Question 1

Exhibit 15-1 Disposable income and consumption data
  
-In Exhibit 15-1,when disposable income (Y)is increased from $0 to $1,000 to $2,000,the marginal propensity to consume:

Accepted Answer

A)  is 1. 
B)  decreases from 0.9 to 0.8. 
C)  decreases from 0.8 to 0.7. 
D)  increases from 0.8 to 0.9. 
E)  is negative. 
A)  is 1. 
B)  decreases from 0.9 to 0.8. 
C)  decreases from 0.8 to 0.7. 
D)  increases from 0.8 to 0.9. 
E)  is negative. B

Question 2

Those who favor government policies to stimulate the economy by creating incentives for individuals and businesses to increase their productive efforts are supporting:

Accepted Answer

A)  supply-side economics. 
B)  Keynesian economics. 
C)  monetarist economics. 
D)  Marxian economics. 
A)  supply-side economics. 
B)  Keynesian economics. 
C)  monetarist economics. 
D)  Marxian economics. A

Question 3

If your income increases from $33,000 to $41,000 and your consumption increases from $8,000 to $12,000,your marginal propensity to consume (MPC)is:

Accepted Answer

A)  0.2. 
B)  0.4. 
C)  0.5. 
D)  0.8. 
E)  1.0. 
A)  0.2. 
B)  0.4. 
C)  0.5. 
D)  0.8. 
E)  1.0. C

Question 4

As the marginal propensity to consume (MPC)increases,the spending multiplier:

Accepted Answer

A)  increases. 
B)  decreases. 
C)  remains constant. 
D)  becomes undefinable. 
A)  increases. 
B)  decreases. 
C)  remains constant. 
D)  becomes undefinable.

Question 5

Which economist(s)argued that high tax rates produce less tax revenues and limit the expansion of real GDP and employment?

Accepted Answer

A)  Robert Lucas and Thomas Sargent. 
B)  A. W. Phillips. 
C)  Robert Barro. 
D)  Paul Samuelson. 
E)  Arthur Laffer. 
A)  Robert Lucas and Thomas Sargent. 
B)  A. W. Phillips. 
C)  Robert Barro. 
D)  Paul Samuelson. 
E)  Arthur Laffer.

Question 6

Which of the following is an example of an automatic stabilizer?

Accepted Answer

A)  Congress legislates lower tax rates to increase consumption and investment. 
B)  Tax rates are increased during a recession to maintain a balanced budget. 
C)  A regressive income tax system reduces tax revenues (as a share of income) as income expands. 
D)  Revenues from the corporate income tax increase sharply during a business boom but decline substantially during a recession, even though no new tax legislation has been enacted. 
A)  Congress legislates lower tax rates to increase consumption and investment. 
B)  Tax rates are increased during a recession to maintain a balanced budget. 
C)  A regressive income tax system reduces tax revenues (as a share of income) as income expands. 
D)  Revenues from the corporate income tax increase sharply during a business boom but decline substantially during a recession, even though no new tax legislation has been enacted.

Question 7

If the marginal propensity to consume (MPC)is 0.96,the value of the spending multiplier is:

Accepted Answer

A)  25. 
B)  40. 
C)  96. 
D)  100. 
A)  25. 
B)  40. 
C)  96. 
D)  100.

Question 8

The unemployment compensation program:

Accepted Answer

A)  makes recessions more severe. 
B)  makes recession less severe. 
C)  makes recessions more severe and inflationary episodes less severe. 
D)  makes recessions less severe and inflationary episodes more severe. 
E)  has no effect on the severity of recessions and inflationary episodes. 
A)  makes recessions more severe. 
B)  makes recession less severe. 
C)  makes recessions more severe and inflationary episodes less severe. 
D)  makes recessions less severe and inflationary episodes more severe. 
E)  has no effect on the severity of recessions and inflationary episodes.

Question 9

Exhibit 15-1 Disposable income and consumption data
  
-In Exhibit 15-1,when disposable income is increased from $2,000 to $3,000 to $4,000,

Accepted Answer

A)  total consumption increases by $1,000. 
B)  the marginal propensity to consume remains constant. 
C)  the marginal propensity to consume increases from 0.6 to 0.7. 
D)  the marginal propensity to consume decreases from 0.8 to 0.7. 
E)  the marginal propensity to consume decreases from 0.7 to 0.6. 
A)  total consumption increases by $1,000. 
B)  the marginal propensity to consume remains constant. 
C)  the marginal propensity to consume increases from 0.6 to 0.7. 
D)  the marginal propensity to consume decreases from 0.8 to 0.7. 
E)  the marginal propensity to consume decreases from 0.7 to 0.6.

Question 10

Structures in the economy increase aggregate demand when the economy is in recession and decrease aggregate demand when the economy is inflationary are known as:

Accepted Answer

A)  tax transfers. 
B)  inventory investment. 
C)  accelerators. 
D)  depreciation. 
E)  automatic stabilizers. 
A)  tax transfers. 
B)  inventory investment. 
C)  accelerators. 
D)  depreciation. 
E)  automatic stabilizers.

Question 11

Automatic stabilizers are government programs that:

Accepted Answer

A)  exaggerate the ups and downs in aggregate demand without legislative action. 
B)  bring expenditures and revenues automatically into balance without legislative action. 
C)  shift the budget toward a deficit when the economy slows but shift it toward a surplus during an expansion. 
D)  increase tax collections automatically during a recession. 
A)  exaggerate the ups and downs in aggregate demand without legislative action. 
B)  bring expenditures and revenues automatically into balance without legislative action. 
C)  shift the budget toward a deficit when the economy slows but shift it toward a surplus during an expansion. 
D)  increase tax collections automatically during a recession.

Question 12

Contractionary fiscal policy is designed to combat demand-pull inflation and consists of a decrease in government spending and/or an increase in taxes.

Accepted Answer

A) True 
 B)False

Question 13

The change in consumption divided by a change in income is called the:

Accepted Answer

A)  consumption function. 
B)  marginal propensity to consume. 
C)  marginal propensity to spend. 
D)  spending function. 
E)  changing propensity to consume. 
A)  consumption function. 
B)  marginal propensity to consume. 
C)  marginal propensity to spend. 
D)  spending function. 
E)  changing propensity to consume.

Question 14

The size of the spending multiplier depends on the marginal propensity to consume (MPC).

Accepted Answer

A) True 
 B)False

Question 15

Describe appropriate discretionary fiscal policy according to Keynesian economics to smooth out the business cycle.

Accepted Answer

The government should increase its spend

Question 16

The Laffer curve represents the relationship between real GDP and various possible tax rates.

Accepted Answer

A) True 
 B)False

Question 17

The presence of the automatic stabilizers means an increase in the budget deficit will be automatically experienced during a recession whereas a budget surplus will be automatically experienced during an economic expansion.

Accepted Answer

A) True 
 B)False

Question 18

A tax multiplier equal to : 4.30 would imply that a $100 tax increase would lead to a:

Accepted Answer

A)  $430 decline in real GDP. 
B)  $430 increase in real GDP. 
C)  4.3 percent increase in real GDP. 
D)  4.3 percent decrease in real GDP. 
E)  43 percent decrease in real GDP. 
A)  $430 decline in real GDP. 
B)  $430 increase in real GDP. 
C)  4.3 percent increase in real GDP. 
D)  4.3 percent decrease in real GDP. 
E)  43 percent decrease in real GDP.

Question 19

Assume the marginal propensity to consume (MPC)is 0.75 and the economy is in recession with real GDP $1 trillion below full-employment real GDP.To achieve full employment,aggregate demand (AD)must be increased $2 trillion.Following discretionary fiscal policy,government spending should be increased:

Accepted Answer

A)  $0.25 trillion. 
B)  $1 trillion. 
C)  $0.5 trillion. 
D)  $2 trillion. 
A)  $0.25 trillion. 
B)  $1 trillion. 
C)  $0.5 trillion. 
D)  $2 trillion.

Question 20

The presence of the automatic stabilizers means an increase in the budget deficit will be automatically experienced during an economic expansion whereas a budget surplus will be automatically experienced during a recession.

Accepted Answer

A) True 
 B)False

Exam 15: Fiscal Policy

Exhibit 15-1 Disposable income and consumption data -In Exhibit 15-1,when disposable income (Y)is increased from $0 to $1,000 to $2,000,the marginal propensity to consume:

Those who favor government policies to stimulate the economy by creating incentives for individuals and businesses to increase their productive efforts are supporting:

If your income increases from $33,000 to $41,000 and your consumption increases from $8,000 to $12,000,your marginal propensity to consume (MPC)is:

As the marginal propensity to consume (MPC)increases,the spending multiplier:

Which economist(s)argued that high tax rates produce less tax revenues and limit the expansion of real GDP and employment?

Which of the following is an example of an automatic stabilizer?

If the marginal propensity to consume (MPC)is 0.96,the value of the spending multiplier is:

The unemployment compensation program:

Exhibit 15-1 Disposable income and consumption data -In Exhibit 15-1,when disposable income is increased from $2,000 to $3,000 to $4,000,

Structures in the economy increase aggregate demand when the economy is in recession and decrease aggregate demand when the economy is inflationary are known as:

Automatic stabilizers are government programs that:

Contractionary fiscal policy is designed to combat demand-pull inflation and consists of a decrease in government spending and/or an increase in taxes.

The change in consumption divided by a change in income is called the:

The size of the spending multiplier depends on the marginal propensity to consume (MPC).

Describe appropriate discretionary fiscal policy according to Keynesian economics to smooth out the business cycle.

The Laffer curve represents the relationship between real GDP and various possible tax rates.

The presence of the automatic stabilizers means an increase in the budget deficit will be automatically experienced during a recession whereas a budget surplus will be automatically experienced during an economic expansion.

A tax multiplier equal to : 4.30 would imply that a $100 tax increase would lead to a:

The presence of the automatic stabilizers means an increase in the budget deficit will be automatically experienced during an economic expansion whereas a budget surplus will be automatically experienced during a recession.

Introducing the Economic Way of Thinking

A: Appendix: Applying Graphs to Economics

Production Possibilities,Opportunity Cost,and Economic Growth

Part 1: Market Demand and Supply

Part 2: Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

The Public Sector

Federal Deficits,Surpluses,and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

A: Appendix: Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Filters