)  budget deficit; budget surplus 
C)  balanced budget; budget deficit 
D)  budget surplus; budget surplus 
E)  budget surplus; budget deficit 
A)  budget deficit; budget deficit 
B)  budget deficit; budget surplus 
C)  balanced budget; budget deficit 
D)  budget surplus; budget surplus 
E)  budget surplus; budget deficit

Question 3

$$\begin{array} { c c c } 
& \begin{array} { c } 
\text { Government } \
\text { outlays } \
\text { (trillions of }
\end{array} & \begin{array} { c } 
\text { Tax revenue } \
\text { (trillions of }
\end{array} \
\text { Year } & \text { 2005 dollars) } & \text { 2005 dollars) } \
\hline 2005 & 0.75 & 0.80 \
2006 & 0.80 & 0.83 \
2007 & 0.87 & 0.86 \
2008 & 0.95 & 0.95 \
2009 & 1.06 & 1.02 \
\hline
\end{array}$$ 
The table above gives a nation's government outlays and tax revenue for 2005 through 2009.
-During which years, if any, did the country have a balanced budget?

Accepted Answer

A)  2005 and 2006 
B)  2009 only 
C)  2008 only 
D)  2007 and 2009 
E)  all except 2008 
A)  2005 and 2006 
B)  2009 only 
C)  2008 only 
D)  2007 and 2009 
E)  all except 2008

Question 4

If we compare the United States to France, we see that potential GDP per person in France is ________ that in the United States because the French tax wedge is ________ the U.S.tax wedge.

Accepted Answer

A)  greater than; larger than 
B)  greater than; smaller than 
C)  the same as; the same as 
D)  less than; larger than 
E)  less than; smaller than 
A)  greater than; larger than 
B)  greater than; smaller than 
C)  the same as; the same as 
D)  less than; larger than 
E)  less than; smaller than

Question 5

If we look at the federal government budget over the past 40 years we see that

Accepted Answer

A)  most years the government budget has been balanced. 
B)  only occasionally has the budget been in deficit. 
C)  most years the budget has been in deficit. 
D)  the government has been running a budget deficit since 1997. 
E)  most years the budget balance has not been calculated. 
A)  most years the government budget has been balanced. 
B)  only occasionally has the budget been in deficit. 
C)  most years the budget has been in deficit. 
D)  the government has been running a budget deficit since 1997. 
E)  most years the budget balance has not been calculated.

Question 6

The standard view in economics is that tax cuts without ________ will ________ the budget deficit resulting in ________.

Accepted Answer

A)  spending cuts; increase; crowding out investment 
B)  spending cuts; decrease; crowding out investment 
C)  increasing spending; decrease; unemployment 
D)  increasing spending; increase; crowding out investment 
E)  spending cuts; decrease; unemployment 
A)  spending cuts; increase; crowding out investment 
B)  spending cuts; decrease; crowding out investment 
C)  increasing spending; decrease; unemployment 
D)  increasing spending; increase; crowding out investment 
E)  spending cuts; decrease; unemployment

Question 7

-If an economy is at the short-run equilibrium illustrated by the figure above, a discretionary fiscal policy to adjust the economy to full employment is to

Accepted Answer

A)  decrease taxes. 
B)  decrease the quantity of money. 
C)  increase government spending. 
D)  increase taxes and decrease government spending simultaneously. 
E)  increase the quantity of money. 
A)  decrease taxes. 
B)  decrease the quantity of money. 
C)  increase government spending. 
D)  increase taxes and decrease government spending simultaneously. 
E)  increase the quantity of money.

Question 8

When tax revenues minus outlays is i. positive, the government has a budget surplus.
Ii) negative, the government has a budget deficit.
Iii) zero, the government has a balanced budget.

Accepted Answer

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

Question 9

What two parts of the government determine the federal budget?

Accepted Answer

A)  the Federal Reserve and the FOMC 
B)  the President and the Federal Reserve 
C)  the Congress and the Federal Reserve 
D)  the Congress and the President 
E)  the U.S.Treasury and the Federal Reserve 
A)  the Federal Reserve and the FOMC 
B)  the President and the Federal Reserve 
C)  the Congress and the Federal Reserve 
D)  the Congress and the President 
E)  the U.S.Treasury and the Federal Reserve

Question 10

Explain how a tax cut effects employment, labor productivity, and potential GDP.

Accepted Answer

A tax cut increases the incentive to wor

Question 11

The balanced budget multiplier applies when a $50 billion increase in government expenditure is financed by a $50 billion ________ in tax revenue and the balanced budget multiplier shows that in this case there is ________ effect on aggregate demand.

Accepted Answer

A)  decrease; no 
B)  decrease; a positive 
C)  increase; no 
D)  increase; a positive 
E)  increase; a negative 
A)  decrease; no 
B)  decrease; a positive 
C)  increase; no 
D)  increase; a positive 
E)  increase; a negative

Question 12

Discretionary fiscal policy is defined as fiscal policy

Accepted Answer

A)  left to the discretion of military authorities. 
B)  initiated by an act of Congress. 
C)  initiated by a Presidential proclamation. 
D)  triggered by the state of the economy. 
E)  with multiplier effects. 
A)  left to the discretion of military authorities. 
B)  initiated by an act of Congress. 
C)  initiated by a Presidential proclamation. 
D)  triggered by the state of the economy. 
E)  with multiplier effects.

Question 13

If a tax cut increases aggregate demand more than aggregate supply, real GDP ________ and the price level ________.

Accepted Answer

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

Question 14

$$\begin{array} { c c c } 
& \begin{array} { c } 
\text { Government } \
\text { outlays } \
\text { (trillions of }
\end{array} & \begin{array} { c } 
\text { Tax revenue } \
\text { (trillions of }
\end{array} \
\text { Year } & \text { 2005 dollars) } & \text { 2005 dollars) } \
\hline 2005 & 0.75 & 0.80 \
2006 & 0.80 & 0.83 \
2007 & 0.87 & 0.86 \
2008 & 0.95 & 0.95 \
2009 & 1.06 & 1.02 \
\hline
\end{array}$$ 
The table above gives a nation's government outlays and tax revenue for 2005 through 2009.
-During which years did the country have a budget deficit?

Accepted Answer

A)  2005 and 2006 
B)  2009 only 
C)  2008 only 
D)  2007 and 2009 
E)  all except 2008 
A)  2005 and 2006 
B)  2009 only 
C)  2008 only 
D)  2007 and 2009 
E)  all except 2008

Question 15

Needs-tested spending is best described as

Accepted Answer

A)  spending on programs that entitle qualified persons and businesses to receive benefits. 
B)  spending on programs that have been tested in some manner. 
C)  spending on programs that have proven over time to be sound investments. 
D)  spending on programs that are considered necessities (needed) according to surveys of the public. 
E)  not spending at all but a reference to the reliability of budget. 
A)  spending on programs that entitle qualified persons and businesses to receive benefits. 
B)  spending on programs that have been tested in some manner. 
C)  spending on programs that have proven over time to be sound investments. 
D)  spending on programs that are considered necessities (needed) according to surveys of the public. 
E)  not spending at all but a reference to the reliability of budget.

Question 16

Needs-tested spending

Accepted Answer

A)  is directing government spending and taxes to states that need the most help. 
B)  is giving tax cuts to wealthy people so they will increase their spending. 
C)  includes transfer payments such as food stamps and unemployment benefits. 
D)  includes homeland defense spending. 
E)  cannot be changed without changes in the laws. 
A)  is directing government spending and taxes to states that need the most help. 
B)  is giving tax cuts to wealthy people so they will increase their spending. 
C)  includes transfer payments such as food stamps and unemployment benefits. 
D)  includes homeland defense spending. 
E)  cannot be changed without changes in the laws.

Question 17

A tax cut that increases the budget deficit results in ________ in the ________ loanable funds.

Accepted Answer

A)  an increase; demand for 
B)  an increase; supply of 
C)  a decrease; demand for 
D)  a decrease; supply of 
E)  no change; either the demand for or the supply of 
A)  an increase; demand for 
B)  an increase; supply of 
C)  a decrease; demand for 
D)  a decrease; supply of 
E)  no change; either the demand for or the supply of

Question 18

Discretionary fiscal policy is handicapped by

Accepted Answer

A)  induced taxes and automatic stabilizers. 
B)  law-making time lags, estimation of potential GDP, and economic forecasting. 
C)  economic forecasting, law-making time lags, and induced taxes. 
D)  automatic stabilizers, law-making time lags, and potential GDP estimation. 
E)  automatic stabilizers and induced taxes. 
A)  induced taxes and automatic stabilizers. 
B)  law-making time lags, estimation of potential GDP, and economic forecasting. 
C)  economic forecasting, law-making time lags, and induced taxes. 
D)  automatic stabilizers, law-making time lags, and potential GDP estimation. 
E)  automatic stabilizers and induced taxes.

Question 19

The crowding out effect refers to the ________ from ________ in the government's budget deficit.

Accepted Answer

A)  decrease in investment; an increase 
B)  decrease in employment; an increase 
C)  decrease in consumption; an increase 
D)  increase in consumption; an increase 
E)  increase in investment; an increase 
A)  decrease in investment; an increase 
B)  decrease in employment; an increase 
C)  decrease in consumption; an increase 
D)  increase in consumption; an increase 
E)  increase in investment; an increase

Question 20

If the government uses fiscal policy to close a recessionary gap, government

Accepted Answer

A)  expenditure must be increased by more than the gap because of the government expenditure multiplier. 
B)  taxes must be cut by more than the gap because of the tax multiplier. 
C)  expenditure can be increased by less than the gap because of the government expenditure multiplier. 
D)  taxes can be raised by less than the gap because of the tax multiplier. 
E)  taxes must be raised by more than the gap because of the tax multiplier. 
A)  expenditure must be increased by more than the gap because of the government expenditure multiplier. 
B)  taxes must be cut by more than the gap because of the tax multiplier. 
C)  expenditure can be increased by less than the gap because of the government expenditure multiplier. 
D)  taxes can be raised by less than the gap because of the tax multiplier. 
E)  taxes must be raised by more than the gap because of the tax multiplier.

If government expenditure on goods and services increase by $100 billion, then aggregate demand

If we compare the United States to France, we see that potential GDP per person in France is that in the United States because the French tax wedge is the U.S.tax wedge.

If we look at the federal government budget over the past 40 years we see that

The standard view in economics is that tax cuts without will the budget deficit resulting in .

-If an economy is at the short-run equilibrium illustrated by the figure above, a discretionary fiscal policy to adjust the economy to full employment is to

When tax revenues minus outlays is i. positive, the government has a budget surplus. Ii) negative, the government has a budget deficit. Iii) zero, the government has a balanced budget.

What two parts of the government determine the federal budget?

Explain how a tax cut effects employment, labor productivity, and potential GDP.

The balanced budget multiplier applies when a $50 billion increase in government expenditure is financed by a $50 billion in tax revenue and the balanced budget multiplier shows that in this case there is effect on aggregate demand.

Discretionary fiscal policy is defined as fiscal policy

If a tax cut increases aggregate demand more than aggregate supply, real GDP and the price level .

Needs-tested spending is best described as

Needs-tested spending

A tax cut that increases the budget deficit results in in the loanable funds.

Discretionary fiscal policy is handicapped by

The crowding out effect refers to the from in the government's budget deficit.

If the government uses fiscal policy to close a recessionary gap, government

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

If government expenditure on goods and services increase by $100 billion, then aggregate demand

If we compare the United States to France, we see that potential GDP per person in France is ________ that in the United States because the French tax wedge is ________ the U.S.tax wedge.

If we look at the federal government budget over the past 40 years we see that

The standard view in economics is that tax cuts without ________ will ________ the budget deficit resulting in ________.

-If an economy is at the short-run equilibrium illustrated by the figure above, a discretionary fiscal policy to adjust the economy to full employment is to

When tax revenues minus outlays is i. positive, the government has a budget surplus. Ii) negative, the government has a budget deficit. Iii) zero, the government has a balanced budget.

What two parts of the government determine the federal budget?

Explain how a tax cut effects employment, labor productivity, and potential GDP.

The balanced budget multiplier applies when a $50 billion increase in government expenditure is financed by a $50 billion ________ in tax revenue and the balanced budget multiplier shows that in this case there is ________ effect on aggregate demand.

Discretionary fiscal policy is defined as fiscal policy

If a tax cut increases aggregate demand more than aggregate supply, real GDP ________ and the price level ________.

Needs-tested spending is best described as

Needs-tested spending

A tax cut that increases the budget deficit results in ________ in the ________ loanable funds.

Discretionary fiscal policy is handicapped by

The crowding out effect refers to the ________ from ________ in the government's budget deficit.

If the government uses fiscal policy to close a recessionary gap, government

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

If we compare the United States to France, we see that potential GDP per person in France is that in the United States because the French tax wedge is the U.S.tax wedge.

The standard view in economics is that tax cuts without will the budget deficit resulting in .

The balanced budget multiplier applies when a $50 billion increase in government expenditure is financed by a $50 billion in tax revenue and the balanced budget multiplier shows that in this case there is effect on aggregate demand.

If a tax cut increases aggregate demand more than aggregate supply, real GDP and the price level .

A tax cut that increases the budget deficit results in in the loanable funds.

The crowding out effect refers to the from in the government's budget deficit.