Question 1

According to the Laffer curve, we know with certainty that an increase in the tax rate will

Accepted Answer

A)  cause tax revenue to increase. 
B)  cause tax revenue to decrease. 
C)  have no effect on tax revenue. 
D)  cause tax revenue to increase, decrease, or remain unchanged. 
A)  cause tax revenue to increase. 
B)  cause tax revenue to decrease. 
C)  have no effect on tax revenue. 
D)  cause tax revenue to increase, decrease, or remain unchanged.

Question 2

Automatic stabilizers

Accepted Answer

A)  work counter-cyclically to moderate the business cycle. 
B)  often make any downturn in the economy worse. 
C)  must be determined by the Congress in each budget. 
D)  are never altered. 
A)  work counter-cyclically to moderate the business cycle. 
B)  often make any downturn in the economy worse. 
C)  must be determined by the Congress in each budget. 
D)  are never altered.

Question 3

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 4

Fiscal policy refers to the

Accepted Answer

A)  manipulation of the money supply in order to increase the amount of paper currency in circulation. 
B)  adjustment of government spending and taxes in order to achieve certain national economic goals. 
C)  adjustment of national income data to account for price level changes. 
D)  changing the way unemployment data is calculated so as to make it appear that unemployment is lower than it actually is. 
A)  manipulation of the money supply in order to increase the amount of paper currency in circulation. 
B)  adjustment of government spending and taxes in order to achieve certain national economic goals. 
C)  adjustment of national income data to account for price level changes. 
D)  changing the way unemployment data is calculated so as to make it appear that unemployment is lower than it actually is.

Question 5

The amount of time that it takes between recognizing an economic problem and implementing policy to solve it is

Accepted Answer

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

Question 6

The crowding-out effect refers to

Accepted Answer

A)  an increase in the consumption of domestic goods at the expense of imported goods. 
B)  an increase in the consumption of imported goods at the expense of domestic goods. 
C)  a decrease in consumption and investment caused by an increase in government borrowing. 
D)  a decrease in consumer spending caused by a decrease in consumer confidence. 
A)  an increase in the consumption of domestic goods at the expense of imported goods. 
B)  an increase in the consumption of imported goods at the expense of domestic goods. 
C)  a decrease in consumption and investment caused by an increase in government borrowing. 
D)  a decrease in consumer spending caused by a decrease in consumer confidence.

Question 7

Fiscal policy

Accepted Answer

A)  uses the tools of taxation and spending in an effort to address inflation and unemployment. 
B)  uses the tool of business regulation to increase economic efficiency. 
C)  uses the tool of interest rates to stimulate private savings. 
D)  uses the tool of the exchange rate to discourage imports. 
A)  uses the tools of taxation and spending in an effort to address inflation and unemployment. 
B)  uses the tool of business regulation to increase economic efficiency. 
C)  uses the tool of interest rates to stimulate private savings. 
D)  uses the tool of the exchange rate to discourage imports.

Question 8

The Ricardian equivalence theorem states that

Accepted Answer

A)  an increase in government spending has no effect on aggregate supply. 
B)  increases in government spending have a larger impact on real Gross Domestic Product (GDP) than decreases in taxes. 
C)  an increase in the government budget deficit created by a current tax cut has no effect on aggregate demand. 
D)  an increase in the government budget deficit has no effect on real Gross Domestic Product (GDP) because it only affects the price index. 
A)  an increase in government spending has no effect on aggregate supply. 
B)  increases in government spending have a larger impact on real Gross Domestic Product (GDP) than decreases in taxes. 
C)  an increase in the government budget deficit created by a current tax cut has no effect on aggregate demand. 
D)  an increase in the government budget deficit has no effect on real Gross Domestic Product (GDP) because it only affects the price index.

Question 9

Typical goals for fiscal policy are

Accepted Answer

A)  high employment and price stability. 
B)  high prices for consumers and low prices for businesses. 
C)  running high deficits and raising consumer prices. 
D)  increasing the money supply so the government can spend more. 
A)  high employment and price stability. 
B)  high prices for consumers and low prices for businesses. 
C)  running high deficits and raising consumer prices. 
D)  increasing the money supply so the government can spend more.

Question 10

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 11

Which of the following actions could be undertaken if the government wants to close a recessionary gap?

Accepted Answer

A)  Increase taxes and reduce government spending. 
B)  Reduce taxes and increase government spending. 
C)  Increase taxes and increase government spending. 
D)  Reduce taxes and reduce government spending. 
A)  Increase taxes and reduce government spending. 
B)  Reduce taxes and increase government spending. 
C)  Increase taxes and increase government spending. 
D)  Reduce taxes and reduce government spending.

Question 12

Expansionary fiscal policy falls short of its goal. Some economists claim it is due to indirect crowding out. What evidence would be consistent with this claim?

Accepted Answer

A)  An increase in consumer spending occurred. 
B)  The interest rate increased. 
C)  Saving decreased. 
D)  The price level decreased. 
A)  An increase in consumer spending occurred. 
B)  The interest rate increased. 
C)  Saving decreased. 
D)  The price level decreased.

Question 13

According to the permanent income hypothesis, taxpayers react to a one-time tax rebate

Accepted Answer

A)  by spending all of the tax rebate. 
B)  by spending more than the amount of the tax rebate. 
C)  by saving half of the tax rebate and spending the rest. 
D)  by saving all of the tax rebate. 
A)  by spending all of the tax rebate. 
B)  by spending more than the amount of the tax rebate. 
C)  by saving half of the tax rebate and spending the rest. 
D)  by saving all of the tax rebate.

Question 14

If the crowding-out effect is complete and the marginal propensity to save is 0.25, then an increase in government spending of $100 billion will generate how much more real GDP?

Accepted Answer

A)  $0 
B)  $25 billion 
C)  $100 billion 
D)  $400 billion 
A)  $0 
B)  $25 billion 
C)  $100 billion 
D)  $400 billion

Question 15

The crowding-out effect refers to the tendency of expansionary fiscal policy to

Accepted Answer

A)  cause decreases in planned investment or planned consumption. 
B)  cause households to save less. 
C)  replace low-skilled labor with higher-skilled labor. 
D)  cause firms to produce beyond capacity. 
A)  cause decreases in planned investment or planned consumption. 
B)  cause households to save less. 
C)  replace low-skilled labor with higher-skilled labor. 
D)  cause firms to produce beyond capacity.

Question 16

If there is a dollar-for-dollar direct expenditure offset, then

Accepted Answer

A)  increases in aggregate demand will also increase long-run aggregate supply. 
B)  increases in government spending will not increase aggregate demand. 
C)  increases in aggregate demand will increase the price level, but leave real output unchanged. 
D)  increases in aggregate demand will increase real output, but leave the price level unchanged. 
A)  increases in aggregate demand will also increase long-run aggregate supply. 
B)  increases in government spending will not increase aggregate demand. 
C)  increases in aggregate demand will increase the price level, but leave real output unchanged. 
D)  increases in aggregate demand will increase real output, but leave the price level unchanged.

Question 17

Tax policy conducted for the purpose of achieving full employment, price stability, or economic growth is an example of

Accepted Answer

A)  monetary policy. 
B)  interest-rate policy. 
C)  exchange-rate policy. 
D)  discretionary fiscal policy. 
A)  monetary policy. 
B)  interest-rate policy. 
C)  exchange-rate policy. 
D)  discretionary fiscal policy.

Question 18

The time required to acquire information about the state of the economy is referred to as

Accepted Answer

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

Question 19

-Refer to the above figure. The government has just engaged in expansionary fiscal policy shifting the aggregate demand curve from   to   . Interest rates have started to rise. Which of the following statements is true in the short run?

Accepted Answer

A)  Real GDP will be $14 trillion since the effect of government spending is not influenced by interest rates. 
B)  Real GDP will fall back to $11 trillion since the effect that increased government spending has on real GDP is short lived. 
C)  Real GDP will go beyond $14 trillion as businesses and consumers react to the increase in interest rates. 
D)  Real GDP will end up somewhere between $11 and $14 trillion as businesses and consumers reduce their spending in response to the increase in interest rates. 
A)  Real GDP will be $14 trillion since the effect of government spending is not influenced by interest rates. 
B)  Real GDP will fall back to $11 trillion since the effect that increased government spending has on real GDP is short lived. 
C)  Real GDP will go beyond $14 trillion as businesses and consumers react to the increase in interest rates. 
D)  Real GDP will end up somewhere between $11 and $14 trillion as businesses and consumers reduce their spending in response to the increase in interest rates.

Question 20

-Refer to the above figure. If the relevant aggregate demand curve was   , the government could do all of the following to close the existing gap EXCEPT

Accepted Answer

A)  increase government spending on roads. 
B)  reduce marginal tax rates. 
C)  reduce corporate taxes. 
D)  reduce defense spending. 
A)  increase government spending on roads. 
B)  reduce marginal tax rates. 
C)  reduce corporate taxes. 
D)  reduce defense spending.

Exam 13: Fiscal Policy

According to the Laffer curve, we know with certainty that an increase in the tax rate will

Automatic stabilizers

Direct expenditure offsets are

Fiscal policy refers to the

The amount of time that it takes between recognizing an economic problem and implementing policy to solve it is

The crowding-out effect refers to

Fiscal policy

The Ricardian equivalence theorem states that

Typical goals for fiscal policy are

Which of the following is a discretionary fiscal policy action?

Which of the following actions could be undertaken if the government wants to close a recessionary gap?

Expansionary fiscal policy falls short of its goal. Some economists claim it is due to indirect crowding out. What evidence would be consistent with this claim?

According to the permanent income hypothesis, taxpayers react to a one-time tax rebate

If the crowding-out effect is complete and the marginal propensity to save is 0.25, then an increase in government spending of $100 billion will generate how much more real GDP?

The crowding-out effect refers to the tendency of expansionary fiscal policy to

If there is a dollar-for-dollar direct expenditure offset, then

Tax policy conducted for the purpose of achieving full employment, price stability, or economic growth is an example of

The time required to acquire information about the state of the economy is referred to as

-Refer to the above figure. The government has just engaged in expansionary fiscal policy shifting the aggregate demand curve from to . Interest rates have started to rise. Which of the following statements is true in the short run?

-Refer to the above figure. If the relevant aggregate demand curve was , the government could do all of the following to close the existing gap EXCEPT

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