Question 1

Which of the following policies is a supply-side policy?

Accepted Answer

A)  Reduction in taxes. 
B)  Reduction in regulation. 
C)  Reduction in resource prices. 
D)  Subsidies to produce technological advances. 
E)  All of the above. 
A)  Reduction in taxes. 
B)  Reduction in regulation. 
C)  Reduction in resource prices. 
D)  Subsidies to produce technological advances. 
E)  All of the above.

Question 2

The marginal propensity to consume measures the ratio of the:

Accepted Answer

A)  average amount of our income that we spend. 
B)  average amount of our savings that we spend. 
C)  change in consumer spending to a change in money holdings. 
D)  change in consumer spending to a change in interest rates. 
E)  change in consumer spending to a change in income. 
A)  average amount of our income that we spend. 
B)  average amount of our savings that we spend. 
C)  change in consumer spending to a change in money holdings. 
D)  change in consumer spending to a change in interest rates. 
E)  change in consumer spending to a change in income.

Question 3

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

Accepted Answer

A)  Welfare payments. 
B)  Foreign aid. 
C)  Defense spending. 
D)  Highway construction. 
A)  Welfare payments. 
B)  Foreign aid. 
C)  Defense spending. 
D)  Highway construction.

Question 4

Which of the following is not an automatic stabilizer?

Accepted Answer

A)  Personal income tax revenue. 
B)  Corporate income tax revenue. 
C)  Unemployment compensation benefits. 
D)  Property tax revenue. 
A)  Personal income tax revenue. 
B)  Corporate income tax revenue. 
C)  Unemployment compensation benefits. 
D)  Property tax revenue.

Question 5

If MPC = 0.9,equilibrium real GDP is $1,000,and full-employment real GDP is $2,000,then how much should government spending change to bring about full employment?

Accepted Answer

A)  +1,000. 
B)  -100. 
C)  +900. 
D)  +100. 
E)  -0.9. 
A)  +1,000. 
B)  -100. 
C)  +900. 
D)  +100. 
E)  -0.9.

Question 6

If the MPC = 1,the spending multiplier is:

Accepted Answer

A)  infinite. 
B)  zero. 
C)  10. 
D)  100. 
E)  1. 
A)  infinite. 
B)  zero. 
C)  10. 
D)  100. 
E)  1.

Question 7

Income tax collections:

Accepted Answer

A)  rise during a recession, thus reduce the severity of the recession. 
B)  rise during a recession, thus increase the severity of the recession. 
C)  fall during inflationary episodes, thus increase the severity of the inflation. 
D)  fall during a recession, thus reducing the severity of the recession. 
A)  rise during a recession, thus reduce the severity of the recession. 
B)  rise during a recession, thus increase the severity of the recession. 
C)  fall during inflationary episodes, thus increase the severity of the inflation. 
D)  fall during a recession, thus reducing the severity of the recession.

Question 8

If an economy were experiencing a high rate of unemployment as the result of insufficient aggregate demand,a Keynesian economist would favor:

Accepted Answer

A)  a reduction in taxes coupled with a reduction in government expenditures of equal size. 
B)  an increase in government expenditures coupled with an increase in taxes of equal size. 
C)  a reduction in taxes, without any offsetting reduction in government expenditures. 
D)  maintenance of a balanced budget. 
A)  a reduction in taxes coupled with a reduction in government expenditures of equal size. 
B)  an increase in government expenditures coupled with an increase in taxes of equal size. 
C)  a reduction in taxes, without any offsetting reduction in government expenditures. 
D)  maintenance of a balanced budget.

Question 9

The government wishes to close an inflationary gap by reducing real GDP by $400 billion.Assuming a tax multiplier of 4 and an income multiplier of 5,which of the following policy prescriptions would reduce the inflationary gap by $400 billion?

Accepted Answer

A)  Decreasing government spending by $400 billion and increasing taxes by $400 billion. 
B)  Decreasing government spending by $160 billion and decreasing taxes by $100 billion. 
C)  Decreasing government spending by $40 billion and decreasing taxes by $40 billion. 
D)  Decreasing government spending by $80 billion and keeping taxes the same. 
E)  Doing absolutely nothing to the economy. 
A)  Decreasing government spending by $400 billion and increasing taxes by $400 billion. 
B)  Decreasing government spending by $160 billion and decreasing taxes by $100 billion. 
C)  Decreasing government spending by $40 billion and decreasing taxes by $40 billion. 
D)  Decreasing government spending by $80 billion and keeping taxes the same. 
E)  Doing absolutely nothing to the economy.

Question 10

The government is pursuing an expansionary policy if it:

Accepted Answer

A)  decreases its spending and increases its tax revenues. 
B)  increases its spending or increases its tax revenues. 
C)  decreases its spending or reduces its tax revenues. 
D)  increases its spending and/or reduces its tax revenues. 
A)  decreases its spending and increases its tax revenues. 
B)  increases its spending or increases its tax revenues. 
C)  decreases its spending or reduces its tax revenues. 
D)  increases its spending and/or reduces its tax revenues.

Question 11

An expansionary fiscal policy may include:

Accepted Answer

A)  increases in government spending. 
B)  discretionary increases in transfer payments. 
C)  reductions in taxes. 
D)  All of the above. 
A)  increases in government spending. 
B)  discretionary increases in transfer payments. 
C)  reductions in taxes. 
D)  All of the above.

Question 12

"Tax cuts,by providing incentives to work,save,and invest,will raise employment and lower the price level." This argument is made by the:

Accepted Answer

A)  Keynesian economists. 
B)  supply-side economists. 
C)  classical economists. 
D)  monetarists. 
A)  Keynesian economists. 
B)  supply-side economists. 
C)  classical economists. 
D)  monetarists.

Question 13

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

Accepted Answer

A)  GDP. 
B)  income. 
C)  saving. 
D)  none of the above. 
A)  GDP. 
B)  income. 
C)  saving. 
D)  none of the above.

Question 14

If no fiscal policy changes are made,suppose the current aggregate demand curve will increase horizontally by $1,000 billion and cause inflation.If the marginal propensity to consume is 0.75,federal policymakers could follow Keynesian economics and restrain inflation by decreasing:

Accepted Answer

A)  government spending by $250 billion. 
B)  taxes by $100 billion. 
C)  taxes by $1,000 billion. 
D)  government spending by $1,000 billion. 
A)  government spending by $250 billion. 
B)  taxes by $100 billion. 
C)  taxes by $1,000 billion. 
D)  government spending by $1,000 billion.

Question 15

The curve that reflects the view that when tax rates are too high,lowering them not only creates greater incentive for suppliers to increase production,but ends up generating higher tax revenues,is known as the:

Accepted Answer

A)  Phillips curve. 
B)  Laffer curve. 
C)  Engel curve. 
D)  Rational expectations curve. 
E)  consumption curve. 
A)  Phillips curve. 
B)  Laffer curve. 
C)  Engel curve. 
D)  Rational expectations curve. 
E)  consumption curve.

Question 16

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

Accepted Answer

A)  left by $80 billion. 
B)  right by $200 billion. 
C)  right by $400 billion. 
D)  left by $400 billion. 
A)  left by $80 billion. 
B)  right by $200 billion. 
C)  right by $400 billion. 
D)  left by $400 billion.

Question 17

The marginal propensity to consume (MPC)is the change in consumption divided by the change in income.

Accepted Answer

A) True 
 B)False

Question 18

In the U.S.economy,the effect on federal tax revenues and spending of an increase in the unemployment rate is to:

Accepted Answer

A)  cut tax revenues and raise expenditures. 
B)  cut expenditures and raise tax revenues. 
C)  raise both tax revenues and expenditures. 
D)  cut both expenditures and tax revenues. 
A)  cut tax revenues and raise expenditures. 
B)  cut expenditures and raise tax revenues. 
C)  raise both tax revenues and expenditures. 
D)  cut both expenditures and tax revenues.

Question 19

An increase in government spending by $100 would,if the MPC = 0.90,result in an increase in real GDP by:

Accepted Answer

A)  $1,000. 
B)  $9,000. 
C)  $900. 
D)  $190. 
E)  inadequate information is given. 
A)  $1,000. 
B)  $9,000. 
C)  $900. 
D)  $190. 
E)  inadequate information is given.

Question 20

If the economy is experiencing unemployment,then the most appropriate government policy would be to:

Accepted Answer

A)  shift the aggregate demand curve by using a tax increase coupled with spending cuts. 
B)  shift the aggregate demand curve by using a tax increase coupled with more spending. 
C)  shift the aggregate demand curve by using a tax cut coupled with spending cuts. 
D)  shift the aggregate demand curve by using a tax cut coupled with more spending. 
E)  shift the aggregate supply curve by using a tax cut coupled with spending cuts. 
A)  shift the aggregate demand curve by using a tax increase coupled with spending cuts. 
B)  shift the aggregate demand curve by using a tax increase coupled with more spending. 
C)  shift the aggregate demand curve by using a tax cut coupled with spending cuts. 
D)  shift the aggregate demand curve by using a tax cut coupled with more spending. 
E)  shift the aggregate supply curve by using a tax cut coupled with spending cuts.

Exam 15: Fiscal Policy

Which of the following policies is a supply-side policy?

The marginal propensity to consume measures the ratio of the:

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

Which of the following is not an automatic stabilizer?

If MPC = 0.9,equilibrium real GDP is $1,000,and full-employment real GDP is $2,000,then how much should government spending change to bring about full employment?

If the MPC = 1,the spending multiplier is:

Income tax collections:

If an economy were experiencing a high rate of unemployment as the result of insufficient aggregate demand,a Keynesian economist would favor:

The government wishes to close an inflationary gap by reducing real GDP by $400 billion.Assuming a tax multiplier of 4 and an income multiplier of 5,which of the following policy prescriptions would reduce the inflationary gap by $400 billion?

The government is pursuing an expansionary policy if it:

An expansionary fiscal policy may include:

"Tax cuts,by providing incentives to work,save,and invest,will raise employment and lower the price level." This argument is made by the:

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

If no fiscal policy changes are made,suppose the current aggregate demand curve will increase horizontally by $1,000 billion and cause inflation.If the marginal propensity to consume is 0.75,federal policymakers could follow Keynesian economics and restrain inflation by decreasing:

The curve that reflects the view that when tax rates are too high,lowering them not only creates greater incentive for suppliers to increase production,but ends up generating higher tax revenues,is known as the:

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

The marginal propensity to consume (MPC)is the change in consumption divided by the change in income.

In the U.S.economy,the effect on federal tax revenues and spending of an increase in the unemployment rate is to:

An increase in government spending by $100 would,if the MPC = 0.90,result in an increase in real GDP by:

If the economy is experiencing unemployment,then the most appropriate government policy would be to:

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

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