Question 1

In an open economy,the government purchases multiplier will be larger the

Accepted Answer

A) smaller the marginal propensity to import. 
B) smaller the marginal income tax rate. 
C) larger the marginal propensity to consume. 
D) All of the above are correct. 
A) smaller the marginal propensity to import. 
B) smaller the marginal income tax rate. 
C) larger the marginal propensity to consume. 
D) All of the above are correct.

Question 2

Figure 16-6  
-Refer to Figure 16-6.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) increase the money supply and decrease the interest rate. 
B) increase taxes. 
C) increase government spending. 
D) increase oil prices. 
E) raise interest rates. 
A) increase the money supply and decrease the interest rate. 
B) increase taxes. 
C) increase government spending. 
D) increase oil prices. 
E) raise interest rates.

Question 3

Does expansionary fiscal policy directly increase the money supply? Isn't it true that the president and Congress fight recessions by spending more money?

Accepted Answer

No,expansionary fiscal policy does not d

Question 4

Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion.To move the economy back to potential GDP,Congress should

Accepted Answer

A) lower taxes by an amount less than $500 billion. 
B) raise government purchases by $500 billion. 
C) raise government purchases by more than $500 billion. 
D) lower taxes by $500 billion. 
E) lower government purchases by $500 billion. 
A) lower taxes by an amount less than $500 billion. 
B) raise government purchases by $500 billion. 
C) raise government purchases by more than $500 billion. 
D) lower taxes by $500 billion. 
E) lower government purchases by $500 billion.

Question 5

Federal government purchases as a percentage of GDP

Accepted Answer

A) have risen since the early 1950s. 
B) have fallen since the early 1950s. 
C) have remained roughly the same since the early 1950s. 
D) rose from the early 1950s until the mid 1980s,and then fell. 
A) have risen since the early 1950s. 
B) have fallen since the early 1950s. 
C) have remained roughly the same since the early 1950s. 
D) rose from the early 1950s until the mid 1980s,and then fell.

Question 6

For the federal deficit to be lowered

Accepted Answer

A) the federal government must increase its spending and increase net exports. 
B) the federal government's expenditures must be lower than its tax revenue. 
C) the Federal Reserve must raise interest rates and lower the required reserve ratio. 
D) the Federal Reserve must reduce the money supply. 
A) the federal government must increase its spending and increase net exports. 
B) the federal government's expenditures must be lower than its tax revenue. 
C) the Federal Reserve must raise interest rates and lower the required reserve ratio. 
D) the Federal Reserve must reduce the money supply.

Question 7

Automatic stabilizers refer to

Accepted Answer

A) the money supply and interest rates that automatically increase or decrease along with the business cycle. 
B) government spending and taxes that automatically increase or decrease along with the business cycle. 
C) changes in the money supply and interest rates that are intended to achieve macroeconomic policy objectives. 
D) changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives. 
A) the money supply and interest rates that automatically increase or decrease along with the business cycle. 
B) government spending and taxes that automatically increase or decrease along with the business cycle. 
C) changes in the money supply and interest rates that are intended to achieve macroeconomic policy objectives. 
D) changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

Question 8

Which of the following is an objective of fiscal policy?

Accepted Answer

A) energy independence from Middle East oil 
B) health care coverage for all Americans 
C) discovering a cure for Alzheimer's 
D) high rates of economic growth 
E) homeland security 
A) energy independence from Middle East oil 
B) health care coverage for all Americans 
C) discovering a cure for Alzheimer's 
D) high rates of economic growth 
E) homeland security

Question 9

Tax cuts on business income ________ aggregate demand.

Accepted Answer

A) would decrease 
B) would increase 
C) would not change 
D) may increase or decrease 
A) would decrease 
B) would increase 
C) would not change 
D) may increase or decrease

Question 10

Assuming a fixed amount of taxes and a closed economy,calculate the value of the government purchases multiplier,the tax multiplier,and the balanced budget multiplier if the marginal propensity to consume equals 0.75.

Accepted Answer

Government purchases multiplie

Question 11

The Federal Reserve plays a larger role than Congress and the president in stabilizing the economy because

Accepted Answer

A) the Federal Reserve can more quickly change monetary policy than the president and the Congress can change fiscal policy. 
B) the Federal Reserve can immediately recognize when real GDP is below or above potential GDP. 
C) changes in interest rates have a considerably larger effect on the economy than changes in government purchases or taxes. 
D) changes in interest rates have their full effect on the economy in a short period of time,whereas changes in government spending and taxes have their full effect over a long period of time. 
A) the Federal Reserve can more quickly change monetary policy than the president and the Congress can change fiscal policy. 
B) the Federal Reserve can immediately recognize when real GDP is below or above potential GDP. 
C) changes in interest rates have a considerably larger effect on the economy than changes in government purchases or taxes. 
D) changes in interest rates have their full effect on the economy in a short period of time,whereas changes in government spending and taxes have their full effect over a long period of time.

Question 12

A law requiring the government to balance its budget in each year would serve as an automatic destabilizer.

Accepted Answer

A) True 
 B)False

Question 13

Figure 16-4  
-Refer to Figure 16-4.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) an increase in transfer payments 
B) an increase in interest rates 
C) an increase in the marginal income tax rate 
D) an open market purchase of Treasury bills 
A) an increase in transfer payments 
B) an increase in interest rates 
C) an increase in the marginal income tax rate 
D) an open market purchase of Treasury bills

Question 14

Active changes in tax and spending by government intended to smooth out the business cycle are called ________,and changes in taxes and spending that occur passively over the business cycle are called ________.

Accepted Answer

A) automatic stabilizers; discretionary fiscal policy 
B) discretionary fiscal policy; automatic stabilizers 
C) automatic stabilizers; monetary policy 
D) discretionary fiscal policy; conscious fiscal policy 
A) automatic stabilizers; discretionary fiscal policy 
B) discretionary fiscal policy; automatic stabilizers 
C) automatic stabilizers; monetary policy 
D) discretionary fiscal policy; conscious fiscal policy

Question 15

Which of the following provides health-care coverage to people age 65 and over?

Accepted Answer

A) Medicaid 
B) Medicare 
C) Social Security 
D) Health-Aid 
A) Medicaid 
B) Medicare 
C) Social Security 
D) Health-Aid

Question 16

The growth rate of hours worked depends on all of the following except

Accepted Answer

A) the rate of population growth. 
B) changes in the employment-population ratio. 
C) changes in the hours each employee works. 
D) changes in the worker-to-retiree ratio. 
A) the rate of population growth. 
B) changes in the employment-population ratio. 
C) changes in the hours each employee works. 
D) changes in the worker-to-retiree ratio.

Question 17

Crowding out refers to a decrease in government purchases as a result of an increase in private expenditures.

Accepted Answer

A) True 
 B)False

Question 18

Suppose real GDP is $13 trillion,potential real GDP is $13.5 trillion,and Congress and the president plan to use fiscal policy to restore the economy to potential real GDP.Assuming a constant price level,Congress and the president would need to decrease taxes by

Accepted Answer

A) $500 billion. 
B) less than $500 billion. 
C) more than $500 billion. 
D) None of the above are correct.Congress should raise taxes in this case. 
A) $500 billion. 
B) less than $500 billion. 
C) more than $500 billion. 
D) None of the above are correct.Congress should raise taxes in this case.

Question 19

The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was

Accepted Answer

A) in a recession. 
B) in an expansion. 
C) at potential GDP. 
D) at potential tax revenue. 
A) in a recession. 
B) in an expansion. 
C) at potential GDP. 
D) at potential tax revenue.

Question 20

If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2,does it follow that the federal government acted to raise taxes or cut government spending in Year 2?

Accepted Answer

No,the economy could have been in an exp

In an open economy,the government purchases multiplier will be larger the

Figure 16-6 -Refer to Figure 16-6.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

Does expansionary fiscal policy directly increase the money supply? Isn't it true that the president and Congress fight recessions by spending more money?

Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion.To move the economy back to potential GDP,Congress should

Federal government purchases as a percentage of GDP

For the federal deficit to be lowered

Automatic stabilizers refer to

Which of the following is an objective of fiscal policy?

Tax cuts on business income ________ aggregate demand.

Assuming a fixed amount of taxes and a closed economy,calculate the value of the government purchases multiplier,the tax multiplier,and the balanced budget multiplier if the marginal propensity to consume equals 0.75.

The Federal Reserve plays a larger role than Congress and the president in stabilizing the economy because

A law requiring the government to balance its budget in each year would serve as an automatic destabilizer.

Figure 16-4 -Refer to Figure 16-4.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?

Active changes in tax and spending by government intended to smooth out the business cycle are called ,and changes in taxes and spending that occur passively over the business cycle are called .

Which of the following provides health-care coverage to people age 65 and over?

The growth rate of hours worked depends on all of the following except

Crowding out refers to a decrease in government purchases as a result of an increase in private expenditures.

Suppose real GDP is $13 trillion,potential real GDP is $13.5 trillion,and Congress and the president plan to use fiscal policy to restore the economy to potential real GDP.Assuming a constant price level,Congress and the president would need to decrease taxes by

The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was

If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2,does it follow that the federal government acted to raise taxes or cut government spending in Year 2?

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

In an open economy,the government purchases multiplier will be larger the

Figure 16-6 -Refer to Figure 16-6.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

Does expansionary fiscal policy directly increase the money supply? Isn't it true that the president and Congress fight recessions by spending more money?

Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion.To move the economy back to potential GDP,Congress should

Federal government purchases as a percentage of GDP

For the federal deficit to be lowered

Automatic stabilizers refer to

Which of the following is an objective of fiscal policy?

Tax cuts on business income ________ aggregate demand.

Assuming a fixed amount of taxes and a closed economy,calculate the value of the government purchases multiplier,the tax multiplier,and the balanced budget multiplier if the marginal propensity to consume equals 0.75.

The Federal Reserve plays a larger role than Congress and the president in stabilizing the economy because

A law requiring the government to balance its budget in each year would serve as an automatic destabilizer.

Figure 16-4 -Refer to Figure 16-4.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?

Active changes in tax and spending by government intended to smooth out the business cycle are called ________,and changes in taxes and spending that occur passively over the business cycle are called ________.

Which of the following provides health-care coverage to people age 65 and over?

The growth rate of hours worked depends on all of the following except

Crowding out refers to a decrease in government purchases as a result of an increase in private expenditures.

Suppose real GDP is $13 trillion,potential real GDP is $13.5 trillion,and Congress and the president plan to use fiscal policy to restore the economy to potential real GDP.Assuming a constant price level,Congress and the president would need to decrease taxes by

The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was

If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2,does it follow that the federal government acted to raise taxes or cut government spending in Year 2?

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

Active changes in tax and spending by government intended to smooth out the business cycle are called ,and changes in taxes and spending that occur passively over the business cycle are called .