Question 1

If policymakers implement an expansionary fiscal policy but do not take into account the potential for crowding out,the new equilibrium level of GDP is likely to

Accepted Answer

A) be at potential GDP. 
B) be above potential GDP. 
C) be below potential GDP. 
D) There is insufficient information given here to draw a conclusion. 
A) be at potential GDP. 
B) be above potential GDP. 
C) be below potential GDP. 
D) There is insufficient information given here to draw a conclusion.

Question 2

Historically,the largest U.S.federal budget deficits as a percentage of GDP in the 20th century occurred during

Accepted Answer

A) World War I and World War II. 
B) the Great Depression. 
C) 1970-1997. 
D) the Vietnam war. 
E) 1998-1999. 
A) World War I and World War II. 
B) the Great Depression. 
C) 1970-1997. 
D) the Vietnam war. 
E) 1998-1999.

Question 3

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.75,the tax rate is 0.2,and the marginal propensity to import equals 0.3.

Accepted Answer

A) 1.43 
B) 1.6 
C) 3.33 
D) 4 
A) 1.43 
B) 1.6 
C) 3.33 
D) 4

Question 4

Figure 16-1  
-Refer to Figure 16-1.Suppose the economy is in short-run equilibrium above potential GDP and wages and prices are rising.If contractionary policy is used to move the economy back to long run equilibrium,this would be depicted as a movement from ________ using the basic AD-AS model in the figure above.

Accepted Answer

A) D to C 
B) C to B 
C) A to E 
D) B to A 
E) E to A 
A) D to C 
B) C to B 
C) A to E 
D) B to A 
E) E to A

Question 5

What are the key differences between how we illustrate a contractionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

Accepted Answer

In the basic aggregate demand and aggreg

Question 6

An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.

Accepted Answer

A) True 
 B)False

Question 7

Expansionary fiscal policy will

Accepted Answer

A) shift the aggregate demand curve to the left. 
B) shift the aggregate demand curve to the right. 
C) not shift the aggregate demand curve. 
D) shift the short-run aggregate supply curve to the left. 
A) shift the aggregate demand curve to the left. 
B) shift the aggregate demand curve to the right. 
C) not shift the aggregate demand curve. 
D) shift the short-run aggregate supply curve to the left.

Question 8

Suppose that the current equilibrium GDP is $14.5 trillion and that potential GDP is $14.3 trillion.Will decreasing government purchases by $200 billion,or raising taxes by $200 billion,restore the economy to potential GDP? Explain.

Accepted Answer

Neither policy is appropriate because th

Question 9

How could the existence of an unemployment insurance system or other transfer programs have reduced the severity of the Great Depression?

Accepted Answer

If these programs existed during the Gre

Question 10

Prior to the 1930s,the majority of dollars spent by government was spent at the state and local levels.

Accepted Answer

A) True 
 B)False

Question 11

Social Security began as a "pay-as-you-go" system,meaning that payments to current retirees were paid

Accepted Answer

A) from taxes collected from current workers. 
B) from taxes collected from retired workers. 
C) as long as the government had funds available. 
D) as the government collected revenues from tariffs and excise taxes in the years Social Security payments were made. 
A) from taxes collected from current workers. 
B) from taxes collected from retired workers. 
C) as long as the government had funds available. 
D) as the government collected revenues from tariffs and excise taxes in the years Social Security payments were made.

Question 12

To evaluate the size of the federal budget deficit or surplus over time,it would be best to look at the

Accepted Answer

A) absolute size of the budget deficit or surplus. 
B) budget deficit or surplus as a percentage of GDP. 
C) budget deficit or surplus as a percentage of tax revenues. 
D) budget deficit or surplus as a percentage of government spending. 
A) absolute size of the budget deficit or surplus. 
B) budget deficit or surplus as a percentage of GDP. 
C) budget deficit or surplus as a percentage of tax revenues. 
D) budget deficit or surplus as a percentage of government spending.

Question 13

If the economy is slipping into a recession,which of the following would be an appropriate fiscal policy?

Accepted Answer

A) an increase in the money supply and a decrease in interest rates 
B) a decrease in government purchases 
C) a decrease in taxes 
D) a decrease in oil prices 
A) an increase in the money supply and a decrease in interest rates 
B) a decrease in government purchases 
C) a decrease in taxes 
D) a decrease in oil prices

Question 14

In preparing their estimates of the stimulus package's effect on GDP,Obama administration economists estimated a government purchases multiplier of 1.57.This indicates that a ________ increase in government purchases would increase equilibrium real GDP by $157 billion

Accepted Answer

A) $1 billion 
B) $10 billion 
C) $100 billion 
D) $157 billion 
A) $1 billion 
B) $10 billion 
C) $100 billion 
D) $157 billion

Question 15

A change in tax rates

Accepted Answer

A) has a less complicated effect on GDP than does a tax cut of a fixed amount. 
B) has a larger multiplier effect the smaller the tax rate. 
C) will not affect disposable income. 
D) will not affect the size of the multiplier. 
A) has a less complicated effect on GDP than does a tax cut of a fixed amount. 
B) has a larger multiplier effect the smaller the tax rate. 
C) will not affect disposable income. 
D) will not affect the size of the multiplier.

Question 16

Included in government expenditures are government purchases and transfer payments.

Accepted Answer

A) True 
 B)False

Question 17

What is the difference between federal purchases and federal expenditures?

Accepted Answer

Federal purchases refer to federal spend

Question 18

What is expansionary fiscal policy? What is contractionary fiscal policy?

Accepted Answer

An expansionary fiscal policy is a decre

Question 19

Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion.To move the economy back to potential GDP,Congress should

Accepted Answer

A) lower government purchases by an amount less than $200 billion. 
B) lower government purchases by $200 billion. 
C) raise taxes by $200 billion. 
D) lower taxes by $200 billion. 
E) raise taxes by an amount more than $200 billion. 
A) lower government purchases by an amount less than $200 billion. 
B) lower government purchases by $200 billion. 
C) raise taxes by $200 billion. 
D) lower taxes by $200 billion. 
E) raise taxes by an amount more than $200 billion.

Question 20

Assume a closed economy,that taxes are fixed,and the marginal propensity to consume is equal to 0.8.What is the government spending multiplier?

Accepted Answer

A) 10 
B) 5 
C) 4 
D) 3 
A) 10 
B) 5 
C) 4 
D) 3

If policymakers implement an expansionary fiscal policy but do not take into account the potential for crowding out,the new equilibrium level of GDP is likely to

Historically,the largest U.S.federal budget deficits as a percentage of GDP in the 20th century occurred during

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.75,the tax rate is 0.2,and the marginal propensity to import equals 0.3.

What are the key differences between how we illustrate a contractionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.

Expansionary fiscal policy will

Suppose that the current equilibrium GDP is $14.5 trillion and that potential GDP is $14.3 trillion.Will decreasing government purchases by $200 billion,or raising taxes by $200 billion,restore the economy to potential GDP? Explain.

How could the existence of an unemployment insurance system or other transfer programs have reduced the severity of the Great Depression?

Prior to the 1930s,the majority of dollars spent by government was spent at the state and local levels.

Social Security began as a "pay-as-you-go" system,meaning that payments to current retirees were paid

To evaluate the size of the federal budget deficit or surplus over time,it would be best to look at the

If the economy is slipping into a recession,which of the following would be an appropriate fiscal policy?

In preparing their estimates of the stimulus package's effect on GDP,Obama administration economists estimated a government purchases multiplier of 1.57.This indicates that a ________ increase in government purchases would increase equilibrium real GDP by $157 billion

A change in tax rates

Included in government expenditures are government purchases and transfer payments.

What is the difference between federal purchases and federal expenditures?

What is expansionary fiscal policy? What is contractionary fiscal policy?

Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion.To move the economy back to potential GDP,Congress should

Assume a closed economy,that taxes are fixed,and the marginal propensity to consume is equal to 0.8.What is the government spending multiplier?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Monetary Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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Exam 16: Fiscal Policy

If policymakers implement an expansionary fiscal policy but do not take into account the potential for crowding out,the new equilibrium level of GDP is likely to

Historically,the largest U.S.federal budget deficits as a percentage of GDP in the 20th century occurred during

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.75,the tax rate is 0.2,and the marginal propensity to import equals 0.3.

What are the key differences between how we illustrate a contractionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.

Expansionary fiscal policy will

Suppose that the current equilibrium GDP is $14.5 trillion and that potential GDP is $14.3 trillion.Will decreasing government purchases by $200 billion,or raising taxes by $200 billion,restore the economy to potential GDP? Explain.

How could the existence of an unemployment insurance system or other transfer programs have reduced the severity of the Great Depression?

Prior to the 1930s,the majority of dollars spent by government was spent at the state and local levels.

Social Security began as a "pay-as-you-go" system,meaning that payments to current retirees were paid

To evaluate the size of the federal budget deficit or surplus over time,it would be best to look at the

If the economy is slipping into a recession,which of the following would be an appropriate fiscal policy?

In preparing their estimates of the stimulus package's effect on GDP,Obama administration economists estimated a government purchases multiplier of 1.57.This indicates that a ________ increase in government purchases would increase equilibrium real GDP by $157 billion

A change in tax rates

Included in government expenditures are government purchases and transfer payments.

What is the difference between federal purchases and federal expenditures?

What is expansionary fiscal policy? What is contractionary fiscal policy?

Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion.To move the economy back to potential GDP,Congress should

Assume a closed economy,that taxes are fixed,and the marginal propensity to consume is equal to 0.8.What is the government spending multiplier?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Monetary Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters