Question 1

Which of the following is a limitation of discretionary fiscal policy?
I. law-making lags
Ii. estimating potential GDP
Iii. income gap

Accepted Answer

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

Question 2

An increase in government expenditure can ________ potential GDP and an increase in taxes can ________ potential GDP.

Accepted Answer

A) increase; increase 
B) increase; never change 
C) decrease; decrease 
D) never change; never change 
E) increase; decrease 
A) increase; increase 
B) increase; never change 
C) decrease; decrease 
D) never change; never change 
E) increase; decrease

Question 3

Monetary policy decisions are made by the

Accepted Answer

A) Federal Reserve Economic Committee. 
B) Federal Open Market Committee. 
C) Council of Economic Advisors. 
D) Congress of the United States. 
E) U.S. Mint. 
A) Federal Reserve Economic Committee. 
B) Federal Open Market Committee. 
C) Council of Economic Advisors. 
D) Congress of the United States. 
E) U.S. Mint.

Question 4

When tax revenue exceed the government's outlays, the budget

Accepted Answer

A) has a deficit and the national debt is increasing. 
B) is balanced and the national debt is decreasing. 
C) has a surplus and the national debt is decreasing. 
D) has a surplus and the national debt is increasing. 
E) None of the above because by law tax revenue cannot exceed the government's expenditures. 
A) has a deficit and the national debt is increasing. 
B) is balanced and the national debt is decreasing. 
C) has a surplus and the national debt is decreasing. 
D) has a surplus and the national debt is increasing. 
E) None of the above because by law tax revenue cannot exceed the government's expenditures.

Question 5

When the government's outlays equal its tax revenue, the budget

Accepted Answer

A) has a deficit and the national debt is increasing. 
B) is balanced and the national debt is not changing. 
C) has a surplus and the national debt is increasing. 
D) has a deficit and the national debt is decreasing. 
E) has a surplus and the national debt is decreasing. 
A) has a deficit and the national debt is increasing. 
B) is balanced and the national debt is not changing. 
C) has a surplus and the national debt is increasing. 
D) has a deficit and the national debt is decreasing. 
E) has a surplus and the national debt is decreasing.

Question 6

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 7

$$\begin{array} { c c c } 
& \begin{array} { c } 
\text { Government } \
\text { outlays } \
\text { (trillions of }
\end{array} & \begin{array} { c } 
\text { Tax revenue } \
\text { (trillions of }
\end{array} \
\text { Year } & \text { 2005 dollars) } & \text { 2005 dollars) } \
2008 & 0.75 & 0.80 \
2009 & 0.80 & 0.83 \
2010 & 0.87 & 0.86 \
2011 & 0.95 & 0.95 \
2012 & 1.06 & 1.02 \
\hline
\end{array}$$ 
The table above gives a nation's government outlays and tax revenue for 2008 through 2012.
-During which years, if any, did the country have a balanced budget?

Accepted Answer

A) 2008 and 2009 
B) 2012 only 
C) 2011 only 
D) 2010 and 2012 
E) all except 2011 
A) 2008 and 2009 
B) 2012 only 
C) 2011 only 
D) 2010 and 2012 
E) all except 2011

Question 8

$$\begin{array} { c c c } 
\begin{array} { c } 
\text { Price level } \
\text { (GDP deflator, } \
\mathbf { 2 0 0 5 } = \mathbf { 1 0 0 } \text { ) }
\end{array} & \begin{array} { c } 
\text { Aggregate supply } \
\text { (billions of } \
\mathbf { 2 0 0 5 } \text { dollars) }
\end{array} & \begin{array} { c } 
\text { Aggregate demand } \
\text { (billions of } \
\text { 2005 dollars) }
\end{array} \
\hline 30 & 28 & 16 \
25 & 25 & 19 \
20 & 22 & 22 \
15 & 19 & 25 \
10 & 16 & 28
\end{array}$$
-Using the data in the above table, if potential GDP for this economy is $25 billion, then at the present moment real GDP is

Accepted Answer

A) less than potential GDP. 
B) equal to potential GDP. 
C) greater than potential GDP. 
D) at the full-employment level of output. 
E) not comparable to potential GDP. 
A) less than potential GDP. 
B) equal to potential GDP. 
C) greater than potential GDP. 
D) at the full-employment level of output. 
E) not comparable to potential GDP.

Question 9

If federal taxes are cut by $10 billion, aggregate demand

Accepted Answer

A) increases by $10 billion. 
B) increases by $10 billion multiplied by the government expenditure multiplier. 
C) increases by $10 billion multiplied by the tax multiplier. 
D) decreases by $10 billion. 
E) decreases by $10 billion multiplied by the tax multiplier. 
A) increases by $10 billion. 
B) increases by $10 billion multiplied by the government expenditure multiplier. 
C) increases by $10 billion multiplied by the tax multiplier. 
D) decreases by $10 billion. 
E) decreases by $10 billion multiplied by the tax multiplier.

Question 10

If the Fed raises the federal funds rate, which of the following occurs?

Accepted Answer

A) Consumption expenditure decreases. 
B) Investment increases. 
C) The price of the dollar on the foreign exchange market increases. 
D) Net exports increases. 
E) Aggregate demand increases. 
A) Consumption expenditure decreases. 
B) Investment increases. 
C) The price of the dollar on the foreign exchange market increases. 
D) Net exports increases. 
E) Aggregate demand increases.

Question 11

To eliminate a recessionary gap, what fiscal policy should the government pursue?

Accepted Answer

A recessionary gap occurs when

Question 12

The government has a budget surplus if

Accepted Answer

A) there is no national debt. 
B) tax revenue is greater than outlays. 
C) government outlays are greater than tax revenue. 
D) the budget is balanced. 
E) a fiscal stimulus is being used to combat a recession. 
A) there is no national debt. 
B) tax revenue is greater than outlays. 
C) government outlays are greater than tax revenue. 
D) the budget is balanced. 
E) a fiscal stimulus is being used to combat a recession.

Question 13

When the economy is in a recession, ________ taxes decrease while ________ spending increases and, as a result of this automatic fiscal policy, aggregate demand ________.

Accepted Answer

A) needs-tested; induced; decreases 
B) induced; needs-tested; increases 
C) induced; discretionary; is not changed 
D) discretionary; needs-tested; increases 
E) discretionary; induced; is not changed 
A) needs-tested; induced; decreases 
B) induced; needs-tested; increases 
C) induced; discretionary; is not changed 
D) discretionary; needs-tested; increases 
E) discretionary; induced; is not changed

Question 14

$$\begin{array} { c c c } 
& \begin{array} { c } 
\text { Government } \
\text { outlays } \
\text { (trillions of }
\end{array} & \begin{array} { c } 
\text { Tax revenue } \
\text { (trillions of }
\end{array} \
\text { Year } & \text { 2005 dollars) } & \text { 2005 dollars) } \
2008 & 0.75 & 0.80 \
2009 & 0.80 & 0.83 \
2010 & 0.87 & 0.86 \
2011 & 0.95 & 0.95 \
2012 & 1.06 & 1.02 \
\hline
\end{array}$$ 
The table above gives a nation's government outlays and tax revenue for 2008 through 2012.
-During which years did the country have a budget surplus?

Accepted Answer

A) 2008 and 2009 
B) 2012 only 
C) 2011 only 
D) 2010 and 2012 
E) all except 2011 
A) 2008 and 2009 
B) 2012 only 
C) 2011 only 
D) 2010 and 2012 
E) all except 2011

Question 15

An advantage monetary policy has over fiscal policy is that monetary policy

Accepted Answer

A) can be quickly changed and implemented. 
B) is coordinated with fiscal policy. 
C) is approved by the president of the United States. 
D) affects consumption expenditure and investment without impacting international trade. 
E) has no multiplier effects. 
A) can be quickly changed and implemented. 
B) is coordinated with fiscal policy. 
C) is approved by the president of the United States. 
D) affects consumption expenditure and investment without impacting international trade. 
E) has no multiplier effects.

Question 16

In the short run, lowering the federal funds rate shifts the aggregate demand curve ________ so that real GDP ________ and the price level ________.

Accepted Answer

A) rightward; increases; rises 
B) leftward; decreases; rises 
C) rightward; increases; falls 
D) leftward; decreases; falls 
E) rightward; decreases; rises 
A) rightward; increases; rises 
B) leftward; decreases; rises 
C) rightward; increases; falls 
D) leftward; decreases; falls 
E) rightward; decreases; rises

Question 17

The government expenditure multiplier and the tax multiplier are

Accepted Answer

A) identical in size. 
B) different in size and the tax multiplier is larger. 
C) different in size and the government expenditure multiplier is larger. 
D) not comparable because the government expenditure multiplier applies to aggregate demand and the tax multiplier applies to aggregate supply. 
E) not comparable because the government expenditure multiplier applies to aggregate supply and the tax multiplier applies to aggregate demand. 
A) identical in size. 
B) different in size and the tax multiplier is larger. 
C) different in size and the government expenditure multiplier is larger. 
D) not comparable because the government expenditure multiplier applies to aggregate demand and the tax multiplier applies to aggregate supply. 
E) not comparable because the government expenditure multiplier applies to aggregate supply and the tax multiplier applies to aggregate demand.

Question 18

Need-based spending ________ during an expansion and ________ during a recession, which leads to larger budget deficits during the ________ phase of the business cycle.

Accepted Answer

A) increases; decreases; recession 
B) decreases; increases; expansion 
C) decreases; increases; recession 
D) decreases; decreases; expansion 
E) increases; decreases; expansion 
A) increases; decreases; recession 
B) decreases; increases; expansion 
C) decreases; increases; recession 
D) decreases; decreases; expansion 
E) increases; decreases; expansion

Question 19

If the Fed raises the federal funds rate, eventually the

Accepted Answer

A) AD curve shifts rightward and real GDP increases. 
B) AD curve shifts leftward and real GDP decreases. 
C) AS curve shifts rightward and real GDP increases. 
D) AS curve shifts leftward and real GDP decreases. 
E) AD curve shifts rightward and real GDP decreases. 
A) AD curve shifts rightward and real GDP increases. 
B) AD curve shifts leftward and real GDP decreases. 
C) AS curve shifts rightward and real GDP increases. 
D) AS curve shifts leftward and real GDP decreases. 
E) AD curve shifts rightward and real GDP decreases.

Question 20

Assume the federal government raises taxes (a contractionary fiscal policy). If the tax increase affects AS and AD equally, then real GDP will ________ and the price level will ________.

Accepted Answer

A) decrease; decrease 
B) increase; be unchanged 
C) increase; increase 
D) decrease; be unchanged 
E) increase; decrease 
A) decrease; decrease 
B) increase; be unchanged 
C) increase; increase 
D) decrease; be unchanged 
E) increase; decrease

Which of the following is a limitation of discretionary fiscal policy? I. law-making lags Ii. estimating potential GDP Iii. income gap

An increase in government expenditure can potential GDP and an increase in taxes can potential GDP.

Monetary policy decisions are made by the

When tax revenue exceed the government's outlays, the budget

When the government's outlays equal its tax revenue, the budget

The government expenditure multiplier is used to determine the

Price level (GDP deflator, = ) Aggregate supply (billions of dollars) Aggregate demand (billions of 2005 dollars) 30 28 16 25 25 19 20 22 22 15 19 25 10 16 28 -Using the data in the above table, if potential GDP for this economy is $25 billion, then at the present moment real GDP is

If federal taxes are cut by $10 billion, aggregate demand

If the Fed raises the federal funds rate, which of the following occurs?

To eliminate a recessionary gap, what fiscal policy should the government pursue?

The government has a budget surplus if

When the economy is in a recession, taxes decrease while spending increases and, as a result of this automatic fiscal policy, aggregate demand .

An advantage monetary policy has over fiscal policy is that monetary policy

In the short run, lowering the federal funds rate shifts the aggregate demand curve so that real GDP and the price level .

The government expenditure multiplier and the tax multiplier are

Need-based spending during an expansion and during a recession, which leads to larger budget deficits during the phase of the business cycle.

If the Fed raises the federal funds rate, eventually the

Assume the federal government raises taxes (a contractionary fiscal policy). If the tax increase affects AS and AD equally, then real GDP will and the price level will .

Getting Started

The Us and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Global Markets in Action

Externalities: Pollution, Education, and Health Care

Production and Cost

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and Economic Growth

Money and the Monetary System

Aggregate Supply and Aggregate Demand

Filters

Exam 20: Fiscal Policy and Monetary Policy

Which of the following is a limitation of discretionary fiscal policy? I. law-making lags Ii. estimating potential GDP Iii. income gap

An increase in government expenditure can ________ potential GDP and an increase in taxes can ________ potential GDP.

Monetary policy decisions are made by the

When tax revenue exceed the government's outlays, the budget

When the government's outlays equal its tax revenue, the budget

The government expenditure multiplier is used to determine the

Price level (GDP deflator, = ) Aggregate supply (billions of dollars) Aggregate demand (billions of 2005 dollars) 30 28 16 25 25 19 20 22 22 15 19 25 10 16 28 -Using the data in the above table, if potential GDP for this economy is $25 billion, then at the present moment real GDP is

If federal taxes are cut by $10 billion, aggregate demand

If the Fed raises the federal funds rate, which of the following occurs?

To eliminate a recessionary gap, what fiscal policy should the government pursue?

The government has a budget surplus if

When the economy is in a recession, ________ taxes decrease while ________ spending increases and, as a result of this automatic fiscal policy, aggregate demand ________.

An advantage monetary policy has over fiscal policy is that monetary policy

In the short run, lowering the federal funds rate shifts the aggregate demand curve ________ so that real GDP ________ and the price level ________.

The government expenditure multiplier and the tax multiplier are

Need-based spending ________ during an expansion and ________ during a recession, which leads to larger budget deficits during the ________ phase of the business cycle.

If the Fed raises the federal funds rate, eventually the

Assume the federal government raises taxes (a contractionary fiscal policy). If the tax increase affects AS and AD equally, then real GDP will ________ and the price level will ________.

Getting Started

The Us and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Global Markets in Action

Externalities: Pollution, Education, and Health Care

Production and Cost

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and Economic Growth

Money and the Monetary System

Aggregate Supply and Aggregate Demand

Filters

An increase in government expenditure can potential GDP and an increase in taxes can potential GDP.

When the economy is in a recession, taxes decrease while spending increases and, as a result of this automatic fiscal policy, aggregate demand .

In the short run, lowering the federal funds rate shifts the aggregate demand curve so that real GDP and the price level .

Need-based spending during an expansion and during a recession, which leads to larger budget deficits during the phase of the business cycle.

Assume the federal government raises taxes (a contractionary fiscal policy). If the tax increase affects AS and AD equally, then real GDP will and the price level will .