Question 1

The various time lags involved with fiscal policy imply that

Accepted Answer

A)  fiscal policy is effective only slowly, but the slowness ensures that it is effective in the long run. 
B)  fiscal policy is most effective as a short-run measure to fine tune the economy's quarterly ups and downs. 
C)  fiscal policy may often be destabilizing if the effects of the policy kick in after the need is over. 
D)  when fiscal policy is carefully coordinated, it can quickly move to keep the economy at the full-employment level of real GDP. 
A)  fiscal policy is effective only slowly, but the slowness ensures that it is effective in the long run. 
B)  fiscal policy is most effective as a short-run measure to fine tune the economy's quarterly ups and downs. 
C)  fiscal policy may often be destabilizing if the effects of the policy kick in after the need is over. 
D)  when fiscal policy is carefully coordinated, it can quickly move to keep the economy at the full-employment level of real GDP.

Question 2

The crowding-out effect is

Accepted Answer

A)  due to the upward slope of the SRAS when the economy is operating to the right of the LRAS curve. 
B)  due to the government being more powerful in the markets when there is an increase in government spending. 
C)  a situation in which expansionary fiscal policy leads to a decrease in planned real investment or planned real consumption in the private sector. 
D)  only relevant when an inflationary gap is present. 
A)  due to the upward slope of the SRAS when the economy is operating to the right of the LRAS curve. 
B)  due to the government being more powerful in the markets when there is an increase in government spending. 
C)  a situation in which expansionary fiscal policy leads to a decrease in planned real investment or planned real consumption in the private sector. 
D)  only relevant when an inflationary gap is present.

Question 3

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 4

The Laffer curve shows a relationship between

Accepted Answer

A)  inflation rates and unemployment rates. 
B)  interest rates and investment spending. 
C)  price level and real Gross Domestic Product (GDP). 
D)  tax rates and tax revenues. 
A)  inflation rates and unemployment rates. 
B)  interest rates and investment spending. 
C)  price level and real Gross Domestic Product (GDP). 
D)  tax rates and tax revenues.

Question 5

According to traditional Keynesian analysis, fiscal policy operates by

Accepted Answer

A)  informing consumers and business people about its plans for the economy so they will know how to adjust their behavior. 
B)  indirectly affecting aggregate demand through its effect on interest rates. 
C)  directly affecting aggregate demand. 
D)  directly affecting aggregate supply. 
A)  informing consumers and business people about its plans for the economy so they will know how to adjust their behavior. 
B)  indirectly affecting aggregate demand through its effect on interest rates. 
C)  directly affecting aggregate demand. 
D)  directly affecting aggregate supply.

Question 6

Automatic stabilizers are fiscal policy measures that

Accepted Answer

A)  must be determined by the Congress in each budget. 
B)  do not require new legislation. 
C)  are determined by the Federal Reserve System. 
D)  are part of discretionary fiscal policy. 
A)  must be determined by the Congress in each budget. 
B)  do not require new legislation. 
C)  are determined by the Federal Reserve System. 
D)  are part of discretionary fiscal policy.

Question 7

The concept that increased government spending will lead to lower investment and consumer spending is referred to as the

Accepted Answer

A)  inflationary effect. 
B)  crowding-out effect. 
C)  aggregate demand effect. 
D)  Keynesian effect. 
A)  inflationary effect. 
B)  crowding-out effect. 
C)  aggregate demand effect. 
D)  Keynesian effect.

Question 8

The crowding out effect is often associated with

Accepted Answer

A)  a temporary increase in taxes. 
B)  an increase in the interest rate caused by government borrowing. 
C)  the reinforcing impact of state and local tax changes on federal tax changes. 
D)  the impact of a tax rate increase when the aggregate supply function is horizontal. 
A)  a temporary increase in taxes. 
B)  an increase in the interest rate caused by government borrowing. 
C)  the reinforcing impact of state and local tax changes on federal tax changes. 
D)  the impact of a tax rate increase when the aggregate supply function is horizontal.

Question 9

-Consider the above figure. The curve shown is sometimes referred to as

Accepted Answer

A)  the Laffer curve. 
B)  the Ricardian curve. 
C)  the Keynesian curve. 
D)  the Phillips curve. 
A)  the Laffer curve. 
B)  the Ricardian curve. 
C)  the Keynesian curve. 
D)  the Phillips curve.

Question 10

Which of the following is a basic assumption of the Ricardian equivalence theorem?

Accepted Answer

A)  Consumers pay no attention to government budget deficits. 
B)  Consumers think only in terms of the present. 
C)  If current tax cuts result in budget deficit increases, aggregate supply falls. 
D)  Consumers consider future tax payments when deciding how much to spend and save today. 
A)  Consumers pay no attention to government budget deficits. 
B)  Consumers think only in terms of the present. 
C)  If current tax cuts result in budget deficit increases, aggregate supply falls. 
D)  Consumers consider future tax payments when deciding how much to spend and save today.

Question 11

The crowding-out effect is

Accepted Answer

A)  the tendency of contractionary fiscal policy to cause an increase in planned investment or planned consumption in the U.S. private sector. 
B)  the tendency of expansionary fiscal policy to cause an increase in planned investment but not in planned consumption in the U.S. private sector. 
C)  the tendency of expansionary fiscal policy to cause a decrease in planned investment or planned consumption in the U.S. private sector. 
D)  the tendency of contractionary fiscal policy to cause an increase in planned investment but a decrease in planned consumption in the U.S. private sector. 
A)  the tendency of contractionary fiscal policy to cause an increase in planned investment or planned consumption in the U.S. private sector. 
B)  the tendency of expansionary fiscal policy to cause an increase in planned investment but not in planned consumption in the U.S. private sector. 
C)  the tendency of expansionary fiscal policy to cause a decrease in planned investment or planned consumption in the U.S. private sector. 
D)  the tendency of contractionary fiscal policy to cause an increase in planned investment but a decrease in planned consumption in the U.S. private sector.

Question 12

Which one of the following is an example of discretionary fiscal policy used to correct an inflationary gap?

Accepted Answer

A)  a tax increase passed into law by Congress 
B)  decrease in the money supply by the Federal Reserve 
C)  an increase in government expenditures approved by Congress 
D)  an agreement among major banks to lower interest rates 
A)  a tax increase passed into law by Congress 
B)  decrease in the money supply by the Federal Reserve 
C)  an increase in government expenditures approved by Congress 
D)  an agreement among major banks to lower interest rates

Question 13

Which one of the following is NOT an automatic stabilizer?

Accepted Answer

A)  the income tax system 
B)  the system of national defense procurement 
C)  the system of welfare payments 
D)  unemployment compensation programs 
A)  the income tax system 
B)  the system of national defense procurement 
C)  the system of welfare payments 
D)  unemployment compensation programs

Exam 13: Fiscal Policy

The various time lags involved with fiscal policy imply that

The crowding-out effect is

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 ________.

The Laffer curve shows a relationship between

According to traditional Keynesian analysis, fiscal policy operates by

Automatic stabilizers are fiscal policy measures that

The concept that increased government spending will lead to lower investment and consumer spending is referred to as the

The crowding out effect is often associated with

-Consider the above figure. The curve shown is sometimes referred to as

Which of the following is a basic assumption of the Ricardian equivalence theorem?

The crowding-out effect is

Which one of the following is an example of discretionary fiscal policy used to correct an inflationary gap?

Which one of the following is NOT an automatic stabilizer?

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

Measuring the Economys Performance

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

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

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 .