Question 1

Fiscal policy refers to changes in

Accepted Answer

A) state and local taxes and purchases that are intended to achieve macroeconomic policy objectives. 
B) federal taxes and purchases that are intended to achieve macroeconomic policy objectives. 
C) federal taxes and purchases that are intended to fund the war on terrorism. 
D) the money supply and interest rates that are intended to achieve macroeconomic policy objectives. 
A) state and local taxes and purchases that are intended to achieve macroeconomic policy objectives. 
B) federal taxes and purchases that are intended to achieve macroeconomic policy objectives. 
C) federal taxes and purchases that are intended to fund the war on terrorism. 
D) the money supply and interest rates that are intended to achieve macroeconomic policy objectives.

Question 2

Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced.What will happen to real equilibrium GDP?

Accepted Answer

A) Real equilibrium GDP will fall. 
B) Real equilibrium GDP will rise. 
C) There will be no change in real equilibrium GDP. 
D) Real equilibrium GDP will initially rise,but then fall below its previous equilibrium value. 
A) Real equilibrium GDP will fall. 
B) Real equilibrium GDP will rise. 
C) There will be no change in real equilibrium GDP. 
D) Real equilibrium GDP will initially rise,but then fall below its previous equilibrium value.

Question 3

The federal budget was in deficit from 1931 to 1939,except in the year 1937.Given this fact,how do you explain E.Cary Brown's statement,"Fiscal policy,then,seems to have been an unsuccessful recovery device in the 'thirties-not because it did not work,but because it was not tried."

Accepted Answer

Economist E.Cary Brown is arguing that w

Question 4

Suppose the government spending multiplier is 2.The federal government cuts spending by $40 billion.What is the change in GDP if the price level is not held constant?

Accepted Answer

A) an increase of less than $80 billion 
B) an increase equal to $80 billion 
C) an increase of greater than $80 billion 
D) a decrease of less than $80 billion 
E) a decrease of more than $80 billion 
A) an increase of less than $80 billion 
B) an increase equal to $80 billion 
C) an increase of greater than $80 billion 
D) a decrease of less than $80 billion 
E) a decrease of more than $80 billion

Question 5

An increase in government purchases will increase aggregate demand because

Accepted Answer

A) government expenditures are a component of aggregate demand. 
B) consumption expenditures are a component of aggregate demand. 
C) the decline in the price level will increase demand. 
D) the decline in the interest rate will increase demand. 
A) government expenditures are a component of aggregate demand. 
B) consumption expenditures are a component of aggregate demand. 
C) the decline in the price level will increase demand. 
D) the decline in the interest rate will increase demand.

Question 6

Reducing the marginal tax rate on income will

Accepted Answer

A) reduce the tax wedge faced by workers and increase labor supplied. 
B) raise the return to entrepreneurship and encourage the opening of new businesses. 
C) increase the after-tax return on saving,and encourage saving. 
D) All of the above are correct. 
A) reduce the tax wedge faced by workers and increase labor supplied. 
B) raise the return to entrepreneurship and encourage the opening of new businesses. 
C) increase the after-tax return on saving,and encourage saving. 
D) All of the above are correct.

Question 7

Which of the following is considered expansionary fiscal policy?

Accepted Answer

A) Congress decreases the income tax rate. 
B) Congress increases defense spending. 
C) Legislation increases a college tuition deduction from federal income taxes. 
D) The Arizona legislature cuts highway spending to balance its budget. 
A) Congress decreases the income tax rate. 
B) Congress increases defense spending. 
C) Legislation increases a college tuition deduction from federal income taxes. 
D) The Arizona legislature cuts highway spending to balance its budget.

Question 8

Which of the following best describes supply-side economics?

Accepted Answer

A) Labor productivity affects aggregate supply. 
B) Education affects labor productivity which affects aggregate supply. 
C) Education affects the incentive to work,save,and invest and,therefore,aggregate supply. 
D) Tax rates affect the incentive to work,save,and invest and,therefore,aggregate supply. 
A) Labor productivity affects aggregate supply. 
B) Education affects labor productivity which affects aggregate supply. 
C) Education affects the incentive to work,save,and invest and,therefore,aggregate supply. 
D) Tax rates affect the incentive to work,save,and invest and,therefore,aggregate supply.

Question 9

To complement actions by the Fed to reduce inflation,Congress and the President can cut spending and/or raise taxes.

Accepted Answer

A) True 
 B)False

Question 10

Explain how a tax reduction on capital gains and dividends might increase aggregate supply.

Accepted Answer

A lender earns a capital gain if she pur

Question 11

Vulcan Materials stock price soared in the days following the election of President Trump.Vulcan's products,such as asphalt and concrete,are used in construction and President Trump had pledged to bring about increased spending on infrastructure projects that would require such products.Spending on infrastructure projects is an example of ________ aimed at increasing real GDP and employment.

Accepted Answer

A) discretionary fiscal policy 
B) an automatic stabilizer 
C) contractionary fiscal policy 
D) a transfer payment 
A) discretionary fiscal policy 
B) an automatic stabilizer 
C) contractionary fiscal policy 
D) a transfer payment

Question 12

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Accepted Answer

A) higher; higher 
B) higher; lower 
C) lower; higher 
D) lower; lower 
A) higher; higher 
B) higher; lower 
C) lower; higher 
D) lower; lower

Question 13

Poorly timed discretionary policy can do more harm than good.Getting the timing right with fiscal policy is generally

Accepted Answer

A) less difficult than with monetary policy. 
B) far less difficult than with monetary policy. 
C) more difficult than with monetary policy. 
D) about the same difficulty as with monetary policy. 
A) less difficult than with monetary policy. 
B) far less difficult than with monetary policy. 
C) more difficult than with monetary policy. 
D) about the same difficulty as with monetary policy.

Question 14

Suppose that Congress allocates $5 billion to an "energy-efficient appliance rebate" program.It also raises taxes by $5 billion to keep the deficit from growing.If the marginal propensity to consume is 0.8,what is the effect on equilibrium GDP?

Accepted Answer

A) GDP does not change. 
B) GDP increases by $25 billion. 
C) GDP increases by $4 billion. 
D) GDP increases by $5 billion. 
A) GDP does not change. 
B) GDP increases by $25 billion. 
C) GDP increases by $4 billion. 
D) GDP increases by $5 billion.

Question 15

Before the Great Depression of the 1930s,the majority of government spending took place at the ________ and after the Great Depression the majority of government spending took place at the ________.

Accepted Answer

A) state and local levels; federal level 
B) local level; federal level 
C) federal level; state and local levels 
D) federal level; state level 
A) state and local levels; federal level 
B) local level; federal level 
C) federal level; state and local levels 
D) federal level; state level

Question 16

The Congressional Budget Office estimates the size of the government purchases multiplier to be

Accepted Answer

A) 0.1 - 0.6. 
B) 0.3 - 1.5. 
C) 0.5 - 2.5. 
D) 2.0 - 3.0. 
A) 0.1 - 0.6. 
B) 0.3 - 1.5. 
C) 0.5 - 2.5. 
D) 2.0 - 3.0.

Question 17

Suppose the president is successful in passing a $5 billion tax increase.Assume that taxes are fixed,the economy is closed,and the marginal propensity to consume is 0.75.What happens to equilibrium GDP?

Accepted Answer

A) There is a $20 billion increase in equilibrium GDP. 
B) There is a $20 billion decrease in equilibrium GDP. 
C) There is a $15 billion increase in equilibrium GDP. 
D) There is a $15 billion decrease in equilibrium GDP. 
A) There is a $20 billion increase in equilibrium GDP. 
B) There is a $20 billion decrease in equilibrium GDP. 
C) There is a $15 billion increase in equilibrium GDP. 
D) There is a $15 billion decrease in equilibrium GDP.

Question 18

Expansionary fiscal policy ________ the price level and ________ equilibrium real GDP.

Accepted Answer

A) decreases; increases 
B) increases; decreases 
C) increases; increases 
D) decreases; decreases 
A) decreases; increases 
B) increases; decreases 
C) increases; increases 
D) decreases; decreases

Question 19

During the Great Depression,what appeared to be ________ fiscal policy was actually not when the ________ budget deficit or surplus is examined.

Accepted Answer

A) expansionary; actual 
B) expansionary; cyclically adjusted 
C) contractionary; actual 
D) contractionary; cyclically adjusted 
A) expansionary; actual 
B) expansionary; cyclically adjusted 
C) contractionary; actual 
D) contractionary; cyclically adjusted

Question 20

As the tax wedge associated with a given economic activity gets smaller,we would expect

Accepted Answer

A) more of that economic activity to occur. 
B) the distortions caused by taxes on that activity to be greater. 
C) people to engage in less of that particular activity. 
D) no change in the practice of that activity until the tax wedge ultimately disappears. 
A) more of that economic activity to occur. 
B) the distortions caused by taxes on that activity to be greater. 
C) people to engage in less of that particular activity. 
D) no change in the practice of that activity until the tax wedge ultimately disappears.

Fiscal policy refers to changes in

Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced.What will happen to real equilibrium GDP?

The federal budget was in deficit from 1931 to 1939,except in the year 1937.Given this fact,how do you explain E.Cary Brown's statement,"Fiscal policy,then,seems to have been an unsuccessful recovery device in the 'thirties-not because it did not work,but because it was not tried."

Suppose the government spending multiplier is 2.The federal government cuts spending by $40 billion.What is the change in GDP if the price level is not held constant?

An increase in government purchases will increase aggregate demand because

Reducing the marginal tax rate on income will

Which of the following is considered expansionary fiscal policy?

Which of the following best describes supply-side economics?

To complement actions by the Fed to reduce inflation,Congress and the President can cut spending and/or raise taxes.

Explain how a tax reduction on capital gains and dividends might increase aggregate supply.

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be and real GDP to be .

Poorly timed discretionary policy can do more harm than good.Getting the timing right with fiscal policy is generally

Suppose that Congress allocates $5 billion to an "energy-efficient appliance rebate" program.It also raises taxes by $5 billion to keep the deficit from growing.If the marginal propensity to consume is 0.8,what is the effect on equilibrium GDP?

Before the Great Depression of the 1930s,the majority of government spending took place at the and after the Great Depression the majority of government spending took place at the .

The Congressional Budget Office estimates the size of the government purchases multiplier to be

Suppose the president is successful in passing a $5 billion tax increase.Assume that taxes are fixed,the economy is closed,and the marginal propensity to consume is 0.75.What happens to equilibrium GDP?

Expansionary fiscal policy the price level and equilibrium real GDP.

During the Great Depression,what appeared to be fiscal policy was actually not when the budget deficit or surplus is examined.

As the tax wedge associated with a given economic activity gets smaller,we would expect

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

Exam 16: Fiscal Policy

Fiscal policy refers to changes in

Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced.What will happen to real equilibrium GDP?

The federal budget was in deficit from 1931 to 1939,except in the year 1937.Given this fact,how do you explain E.Cary Brown's statement,"Fiscal policy,then,seems to have been an unsuccessful recovery device in the 'thirties-not because it did not work,but because it was not tried."

Suppose the government spending multiplier is 2.The federal government cuts spending by $40 billion.What is the change in GDP if the price level is not held constant?

An increase in government purchases will increase aggregate demand because

Reducing the marginal tax rate on income will

Which of the following is considered expansionary fiscal policy?

Which of the following best describes supply-side economics?

To complement actions by the Fed to reduce inflation,Congress and the President can cut spending and/or raise taxes.

Explain how a tax reduction on capital gains and dividends might increase aggregate supply.

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Poorly timed discretionary policy can do more harm than good.Getting the timing right with fiscal policy is generally

Suppose that Congress allocates $5 billion to an "energy-efficient appliance rebate" program.It also raises taxes by $5 billion to keep the deficit from growing.If the marginal propensity to consume is 0.8,what is the effect on equilibrium GDP?

Before the Great Depression of the 1930s,the majority of government spending took place at the ________ and after the Great Depression the majority of government spending took place at the ________.

The Congressional Budget Office estimates the size of the government purchases multiplier to be

Suppose the president is successful in passing a $5 billion tax increase.Assume that taxes are fixed,the economy is closed,and the marginal propensity to consume is 0.75.What happens to equilibrium GDP?

Expansionary fiscal policy ________ the price level and ________ equilibrium real GDP.

During the Great Depression,what appeared to be ________ fiscal policy was actually not when the ________ budget deficit or surplus is examined.

As the tax wedge associated with a given economic activity gets smaller,we would expect

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

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be and real GDP to be .

Before the Great Depression of the 1930s,the majority of government spending took place at the and after the Great Depression the majority of government spending took place at the .

Expansionary fiscal policy the price level and equilibrium real GDP.

During the Great Depression,what appeared to be fiscal policy was actually not when the budget deficit or surplus is examined.