Question 1

If the crowding-out effect is complete and the marginal propensity to save is 0.25, then an increase in government spending of $100 billion will generate how much more real GDP?

Accepted Answer

A) $0 
B) $25 billion 
C) $100 billion 
D) $400 billion 
A) $0 
B) $25 billion 
C) $100 billion 
D) $400 billion

Question 2

The tendency for expansionary fiscal policy to cause a reduction in planned real investment spending by the private sector is called

Accepted Answer

A) the indirect effect. 
B) the interest rate effect. 
C) the crowding-out effect. 
D) the Laffer effect. 
A) the indirect effect. 
B) the interest rate effect. 
C) the crowding-out effect. 
D) the Laffer effect.

Question 3

A government proposal to increase marginal tax rates on the wealthiest 2 percent of U.S. residents is supposed to generate an additional $100 billion in tax revenues. It is likely that

Accepted Answer

A) the actual revenue raised will exceed the $100 billion, because the other 98 percent of the population will increase their work effort with a more fair tax system. 
B) the actual revenue raised will be more than $100 billion, because the short-run aggregate supply curve is upward sloping. 
C) the actual revenue raised will be less than $100 billion, because some of the people will respond by working less and earning less income that can be taxed. 
D) the actual revenue raised will be close to $100 billion, because the wealthy don't respond to work incentives the way poorer workers do. 
A) the actual revenue raised will exceed the $100 billion, because the other 98 percent of the population will increase their work effort with a more fair tax system. 
B) the actual revenue raised will be more than $100 billion, because the short-run aggregate supply curve is upward sloping. 
C) the actual revenue raised will be less than $100 billion, because some of the people will respond by working less and earning less income that can be taxed. 
D) the actual revenue raised will be close to $100 billion, because the wealthy don't respond to work incentives the way poorer workers do.

Question 4

The amount of time that elapses between the implementation of a policy and the results of that policy is

Accepted Answer

A) fiscal policy. 
B) the recognition time lag. 
C) the effect time lag. 
D) the action time lag. 
A) fiscal policy. 
B) the recognition time lag. 
C) the effect time lag. 
D) the action time lag.

Question 5

According to the permanent income hypothesis, taxpayers react to a one-time tax rebate

Accepted Answer

A) by spending all of the tax rebate. 
B) by spending more than the amount of the tax rebate. 
C) by saving half of the tax rebate and spending the rest. 
D) by saving all of the tax rebate. 
A) by spending all of the tax rebate. 
B) by spending more than the amount of the tax rebate. 
C) by saving half of the tax rebate and spending the rest. 
D) by saving all of the tax rebate.

Question 6

When data on the economy requires some time to gather and interpret, we have a(n)

Accepted Answer

A) aggregate time lag. 
B) action time lag. 
C) recognition time lag. 
D) effect time lag. 
A) aggregate time lag. 
B) action time lag. 
C) recognition time lag. 
D) effect time lag.

Question 7

The discretionary change of government expenditures or taxes to achieve national economic goals is

Accepted Answer

A) a direct expenditure upset. 
B) Ricardian-equivalence theorem. 
C) supply-side economics. 
D) fiscal policy. 
A) a direct expenditure upset. 
B) Ricardian-equivalence theorem. 
C) supply-side economics. 
D) fiscal policy.

Question 8

An example of fiscal policy is

Accepted Answer

A) a reduction in government spending. 
B) a reduction in investment spending by the private sector. 
C) an increase in autonomous spending by consumers. 
D) an increase in Social Security spending by the elderly. 
A) a reduction in government spending. 
B) a reduction in investment spending by the private sector. 
C) an increase in autonomous spending by consumers. 
D) an increase in Social Security spending by the elderly.

Question 9

According to the Keynesian approach, an increase in taxes

Accepted Answer

A) will reduce consumption exactly by the amount of the taxes. 
B) will reduce consumption by an amount less than the change in taxes. 
C) will not impact consumption, as most consumption is autonomous. 
D) will increase consumption, as the government will spend the extra tax revenue and that increases consumption. 
A) will reduce consumption exactly by the amount of the taxes. 
B) will reduce consumption by an amount less than the change in taxes. 
C) will not impact consumption, as most consumption is autonomous. 
D) will increase consumption, as the government will spend the extra tax revenue and that increases consumption.

Question 10

The balanced-budget multiplier is equal to

Accepted Answer

A) the percentage increase in government expenditures. 
B) the reciprocal of the increase in government expenditures. 
C) the percentage increase in taxes. 
D) 1. 
A) the percentage increase in government expenditures. 
B) the reciprocal of the increase in government expenditures. 
C) the percentage increase in taxes. 
D) 1.

Question 11

In the traditional Keynesian model, if the government cuts current taxes

Accepted Answer

A) the C + I + G + X line will shift down but the aggregate demand curve will not shift. 
B) the C + I + G + X line will shift down and the aggregate demand curve will shift to the left. 
C) the C + I + G + X line will shift up and the aggregate demand curve will shift to the right. 
D) the C + I + G + X line will shift up but the aggregate demand curve will not shift. 
A) the C + I + G + X line will shift down but the aggregate demand curve will not shift. 
B) the C + I + G + X line will shift down and the aggregate demand curve will shift to the left. 
C) the C + I + G + X line will shift up and the aggregate demand curve will shift to the right. 
D) the C + I + G + X line will shift up but the aggregate demand curve will not shift.

Question 12

Automatic stabilizers are so-named because

Accepted Answer

A) they are automatically undertaken by the Federal Reserve Bank to reduce budget deficits. 
B) they occur automatically when real GDP changes. 
C) the policy suggestions of the Council of Economic Advisors are automatically followed. 
D) the policy suggestions of the Office of Management and Budget are automatically followed. 
A) they are automatically undertaken by the Federal Reserve Bank to reduce budget deficits. 
B) they occur automatically when real GDP changes. 
C) the policy suggestions of the Council of Economic Advisors are automatically followed. 
D) the policy suggestions of the Office of Management and Budget are automatically followed.

Question 13

Automatic stabilizers are

Accepted Answer

A) provisions that cause changes in government spending and taxes without new action by Congress or the President. 
B) policies set by certain committees in Congress. 
C) tools used by the President's Council of Economic Advisers. 
D) provisions that cause the aggregate supply curve to be upward sloping. 
A) provisions that cause changes in government spending and taxes without new action by Congress or the President. 
B) policies set by certain committees in Congress. 
C) tools used by the President's Council of Economic Advisers. 
D) provisions that cause the aggregate supply curve to be upward sloping.

If the crowding-out effect is complete and the marginal propensity to save is 0.25, then an increase in government spending of $100 billion will generate how much more real GDP?

The tendency for expansionary fiscal policy to cause a reduction in planned real investment spending by the private sector is called

A government proposal to increase marginal tax rates on the wealthiest 2 percent of U.S. residents is supposed to generate an additional $100 billion in tax revenues. It is likely that

The amount of time that elapses between the implementation of a policy and the results of that policy is

According to the permanent income hypothesis, taxpayers react to a one-time tax rebate

When data on the economy requires some time to gather and interpret, we have a(n)

The discretionary change of government expenditures or taxes to achieve national economic goals is

An example of fiscal policy is

According to the Keynesian approach, an increase in taxes

The balanced-budget multiplier is equal to

In the traditional Keynesian model, if the government cuts current taxes

Automatic stabilizers are so-named because

Automatic stabilizers are

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Deficit Spending and the Public Debt

Money Banking and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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Exam 12: Fiscal Policy

If the crowding-out effect is complete and the marginal propensity to save is 0.25, then an increase in government spending of $100 billion will generate how much more real GDP?

The tendency for expansionary fiscal policy to cause a reduction in planned real investment spending by the private sector is called

A government proposal to increase marginal tax rates on the wealthiest 2 percent of U.S. residents is supposed to generate an additional $100 billion in tax revenues. It is likely that

The amount of time that elapses between the implementation of a policy and the results of that policy is

According to the permanent income hypothesis, taxpayers react to a one-time tax rebate

When data on the economy requires some time to gather and interpret, we have a(n)

The discretionary change of government expenditures or taxes to achieve national economic goals is

An example of fiscal policy is

According to the Keynesian approach, an increase in taxes

The balanced-budget multiplier is equal to

In the traditional Keynesian model, if the government cuts current taxes

Automatic stabilizers are so-named because

Automatic stabilizers are

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Deficit Spending and the Public Debt

Money Banking and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters