Question 1

Unemployment compensation is an example of a(n):

Accepted Answer

A)  discretionary stabilizer. 
B)  countercyclical stabilizer. 
C)  procyclical stabilizer. 
D)  seasonal stabilizer. 
E)  automatic stabilizer. 
A)  discretionary stabilizer. 
B)  countercyclical stabilizer. 
C)  procyclical stabilizer. 
D)  seasonal stabilizer. 
E)  automatic stabilizer.

Question 2

The government can reduce unemployment or reduce inflation by:

Accepted Answer

A)  manipulating aggregate demand. 
B)  manipulating the availability of natural resources. 
C)  manipulating the availability of capital goods. 
D)  manipulating the availability of qualified workers. 
E)  curbing the level of immigration. 
A)  manipulating aggregate demand. 
B)  manipulating the availability of natural resources. 
C)  manipulating the availability of capital goods. 
D)  manipulating the availability of qualified workers. 
E)  curbing the level of immigration.

Question 3

The formula to compute the spending multiplier is:

Accepted Answer

A)  1/(MPC + MPS). 
B)  1/(1 - MP
C) . 
C)  1/(1 - MPS). 
D)  1/(C + I). 
A)  1/(MPC + MPS). 
B)  1/(1 - MP
C) . 
C)  1/(1 - MPS). 
D)  1/(C + I).

Question 4

The fraction of each added dollar of income that is used for consumption is called the:

Accepted Answer

A)  average propensity to consumer (AP
C) . 
B)  autonomous consumption rate (ACR). 
C)  marginal consumption propensity (MCP). 
D)  marginal propensity to consume (MP
C) . 
A)  average propensity to consumer (AP
C) . 
B)  autonomous consumption rate (ACR). 
C)  marginal consumption propensity (MCP). 
D)  marginal propensity to consume (MP
C) .

Question 5

Exhibit 15-3 Aggregate demand and supply model
  
-Beginning at equilibrium E₁ in Exhibit 15-3,when the government increases spending or cuts taxes the economy will experience:

Accepted Answer

A)  an inflationary recession. 
B)  stagflation. 
C)  cost-push inflation. 
D)  demand-pull inflation. 
A)  an inflationary recession. 
B)  stagflation. 
C)  cost-push inflation. 
D)  demand-pull inflation.

Question 6

When the federal government is running a budget deficit:

Accepted Answer

A)  government tax revenues exceed government expenditures. 
B)  government expenditures exceed government tax revenues. 
C)  the economy must be in an economic recession. 
D)  the size of the national debt will decline. 
A)  government tax revenues exceed government expenditures. 
B)  government expenditures exceed government tax revenues. 
C)  the economy must be in an economic recession. 
D)  the size of the national debt will decline.

Question 7

Assume the marginal propensity to consume (MPC)is 0.80 and the government cuts taxes by $100 billion.The aggregate demand curve will shift to the:

Accepted Answer

A)  right by $80 billion. 
B)  left by $200 billion. 
C)  right by $400 billion. 
D)  left by $400 billion. 
E)  None of the above. 
A)  right by $80 billion. 
B)  left by $200 billion. 
C)  right by $400 billion. 
D)  left by $400 billion. 
E)  None of the above.

Question 8

When households' marginal propensity to consume (MPC)increases,the size of the spending multiplier:

Accepted Answer

A)  also increases. 
B)  decreases. 
C)  remains unchanged. 
D)  reacts unpredictably. 
A)  also increases. 
B)  decreases. 
C)  remains unchanged. 
D)  reacts unpredictably.

Question 9

Following Keynesian economics,and assuming a marginal propensity to consume (MPC)of 0.75,an increase in taxes of $100 billion would be expected to shift the aggregate demand curve by $300 billion to the left.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)  0.2. 
B)  0.6. 
C)  0.8. 
D)  1.0. 
E)  1.25. 
A)  0.2. 
B)  0.6. 
C)  0.8. 
D)  1.0. 
E)  1.25.

Question 11

Unemployment insurance payments act as automatic stabilizers by:

Accepted Answer

A)  allowing for more consumer spending during prosperity. 
B)  making the unemployment rate worse during a recession. 
C)  allowing for more consumer spending during a recession. 
D)  changing the Phillips curve to a Laffer curve. 
A)  allowing for more consumer spending during prosperity. 
B)  making the unemployment rate worse during a recession. 
C)  allowing for more consumer spending during a recession. 
D)  changing the Phillips curve to a Laffer curve.

Question 12

Government programs that automatically shift the government budget toward a deficit during recessions and a surplus during recoveries are called:

Accepted Answer

A)  discretionary fiscal policy. 
B)  automatic stabilizers. 
C)  progressive taxation. 
D)  price deflators. 
A)  discretionary fiscal policy. 
B)  automatic stabilizers. 
C)  progressive taxation. 
D)  price deflators.

Question 13

Assume that we want to drive our economy out of recession by generating a $400 billion change in real GDP.The MPC is 0.80.Which of the following policy prescriptions would generate the targeted $400 billion change in income?

Accepted Answer

A)  $120 billion increase in government spending and $50 billion increase in tax revenue. 
B)  $140 billion increase in government spending and $70 billion increase in tax revenue. 
C)  $160 billion increase in government spending and $120 billion increase in tax revenue. 
D)  $220 billion increase in government spending and $100 billion increase in tax revenue. 
E)  $400 billion increase in government spending and $300 billion increase in tax revenue. 
A)  $120 billion increase in government spending and $50 billion increase in tax revenue. 
B)  $140 billion increase in government spending and $70 billion increase in tax revenue. 
C)  $160 billion increase in government spending and $120 billion increase in tax revenue. 
D)  $220 billion increase in government spending and $100 billion increase in tax revenue. 
E)  $400 billion increase in government spending and $300 billion increase in tax revenue.

Question 14

The tax multiplier equals 1 : spending multiplier.

Accepted Answer

A) True 
 B)False

Question 15

Because of the automatic stabilizers,a decline in the level of economic activity will cause:

Accepted Answer

A)  a reduction in tax revenues collected. 
B)  an increase in government expenditures. 
C)  a greater budget deficit. 
D)  all of the above. 
A)  a reduction in tax revenues collected. 
B)  an increase in government expenditures. 
C)  a greater budget deficit. 
D)  all of the above.

Question 16

Suppose that the economy is operating in full-employment equilibrium along the vertical section of the aggregate supply curve.If the aggregate demand curve is reduced by $100 billion in order for the price level to decline by 5 percent,and if the marginal propensity to consume (MPC)is 0.75,then what change in taxes would generate the desired price reduction?

Accepted Answer

A)  $300 billion. 
B)  -$75 billion. 
C)  -$33.3 billion. 
D)  -$25 billion. 
A)  $300 billion. 
B)  -$75 billion. 
C)  -$33.3 billion. 
D)  -$25 billion.

Question 17

If the marginal propensity to consume (MPC)is 0.80,the value of the spending multiplier is 2.

Accepted Answer

A) True 
 B)False

Question 18

Unemployment compensation payments:

Accepted Answer

A)  fall during periods of prosperity and thus reduce federal budget deficits. 
B)  fall during periods of prosperity and thus increase federal budget deficits. 
C)  fall during recessions and thus increase the problem of unemployment. 
D)  rise during periods of prosperity and thus increase federal budget deficits. 
E)  rise during recessions and thus increase the problem of unemployment. 
A)  fall during periods of prosperity and thus reduce federal budget deficits. 
B)  fall during periods of prosperity and thus increase federal budget deficits. 
C)  fall during recessions and thus increase the problem of unemployment. 
D)  rise during periods of prosperity and thus increase federal budget deficits. 
E)  rise during recessions and thus increase the problem of unemployment.

Question 19

The marginal propensity to consume (MPC)is computed as the change in:

Accepted Answer

A)  consumption divided by the change in savings. 
B)  consumption divided by the change in income. 
C)  consumption divided by the change in GDP. 
D)  None of the above. 
A)  consumption divided by the change in savings. 
B)  consumption divided by the change in income. 
C)  consumption divided by the change in GDP. 
D)  None of the above.

Question 20

If MPC = 0.80,how much should government spending change to increase real GDP by $500?

Accepted Answer

A)  -100. 
B)  +80. 
C)  -80. 
D)  +500. 
E)  +100. 
A)  -100. 
B)  +80. 
C)  -80. 
D)  +500. 
E)  +100.

Exam 15: Fiscal Policy

Unemployment compensation is an example of a(n):

The government can reduce unemployment or reduce inflation by:

The formula to compute the spending multiplier is:

The fraction of each added dollar of income that is used for consumption is called the:

Exhibit 15-3 Aggregate demand and supply model -Beginning at equilibrium E₁ in Exhibit 15-3,when the government increases spending or cuts taxes the economy will experience:

When the federal government is running a budget deficit:

Assume the marginal propensity to consume (MPC)is 0.80 and the government cuts taxes by $100 billion.The aggregate demand curve will shift to the:

When households' marginal propensity to consume (MPC)increases,the size of the spending multiplier:

Following Keynesian economics,and assuming a marginal propensity to consume (MPC)of 0.75,an increase in taxes of $100 billion would be expected to shift the aggregate demand curve by $300 billion to the left.

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

Unemployment insurance payments act as automatic stabilizers by:

Government programs that automatically shift the government budget toward a deficit during recessions and a surplus during recoveries are called:

Assume that we want to drive our economy out of recession by generating a $400 billion change in real GDP.The MPC is 0.80.Which of the following policy prescriptions would generate the targeted $400 billion change in income?

The tax multiplier equals 1 : spending multiplier.

Because of the automatic stabilizers,a decline in the level of economic activity will cause:

If the marginal propensity to consume (MPC)is 0.80,the value of the spending multiplier is 2.

Unemployment compensation payments:

The marginal propensity to consume (MPC)is computed as the change in:

If MPC = 0.80,how much should government spending change to increase real GDP by $500?

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