Question 1

The supply-side effects show that a tax cut on labor income ________ employment and ________ potential GDP.

Accepted Answer

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

Question 2

Explain the difference between discretionary and automatic fiscal policy.Provide examples of each.

Accepted Answer

Discretionary policy is an action that i

Question 3

An income tax on labor income decreases the ________ of potential GDP and a tax on interest income decreases the ________ of potential GDP.

Accepted Answer

A)  level; growth rate 
B)  growth rate; level 
C)  level; level 
D)  growth rate; growth rate 
E)  None of the above answers is correct. 
A)  level; growth rate 
B)  growth rate; level 
C)  level; level 
D)  growth rate; growth rate 
E)  None of the above answers is correct.

Question 4

If we compare the United States to France, the U.S.tax wedge is ________ the French tax wedge.

Accepted Answer

A)  larger than 
B)  equal to 
C)  smaller than 
D)  not comparable to 
E)  smaller in the labor market and larger in the goods market than 
A)  larger than 
B)  equal to 
C)  smaller than 
D)  not comparable to 
E)  smaller in the labor market and larger in the goods market than

Question 5

The national debt is the amount

Accepted Answer

A)  by which government tax revenue exceed outlays in a given year. 
B)  of debt outstanding that arises from past budget deficits. 
C)  by which government outlays exceed tax revenue in a given year. 
D)  of government outlays summed over time. 
E)  of all future entitlement spending. 
A)  by which government tax revenue exceed outlays in a given year. 
B)  of debt outstanding that arises from past budget deficits. 
C)  by which government outlays exceed tax revenue in a given year. 
D)  of government outlays summed over time. 
E)  of all future entitlement spending.

Question 6

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 change expenditure by ________ one trillion dollars.

Accepted Answer

A)  recessionary; less than 
B)  inflationary; exactly 
C)  inflationary; more than 
D)  recessionary; more than 
E)  recessionary; exactly 
A)  recessionary; less than 
B)  inflationary; exactly 
C)  inflationary; more than 
D)  recessionary; more than 
E)  recessionary; exactly

Question 7

The government expenditure multiplier is used to determine the

Accepted Answer

A)  extra scrutiny government action receives. 
B)  amount aggregate demand is affected by a change in government expenditure. 
C)  amount aggregate supply is affected by a change in government expenditure. 
D)  amount private consumption is decreased by government expenditure. 
E)  extent to which automatic stabilizers must be changed in order to avoid recessions. 
A)  extra scrutiny government action receives. 
B)  amount aggregate demand is affected by a change in government expenditure. 
C)  amount aggregate supply is affected by a change in government expenditure. 
D)  amount private consumption is decreased by government expenditure. 
E)  extent to which automatic stabilizers must be changed in order to avoid recessions.

Question 8

Explain how an increase in government expenditure designed to increase aggregate demand can increase potential GDP and aggregate supply.

Accepted Answer

Some types of government expenditure pro

Question 9

The government collects tax revenue of $100 million and has $105 million in outlays.The budget balance is a

Accepted Answer

A)  surplus of $5 million. 
B)  deficit of $5 million. 
C)  surplus of $105 million. 
D)  deficit of $105 million. 
E)  surplus of $100 million and a deficit of $105 million. 
A)  surplus of $5 million. 
B)  deficit of $5 million. 
C)  surplus of $105 million. 
D)  deficit of $105 million. 
E)  surplus of $100 million and a deficit of $105 million.

Question 10

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 11

There are four limitations to the effectiveness of discretionary fiscal policy. Which item below is NOT one of these limitations?

Accepted Answer

A)  shrinking area of law-maker discretion 
B)  law-making time lag 
C)  estimating potential GDP 
D)  fiscal multiplier 
E)  economic forecasting 
A)  shrinking area of law-maker discretion 
B)  law-making time lag 
C)  estimating potential GDP 
D)  fiscal multiplier 
E)  economic forecasting

Question 12

Automatic stabilizers are defined as

Accepted Answer

A)  actions taken by the President without Congressional consent to stabilize the economy. 
B)  actions taken by an act of Congress to stabilize the economy. 
C)  policy that stabilizes without the need for action by the government. 
D)  discretionary policy taken to stabilize the economy. 
E)  policy that has no multiplier effects. 
A)  actions taken by the President without Congressional consent to stabilize the economy. 
B)  actions taken by an act of Congress to stabilize the economy. 
C)  policy that stabilizes without the need for action by the government. 
D)  discretionary policy taken to stabilize the economy. 
E)  policy that has no multiplier effects.

Question 13

An income tax ________ potential GDP by shifting the labor ________ curve ________.

Accepted Answer

A)  increases; demand; rightward 
B)  decreases; supply; rightward 
C)  decreases; demand; leftward 
D)  increases; supply; rightward 
E)  decreases; supply; leftward 
A)  increases; demand; rightward 
B)  decreases; supply; rightward 
C)  decreases; demand; leftward 
D)  increases; supply; rightward 
E)  decreases; supply; leftward

Question 14

The annual statement of the outlays, tax revenues, and surplus or deficit of the government of the United States is the federal

Accepted Answer

A)  surplus record. 
B)  deficit record. 
C)  budget. 
D)  spending. 
E)  debt to the public. 
A)  surplus record. 
B)  deficit record. 
C)  budget. 
D)  spending. 
E)  debt to the public.

Question 15

Although ________ initially proposes and ultimately approves the budget, the discussion and amendment process rests with ________.

Accepted Answer

A)  Congress; the President 
B)  the Senate; the President 
C)  Congress; the Federal Reserve 
D)  the President; Congress 
E)  the U.S.Treasury; Congress 
A)  Congress; the President 
B)  the Senate; the President 
C)  Congress; the Federal Reserve 
D)  the President; Congress 
E)  the U.S.Treasury; Congress

Question 16

"Fiscal policy initiated by an act of Congress that changes government spending or taxes is called discretionary fiscal policy." Is the previous statement correct or incorrect?

Accepted Answer

The statem

Question 17

In an expansion, federal tax receipts increase proportionally more than real GDP without the need for any government policy.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)  the effect of deficit spending. 
A)  discretionary monetary policy. 
B)  automatic monetary policy. 
C)  automatic fiscal policy. 
D)  discretionary fiscal policy. 
E)  the effect of deficit spending.

Question 18

Ignoring any supply-side effects, if government expenditure on goods and services increase by $10 billion and taxes increase by $10 billion, then real GDP ________ and the price level ________.

Accepted Answer

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

Question 19

An example of automatic fiscal policy is

Accepted Answer

A)  an interest rate cut, initiated by an act of Congress. 
B)  an increase in the quantity of money. 
C)  a tax cut, initiated by an act of Congress. 
D)  a decrease in tax revenues, triggered by the state of the economy. 
E)  any change in the interest rate, regardless of its cause. 
A)  an interest rate cut, initiated by an act of Congress. 
B)  an increase in the quantity of money. 
C)  a tax cut, initiated by an act of Congress. 
D)  a decrease in tax revenues, triggered by the state of the economy. 
E)  any change in the interest rate, regardless of its cause.

Question 20

Suppose the tax rate on interest income is 25 percent, the real interest rate is 4 percent, and the inflation rate is 4 percent.In this case, the real after-tax interest rate is

Accepted Answer

A)  .5 percent. 
B)  3.5 percent. 
C)  1.0 percent. 
D)  4.0 percent. 
E)  2.0 percent. 
A)  .5 percent. 
B)  3.5 percent. 
C)  1.0 percent. 
D)  4.0 percent. 
E)  2.0 percent.

The supply-side effects show that a tax cut on labor income employment and potential GDP.

Explain the difference between discretionary and automatic fiscal policy.Provide examples of each.

An income tax on labor income decreases the of potential GDP and a tax on interest income decreases the of potential GDP.

If we compare the United States to France, the U.S.tax wedge is ________ the French tax wedge.

The national debt is the amount

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 change expenditure by one trillion dollars.

The government expenditure multiplier is used to determine the

Explain how an increase in government expenditure designed to increase aggregate demand can increase potential GDP and aggregate supply.

The government collects tax revenue of $100 million and has $105 million in outlays.The budget balance is a

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.

There are four limitations to the effectiveness of discretionary fiscal policy. Which item below is NOT one of these limitations?

Automatic stabilizers are defined as

An income tax potential GDP by shifting the labor curve .

The annual statement of the outlays, tax revenues, and surplus or deficit of the government of the United States is the federal

Although initially proposes and ultimately approves the budget, the discussion and amendment process rests with .

"Fiscal policy initiated by an act of Congress that changes government spending or taxes is called discretionary fiscal policy." Is the previous statement correct or incorrect?

In an expansion, federal tax receipts increase proportionally more than real GDP without the need for any government policy.This increase is an example of

Ignoring any supply-side effects, if government expenditure on goods and services increase by $10 billion and taxes increase by $10 billion, then real GDP and the price level .

An example of automatic fiscal policy is

Suppose the tax rate on interest income is 25 percent, the real interest rate is 4 percent, and the inflation rate is 4 percent.In this case, the real after-tax interest rate is

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

The supply-side effects show that a tax cut on labor income ________ employment and ________ potential GDP.

Explain the difference between discretionary and automatic fiscal policy.Provide examples of each.

An income tax on labor income decreases the ________ of potential GDP and a tax on interest income decreases the ________ of potential GDP.

If we compare the United States to France, the U.S.tax wedge is ________ the French tax wedge.

The national debt is the amount

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 change expenditure by ________ one trillion dollars.

The government expenditure multiplier is used to determine the

Explain how an increase in government expenditure designed to increase aggregate demand can increase potential GDP and aggregate supply.

The government collects tax revenue of $100 million and has $105 million in outlays.The budget balance is a

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.

There are four limitations to the effectiveness of discretionary fiscal policy. Which item below is NOT one of these limitations?

Automatic stabilizers are defined as

An income tax ________ potential GDP by shifting the labor ________ curve ________.

The annual statement of the outlays, tax revenues, and surplus or deficit of the government of the United States is the federal

Although ________ initially proposes and ultimately approves the budget, the discussion and amendment process rests with ________.

"Fiscal policy initiated by an act of Congress that changes government spending or taxes is called discretionary fiscal policy." Is the previous statement correct or incorrect?

In an expansion, federal tax receipts increase proportionally more than real GDP without the need for any government policy.This increase is an example of

Ignoring any supply-side effects, if government expenditure on goods and services increase by $10 billion and taxes increase by $10 billion, then real GDP ________ and the price level ________.

An example of automatic fiscal policy is

Suppose the tax rate on interest income is 25 percent, the real interest rate is 4 percent, and the inflation rate is 4 percent.In this case, the real after-tax interest rate is

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 supply-side effects show that a tax cut on labor income employment and potential GDP.

An income tax on labor income decreases the of potential GDP and a tax on interest income decreases the of potential GDP.

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 change expenditure by one trillion dollars.

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.

An income tax potential GDP by shifting the labor curve .

Although initially proposes and ultimately approves the budget, the discussion and amendment process rests with .

Ignoring any supply-side effects, if government expenditure on goods and services increase by $10 billion and taxes increase by $10 billion, then real GDP and the price level .