Question 1

A decrease in the marginal income tax rate is a fiscal policy which will increase aggregate demand.

Accepted Answer

A) True 
 B)False

Question 2

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 3

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

Accepted Answer

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

Question 4

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.

Question 5

A(n)________ in private expenditures as a result of a(n)________ in government purchases is called crowding out.

Accepted Answer

A) increase; decrease 
B) decrease; decrease 
C) decrease; increase 
D) increase; increase 
A) increase; decrease 
B) decrease; decrease 
C) decrease; increase 
D) increase; increase

Question 6

Table 16-1
  
-Refer to Table 16-1.Consider the hypothetical information in the table above for potential real GDP,real GDP and the price level in 2013 and in 2014 if the Congress and the president do not use fiscal policy.If the Congress and the president want to keep real GDP at its potential level in 2014,they should

Accepted Answer

A) decrease income taxes. 
B) decrease government purchases. 
C) decrease the money supply. 
D) increase the level of interest rates. 
A) decrease income taxes. 
B) decrease government purchases. 
C) decrease the money supply. 
D) increase the level of interest rates.

Question 7

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 8

The use of fiscal policy to stabilize the economy is limited because

Accepted Answer

A) changes in government spending and tax rates have a small effect on aggregate demand. 
B) changes in government spending and tax rates have a small effect on interest rates. 
C) the legislative process can be slow,which means that it is difficult to make fiscal policy actions in a timely way. 
D) the Internal Revenue Service (IRS)resists changes in tax rates because of all the changes they would have to make to the tax code. 
A) changes in government spending and tax rates have a small effect on aggregate demand. 
B) changes in government spending and tax rates have a small effect on interest rates. 
C) the legislative process can be slow,which means that it is difficult to make fiscal policy actions in a timely way. 
D) the Internal Revenue Service (IRS)resists changes in tax rates because of all the changes they would have to make to the tax code.

Question 9

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 increase government purchases by

Accepted Answer

A) $500 billion. 
B) less than $500 billion. 
C) more than $500 billion. 
D) None of the above are correct.Congress must act to decrease government purchases in this case. 
A) $500 billion. 
B) less than $500 billion. 
C) more than $500 billion. 
D) None of the above are correct.Congress must act to decrease government purchases in this case.

Question 10

From an initial long-run equilibrium,if aggregate demand grows more slowly than long-run and short-run aggregate supply,then Congress and the president would most likely

Accepted Answer

A) increase the required reserve ratio and decrease government spending. 
B) decrease government spending. 
C) decrease oil prices. 
D) decrease taxes. 
E) lower interest rates. 
A) increase the required reserve ratio and decrease government spending. 
B) decrease government spending. 
C) decrease oil prices. 
D) decrease taxes. 
E) lower interest rates.

Question 11

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 12

During 1970-1997,the U.S.federal government was

Accepted Answer

A) in surplus every year. 
B) balanced every year. 
C) in deficit every year. 
D) in deficit most of those years. 
A) in surplus every year. 
B) balanced every year. 
C) in deficit every year. 
D) in deficit most of those years.

Question 13

In early 2008,the housing crisis and rising oil prices increased the risk of recession in the United States.What fiscal policy action was taken by Congress and the president to counter these events?

Accepted Answer

A) The Federal Reserve cut its target for the federal funds rate. 
B) There was an increase in government spending on defense and unemployment compensation. 
C) Taxpayers were given rebates on taxes they already paid. 
D) Income taxes were raised to reduce the federal budget deficit and reduce interest rates. 
A) The Federal Reserve cut its target for the federal funds rate. 
B) There was an increase in government spending on defense and unemployment compensation. 
C) Taxpayers were given rebates on taxes they already paid. 
D) Income taxes were raised to reduce the federal budget deficit and reduce interest rates.

Question 14

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,particularly marginal 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,particularly marginal tax rates,affect the incentive to work,save,and invest and,therefore,aggregate supply.

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

An increase in the sensitivity of private spending (consumption,investment,and net exports)to changes in the interest rate ________ the government purchases multiplier.

Accepted Answer

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

Question 17

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 18

Fiscal policy is determined by

Accepted Answer

A) the Federal Reserve. 
B) the president and the Federal Reserve. 
C) Congress and the Federal Reserve. 
D) Congress and the president. 
A) the Federal Reserve. 
B) the president and the Federal Reserve. 
C) Congress and the Federal Reserve. 
D) Congress and the president.

Question 19

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,and no fiscal or monetary policy is pursued,then at point B

Accepted Answer

A) the unemployment rate is very low. 
B) firms are operating below capacity. 
C) the economy is above full employment. 
D) income and profits are rising. 
E) there is pressure on wages and prices to rise. 
A) the unemployment rate is very low. 
B) firms are operating below capacity. 
C) the economy is above full employment. 
D) income and profits are rising. 
E) there is pressure on wages and prices to rise.

Question 20

What is the difference between fiscal policy and monetary policy?

Accepted Answer

Fiscal policy involves changes in federa

A decrease in the marginal income tax rate is a fiscal policy which will increase aggregate demand.

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

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

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

A(n) in private expenditures as a result of a(n) in government purchases is called crowding out.

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

The use of fiscal policy to stabilize the economy is limited because

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 increase government purchases by

From an initial long-run equilibrium,if aggregate demand grows more slowly than long-run and short-run aggregate supply,then Congress and the president would most likely

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.

During 1970-1997,the U.S.federal government was

In early 2008,the housing crisis and rising oil prices increased the risk of recession in the United States.What fiscal policy action was taken by Congress and the president to counter these events?

Which of the following best describes supply-side economics?

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

An increase in the sensitivity of private spending (consumption,investment,and net exports)to changes in the interest rate ________ the government purchases multiplier.

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

Fiscal policy is determined by

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,and no fiscal or monetary policy is pursued,then at point B

What is the difference between fiscal policy and monetary policy?

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

A decrease in the marginal income tax rate is a fiscal policy which will increase aggregate demand.

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

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

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

A(n)________ in private expenditures as a result of a(n)________ in government purchases is called crowding out.

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

The use of fiscal policy to stabilize the economy is limited because

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 increase government purchases by

From an initial long-run equilibrium,if aggregate demand grows more slowly than long-run and short-run aggregate supply,then Congress and the president would most likely

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.

During 1970-1997,the U.S.federal government was

In early 2008,the housing crisis and rising oil prices increased the risk of recession in the United States.What fiscal policy action was taken by Congress and the president to counter these events?

Which of the following best describes supply-side economics?

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

An increase in the sensitivity of private spending (consumption,investment,and net exports)to changes in the interest rate ________ the government purchases multiplier.

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

Fiscal policy is determined by

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,and no fiscal or monetary policy is pursued,then at point B

What is the difference between fiscal policy and monetary policy?

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

A(n) in private expenditures as a result of a(n) in government purchases is called crowding out.