Question 1

Direct expenditure offsets are

Accepted Answer

A) the discretionary changing of government expenditures to achieve a higher employment level. 
B) the decrease in planned investment that occurs as the result of an increase in interest rates. 
C) the same as the Ricardian equivalence theorem. 
D) the decrease in spending in the private sector in areas in which the government is competing. 
A) the discretionary changing of government expenditures to achieve a higher employment level. 
B) the decrease in planned investment that occurs as the result of an increase in interest rates. 
C) the same as the Ricardian equivalence theorem. 
D) the decrease in spending in the private sector in areas in which the government is competing.

Question 2

When it takes time for the president and Congress to change fiscal policy to act on economic data, 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 3

Which of the following is a discretionary fiscal policy action?

Accepted Answer

A) an increase in the amount of unemployment compensation because more people become unemployed 
B) a progressive tax system that leads to an increase in income tax revenues during an economic boom 
C) a deliberate tax cut when the economy experiences high unemployment 
D) an increase in Supplemental Security Income payments when more people become eligible for the benefits 
A) an increase in the amount of unemployment compensation because more people become unemployed 
B) a progressive tax system that leads to an increase in income tax revenues during an economic boom 
C) a deliberate tax cut when the economy experiences high unemployment 
D) an increase in Supplemental Security Income payments when more people become eligible for the benefits

Question 4

Discretionary fiscal policy

Accepted Answer

A) is not very effective in influencing real GDP during normal times because of time lags. 
B) can be very effective in influencing real GDP during abnormal times, such as when a nation is at war. 
C) may reassure investors and consumers that the federal government will be able to avert a major economic downturn. 
D) all of the above 
A) is not very effective in influencing real GDP during normal times because of time lags. 
B) can be very effective in influencing real GDP during abnormal times, such as when a nation is at war. 
C) may reassure investors and consumers that the federal government will be able to avert a major economic downturn. 
D) all of the above

Question 5

The Laffer curve shows that as tax rates increase

Accepted Answer

A) initially tax revenues increase, then decrease. 
B) tax revenues decrease as the incidence of cheating on tax returns increases. 
C) tax revenues increase as more individuals and businesses have to pay taxes. 
D) tax revenues remain unchanged. 
A) initially tax revenues increase, then decrease. 
B) tax revenues decrease as the incidence of cheating on tax returns increases. 
C) tax revenues increase as more individuals and businesses have to pay taxes. 
D) tax revenues remain unchanged.

Question 6

The time required to collect information about the current state of the economy is known as

Accepted Answer

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

Question 7

Which of the following conditions describes a recessionary gap?

Accepted Answer

A) The short-run equilibrium level of real GDP is above the long-run level of real GDP. 
B) The short-run equilibrium level of real GDP is below the long-run level of real GDP. 
C) The actual interest rate is above the equilibrium interest rate. 
D) The actual interest rate is below the equilibrium interest rate. 
A) The short-run equilibrium level of real GDP is above the long-run level of real GDP. 
B) The short-run equilibrium level of real GDP is below the long-run level of real GDP. 
C) The actual interest rate is above the equilibrium interest rate. 
D) The actual interest rate is below the equilibrium interest rate.

Question 8

The recognition time lag is the time that elapses between

Accepted Answer

A) when an economic problem manifests itself and it is officially acknowledged. 
B) the recognition of an economic problem and implementing policies to solve it. 
C) implementing policies to solve an economic problem and when the results of that policy can be measured. 
D) the beginning of the budgetary process and the final budget resolution. 
A) when an economic problem manifests itself and it is officially acknowledged. 
B) the recognition of an economic problem and implementing policies to solve it. 
C) implementing policies to solve an economic problem and when the results of that policy can be measured. 
D) the beginning of the budgetary process and the final budget resolution.

Question 9

In Country Z, the government simultaneously decreases its expenditures by $20 billion and decreases taxes by $20 billion. If the MPS is equal to 0.2, the government's action ________ real GDP by ________.

Accepted Answer

A) decreases; $100 billion 
B) decreases; $20 billion 
C) decreases; $80 billion 
D) has no effect on; $0 
A) decreases; $100 billion 
B) decreases; $20 billion 
C) decreases; $80 billion 
D) has no effect on; $0

Question 10

According to supply-side economics, lower tax rates on wages

Accepted Answer

A) generate higher revenues for the government and increased unemployment. 
B) create incentives to work more, which increases real GDP. 
C) are less productive than lower tax rates on consumers. 
D) have little effect on the economy. 
A) generate higher revenues for the government and increased unemployment. 
B) create incentives to work more, which increases real GDP. 
C) are less productive than lower tax rates on consumers. 
D) have little effect on the economy.

Question 11

-Refer to the above figure. If the economy is at E and the government wants to increase aggregate demand to AD₃, but the increase in spending only shifts the aggregate demand curve to AD₂, then

Accepted Answer

A) complete crowding out has occurred. 
B) some crowding out has occurred. 
C) the increased borrowing caused interest rates to fall. 
D) the short-run aggregate supply curve is steeper than the figure indicates. 
A) complete crowding out has occurred. 
B) some crowding out has occurred. 
C) the increased borrowing caused interest rates to fall. 
D) the short-run aggregate supply curve is steeper than the figure indicates.

Question 12

In the traditional Keynesian model, an increase in government spending

Accepted Answer

A) causes the C + I + G + X line to shift upward by the full amount of the increase in government spending. 
B) causes the C + I + G + X line to shift upward by an amount less than the increase in government spending. 
C) causes the C + I + G + X line to shift upward by more than the increase in government spending. 
D) causes no change in the C + I + G + X line. 
A) causes the C + I + G + X line to shift upward by the full amount of the increase in government spending. 
B) causes the C + I + G + X line to shift upward by an amount less than the increase in government spending. 
C) causes the C + I + G + X line to shift upward by more than the increase in government spending. 
D) causes no change in the C + I + G + X line.

Question 13

-Refer to the above figure. If the relevant aggregate demand curve is AD₂, what is the current economic situation?

Accepted Answer

A) inflationary gap 
B) recessionary gap 
C) equilibrium 
D) overemployment 
A) inflationary gap 
B) recessionary gap 
C) equilibrium 
D) overemployment

Question 14

The action time lag is the time period that elapses

Accepted Answer

A) between when an economic problem manifests itself and it is officially acknowledged. 
B) between the recognition of an economic problem and implementing policies to solve it. 
C) between implementing policies to solve an economic problem and when the results of that policy can be measured. 
D) between the beginning of the budgetary process and the final budget resolution. 
A) between when an economic problem manifests itself and it is officially acknowledged. 
B) between the recognition of an economic problem and implementing policies to solve it. 
C) between implementing policies to solve an economic problem and when the results of that policy can be measured. 
D) between the beginning of the budgetary process and the final budget resolution.

Question 15

When fiscal policy is used, time lags are variable and last anywhere from

Accepted Answer

A) one to three weeks. 
B) one to three months. 
C) one to three years. 
D) one to three decades. 
A) one to three weeks. 
B) one to three months. 
C) one to three years. 
D) one to three decades.

Question 16

-Refer to the above figure. As the real national income expands from Y₂ to Y₃,

Accepted Answer

A) a budget surplus occurs. 
B) a budget deficit occurs. 
C) tax revenues fall. 
D) government transfers rise. 
A) a budget surplus occurs. 
B) a budget deficit occurs. 
C) tax revenues fall. 
D) government transfers rise.

Question 17

An increase in government spending without an accompanying increase in taxes

Accepted Answer

A) does not increase aggregate demand. 
B) would effectively eliminate an inflationary gap. 
C) causes investment spending to increase. 
D) requires additional government borrowing. 
A) does not increase aggregate demand. 
B) would effectively eliminate an inflationary gap. 
C) causes investment spending to increase. 
D) requires additional government borrowing.

Question 18

If there is a deliberate change in taxes and spending, it is called

Accepted Answer

A) a recessionary gap. 
B) an inflationary gap. 
C) discretionary fiscal policy. 
D) discretionary monetary policy. 
A) a recessionary gap. 
B) an inflationary gap. 
C) discretionary fiscal policy. 
D) discretionary monetary policy.

Question 19

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

Accepted Answer

A) discretionary fiscal policy. 
B) automatic fiscal policy. 
C) recessionary fiscal policy. 
D) inflationary fiscal policy. 
A) discretionary fiscal policy. 
B) automatic fiscal policy. 
C) recessionary fiscal policy. 
D) inflationary fiscal policy.

Question 20

In January 2009, the President submitted a bill to Congress in order to stimulate the economy and increase employment. The legislation was passed in March 2009, and the spending occurred from June 2009 to March 2011. As a result

Accepted Answer

A) the full effect of the fiscal policy change would not be felt until after March 2011 because of the effect time lag. 
B) the full effect of the fiscal policy change would not be felt until after March 2011 because of the recognition time lag. 
C) the full effect of the fiscal policy change would be felt by March 2011 because people anticipated the spending and changed their behavior accordingly. 
D) the full effect of the fiscal policy change would be felt when the last of the funds were spent by the government. 
A) the full effect of the fiscal policy change would not be felt until after March 2011 because of the effect time lag. 
B) the full effect of the fiscal policy change would not be felt until after March 2011 because of the recognition time lag. 
C) the full effect of the fiscal policy change would be felt by March 2011 because people anticipated the spending and changed their behavior accordingly. 
D) the full effect of the fiscal policy change would be felt when the last of the funds were spent by the government.

Direct expenditure offsets are

When it takes time for the president and Congress to change fiscal policy to act on economic data, we have a(n)

Which of the following is a discretionary fiscal policy action?

Discretionary fiscal policy

The Laffer curve shows that as tax rates increase

The time required to collect information about the current state of the economy is known as

Which of the following conditions describes a recessionary gap?

The recognition time lag is the time that elapses between

In Country Z, the government simultaneously decreases its expenditures by $20 billion and decreases taxes by $20 billion. If the MPS is equal to 0.2, the government's action real GDP by .

According to supply-side economics, lower tax rates on wages

-Refer to the above figure. If the economy is at E and the government wants to increase aggregate demand to AD₃, but the increase in spending only shifts the aggregate demand curve to AD₂, then

In the traditional Keynesian model, an increase in government spending

-Refer to the above figure. If the relevant aggregate demand curve is AD₂, what is the current economic situation?

The action time lag is the time period that elapses

When fiscal policy is used, time lags are variable and last anywhere from

-Refer to the above figure. As the real national income expands from Y₂ to Y₃,

An increase in government spending without an accompanying increase in taxes

If there is a deliberate change in taxes and spending, it is called

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

In January 2009, the President submitted a bill to Congress in order to stimulate the economy and increase employment. The legislation was passed in March 2009, and the spending occurred from June 2009 to March 2011. As a result

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

Exam 12: Fiscal Policy

Direct expenditure offsets are

When it takes time for the president and Congress to change fiscal policy to act on economic data, we have a(n)

Which of the following is a discretionary fiscal policy action?

Discretionary fiscal policy

The Laffer curve shows that as tax rates increase

The time required to collect information about the current state of the economy is known as

Which of the following conditions describes a recessionary gap?

The recognition time lag is the time that elapses between

In Country Z, the government simultaneously decreases its expenditures by $20 billion and decreases taxes by $20 billion. If the MPS is equal to 0.2, the government's action ________ real GDP by ________.

According to supply-side economics, lower tax rates on wages

-Refer to the above figure. If the economy is at E and the government wants to increase aggregate demand to AD₃, but the increase in spending only shifts the aggregate demand curve to AD₂, then

In the traditional Keynesian model, an increase in government spending

-Refer to the above figure. If the relevant aggregate demand curve is AD₂, what is the current economic situation?

The action time lag is the time period that elapses

When fiscal policy is used, time lags are variable and last anywhere from

-Refer to the above figure. As the real national income expands from Y₂ to Y₃,

An increase in government spending without an accompanying increase in taxes

If there is a deliberate change in taxes and spending, it is called

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

In January 2009, the President submitted a bill to Congress in order to stimulate the economy and increase employment. The legislation was passed in March 2009, and the spending occurred from June 2009 to March 2011. As a result

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

In Country Z, the government simultaneously decreases its expenditures by $20 billion and decreases taxes by $20 billion. If the MPS is equal to 0.2, the government's action real GDP by .