Question 1

Which of the following would be considered a fiscal policy action?

Accepted Answer

A) The Fed increases the money supply. 
B) Tax incentives are offered to encourage the purchase of fuel efficient cars. 
C) Spending on the war in Afghanistan is increased to promote homeland security. 
D) A tax cut is designed to stimulate spending during a recession. 
A) The Fed increases the money supply. 
B) Tax incentives are offered to encourage the purchase of fuel efficient cars. 
C) Spending on the war in Afghanistan is increased to promote homeland security. 
D) A tax cut is designed to stimulate spending during a recession.

Question 2

The problem typically during a recession is not that there is too little money,but too little spending.If the problem was too little money,what would be its cause? If the problem was too little spending,what could be its cause?

Accepted Answer

Too little money would be caused by too

Question 3

Compared to the averages for post World War II recessions,the recession of 2007-2009 was ________ in duration and the decline in real GDP was ________.

Accepted Answer

A) longer; greater 
B) longer; smaller 
C) shorter; greater 
D) shorter; smaller 
A) longer; greater 
B) longer; smaller 
C) shorter; greater 
D) shorter; smaller

Question 4

Contractionary fiscal policy involves decreasing government purchases or increasing taxes.

Accepted Answer

A) True 
 B)False

Question 5

If policymakers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply,the appropriate fiscal policy response is to

Accepted Answer

A) increase taxes. 
B) increase government spending. 
C) use expansionary fiscal policy. 
D) increase interest rates. 
A) increase taxes. 
B) increase government spending. 
C) use expansionary fiscal policy. 
D) increase interest rates.

Question 6

Tax cuts on business income increase aggregate demand by increasing

Accepted Answer

A) business investment spending. 
B) consumption spending. 
C) government spending. 
D) wage rates. 
A) business investment spending. 
B) consumption spending. 
C) government spending. 
D) wage rates.

Question 7

It is ________ difficult to effectively time fiscal policy than monetary policy because ________.

Accepted Answer

A) more; fiscal policy can be quickly decided and changed 
B) more; fiscal policy takes longer to implement 
C) less; monetary policy takes longer to decide and change 
D) less; monetary policy takes longer to implement 
A) more; fiscal policy can be quickly decided and changed 
B) more; fiscal policy takes longer to implement 
C) less; monetary policy takes longer to decide and change 
D) less; monetary policy takes longer to implement

Question 8

The government purchases multiplier is defined as

Accepted Answer

A)    . 
B)    . 
C)    . 
D)    
A)    . 
B)    . 
C)    . 
D)

Question 9

Identify each of the following as (i)part of an expansionary fiscal policy,(ii)part of a contractionary fiscal policy,or (iii)not part of fiscal policy.
a.The personal income tax rate is lowered.
b.Congress cuts spending on defense.
c.College students are allowed to deduct tuition costs from their federal income taxes.
d.The corporate income tax rate is lowered.
e.The state of Nevada builds a new tollway in an attempt to expand employment and ease traffic in Las Vegas.

Accepted Answer

a.This is expansionary fiscal policy. b.

Question 10

The income tax system serves as an automatic stabilizer over the course of the business cycle.

Accepted Answer

A) True 
 B)False

Question 11

The aggregate demand curve will shift to the right ________ the initial increase in government purchases.

Accepted Answer

A) by less than 
B) by more than 
C) by the same amount as 
D) sometimes by more than and other times by less than 
A) by less than 
B) by more than 
C) by the same amount as 
D) sometimes by more than and other times by less than

Question 12

Suppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion.If the president and Congress increased government purchases by $500 billion,what would be the result on the economy?

Accepted Answer

The economy would go from a short-run eq

Question 13

Which of the following is a reason why we should consider the federal national debt a problem?

Accepted Answer

A) The federal government is in danger of defaulting on its debt. 
B) If the debt drives up interest rates,crowding out will occur. 
C) If the debt was incurred to finance improvements in infrastructure,crowding out will occur. 
D) If the debt was incurred to finance research and development,crowding out will occur. 
A) The federal government is in danger of defaulting on its debt. 
B) If the debt drives up interest rates,crowding out will occur. 
C) If the debt was incurred to finance improvements in infrastructure,crowding out will occur. 
D) If the debt was incurred to finance research and development,crowding out will occur.

Question 14

Explain why the tax multiplier is different from the government purchases multiplier,in both sign and relative magnitude.

Accepted Answer

A dollar change in government purchases

Question 15

Figure 16-3  
-Refer to Figure 16-3.In the graph above,suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by Congress and the president?

Accepted Answer

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

Question 16

A decrease in the tax rate will ________ the disposable income of households and ________ the size of the multiplier effect.

Accepted Answer

A) increase; increase 
B) decrease; increase 
C) increase; decrease 
D) decrease; decrease 
E) increase; not change 
A) increase; increase 
B) decrease; increase 
C) increase; decrease 
D) decrease; decrease 
E) increase; not change

Question 17

What is meant by crowding out? Explain the difference between crowding out in the short run and in the long run.

Accepted Answer

Crowding out refers to a decline in priv

Question 18

The tax wedge is the difference between the

Accepted Answer

A) amount of taxes needed to balance the federal budget and the actual amount of taxes. 
B) amount of taxes needed to pay off the national debt and the actual amount of taxes. 
C) pretax and posttax returns to an economic activity. 
D) nominal and real interest rates. 
A) amount of taxes needed to balance the federal budget and the actual amount of taxes. 
B) amount of taxes needed to pay off the national debt and the actual amount of taxes. 
C) pretax and posttax returns to an economic activity. 
D) nominal and real interest rates.

Question 19

The tax multiplier is calculated as "one minus the government purchases multiplier."

Accepted Answer

A) True 
 B)False

Question 20

Figure 16-5  
-Refer to Figure 16-5.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,Congress and the president would most likely

Accepted Answer

A) decrease government spending. 
B) increase government spending. 
C) increase oil prices. 
D) increase taxes. 
E) lower interest rates. 
A) decrease government spending. 
B) increase government spending. 
C) increase oil prices. 
D) increase taxes. 
E) lower interest rates.

Which of the following would be considered a fiscal policy action?

The problem typically during a recession is not that there is too little money,but too little spending.If the problem was too little money,what would be its cause? If the problem was too little spending,what could be its cause?

Compared to the averages for post World War II recessions,the recession of 2007-2009 was in duration and the decline in real GDP was .

Contractionary fiscal policy involves decreasing government purchases or increasing taxes.

If policymakers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply,the appropriate fiscal policy response is to

Tax cuts on business income increase aggregate demand by increasing

It is difficult to effectively time fiscal policy than monetary policy because .

The government purchases multiplier is defined as

The income tax system serves as an automatic stabilizer over the course of the business cycle.

The aggregate demand curve will shift to the right ________ the initial increase in government purchases.

Suppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion.If the president and Congress increased government purchases by $500 billion,what would be the result on the economy?

Which of the following is a reason why we should consider the federal national debt a problem?

Explain why the tax multiplier is different from the government purchases multiplier,in both sign and relative magnitude.

Figure 16-3 -Refer to Figure 16-3.In the graph above,suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by Congress and the president?

A decrease in the tax rate will the disposable income of households and the size of the multiplier effect.

What is meant by crowding out? Explain the difference between crowding out in the short run and in the long run.

The tax wedge is the difference between the

The tax multiplier is calculated as "one minus the government purchases multiplier."

Figure 16-5 -Refer to Figure 16-5.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,Congress and the president would most likely

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

Which of the following would be considered a fiscal policy action?

The problem typically during a recession is not that there is too little money,but too little spending.If the problem was too little money,what would be its cause? If the problem was too little spending,what could be its cause?

Compared to the averages for post World War II recessions,the recession of 2007-2009 was ________ in duration and the decline in real GDP was ________.

Contractionary fiscal policy involves decreasing government purchases or increasing taxes.

If policymakers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply,the appropriate fiscal policy response is to

Tax cuts on business income increase aggregate demand by increasing

It is ________ difficult to effectively time fiscal policy than monetary policy because ________.

The government purchases multiplier is defined as

The income tax system serves as an automatic stabilizer over the course of the business cycle.

The aggregate demand curve will shift to the right ________ the initial increase in government purchases.

Suppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion.If the president and Congress increased government purchases by $500 billion,what would be the result on the economy?

Which of the following is a reason why we should consider the federal national debt a problem?

Explain why the tax multiplier is different from the government purchases multiplier,in both sign and relative magnitude.

Figure 16-3 -Refer to Figure 16-3.In the graph above,suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by Congress and the president?

A decrease in the tax rate will ________ the disposable income of households and ________ the size of the multiplier effect.

What is meant by crowding out? Explain the difference between crowding out in the short run and in the long run.

The tax wedge is the difference between the

The tax multiplier is calculated as "one minus the government purchases multiplier."

Figure 16-5 -Refer to Figure 16-5.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,Congress and the president would most likely

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

Compared to the averages for post World War II recessions,the recession of 2007-2009 was in duration and the decline in real GDP was .

It is difficult to effectively time fiscal policy than monetary policy because .

A decrease in the tax rate will the disposable income of households and the size of the multiplier effect.