Question 1

-Refer to the graph above to answer this question.The shift in the budget line from BL1 to BL2 could be caused by which of the following?

Accepted Answer

A) An increase in tax rates. 
B) A decrease in tax rates. 
C) A decrease in government spending. 
D) Technological change. 
E) A higher exchange rate. 
A) An increase in tax rates. 
B) A decrease in tax rates. 
C) A decrease in government spending. 
D) Technological change. 
E) A higher exchange rate.

Question 2

Which of the following is a stock concept?

Accepted Answer

A) Public debt. 
B) Government tax revenue. 
C) The deficit. 
D) Direct program spending. 
A) Public debt. 
B) Government tax revenue. 
C) The deficit. 
D) Direct program spending.

Question 3

What can cause an upward (left)shift in the budget line?

Accepted Answer

A) An increase in GDP. 
B) An increase in taxes. 
C) An increase in government spending. 
D) A decrease in taxes. 
A) An increase in GDP. 
B) An increase in taxes. 
C) An increase in government spending. 
D) A decrease in taxes.

Question 4

What is true regarding counter-cyclical fiscal policy?

Accepted Answer

A) It reinforces the business cycle. 
B) It aims to balance the economy not the budget. 
C) It has been described as "enhancing the prevailing winds." 
D) It has no connection with the business cycle. 
E) It can eliminate the business cycle. 
A) It reinforces the business cycle. 
B) It aims to balance the economy not the budget. 
C) It has been described as "enhancing the prevailing winds." 
D) It has no connection with the business cycle. 
E) It can eliminate the business cycle.

Question 5

Explain how counter-cyclical fiscal policy might lead to serious budget deficits.

Accepted Answer

Suppose the economy is experiencing a re

Question 6

What will counter-cyclical fiscal policy do?

Accepted Answer

A) Raise GDP and prices if used to eliminate a recessionary gap. 
B) Raise GDP and lower prices if used to eliminate a recessionary gap. 
C) Lower GDP and prices if used to eliminate a recessionary gap. 
D) Raise GDP,but leave prices unchanged if used to eliminate a recessionary gap. 
A) Raise GDP and prices if used to eliminate a recessionary gap. 
B) Raise GDP and lower prices if used to eliminate a recessionary gap. 
C) Lower GDP and prices if used to eliminate a recessionary gap. 
D) Raise GDP,but leave prices unchanged if used to eliminate a recessionary gap.

Question 7

Refer to the graph to answer this question.Which of the following is verified by the graph?

Accepted Answer

A) That a budget surplus exists if government spending is G1 and real GDP is Y1. 
B) That a budget deficit exists if government spending is G2 and real GDP is Y1. 
C) The reduction in government spending from G1 to G2 would produce real GDP equilibrium at Y1. 
D) If government spending was reduced from G1 to G2 the budget surplus at Y2 would disappear if real GDP remained at Y3. 
E) That the budget is balanced if government spending is G1 and real GDP is Y3.   
A) That a budget surplus exists if government spending is G1 and real GDP is Y1. 
B) That a budget deficit exists if government spending is G2 and real GDP is Y1. 
C) The reduction in government spending from G1 to G2 would produce real GDP equilibrium at Y1. 
D) If government spending was reduced from G1 to G2 the budget surplus at Y2 would disappear if real GDP remained at Y3. 
E) That the budget is balanced if government spending is G1 and real GDP is Y3.

Question 8

What is the effect of counter-cyclical fiscal policy on the price level?

Accepted Answer

A) It will increase in the case of a recessionary gap. 
B) It will increase in the case of an inflationary gap. 
C) It will decrease in the case of a recessionary gap. 
D) It will have no effect in the case of a recessionary gap. 
E) It will have no effect in the case of an inflationary gap. 
A) It will increase in the case of a recessionary gap. 
B) It will increase in the case of an inflationary gap. 
C) It will decrease in the case of a recessionary gap. 
D) It will have no effect in the case of a recessionary gap. 
E) It will have no effect in the case of an inflationary gap.

Question 9

When a recessionary gap exists,what should the government do to address the situation?

Accepted Answer

A) Increase its own spending and tax rates. 
B) Decrease its own spending and tax rates. 
C) Increase its own spending or decrease tax rates. 
D) Decrease its own spending or increase tax rates. 
E) Decrease its own spending but leave tax rates unchanged. 
A) Increase its own spending and tax rates. 
B) Decrease its own spending and tax rates. 
C) Increase its own spending or decrease tax rates. 
D) Decrease its own spending or increase tax rates. 
E) Decrease its own spending but leave tax rates unchanged.

Question 10

All of the following,except one,is a criticism of using counter-cyclical fiscal policy during a recession.Which is the exception?

Accepted Answer

A) Its effectiveness is subject to serious time lags. 
B) It tends to be inflationary. 
C) It can cause serious budget deficits. 
D) It reinforces the business cycle. 
A) Its effectiveness is subject to serious time lags. 
B) It tends to be inflationary. 
C) It can cause serious budget deficits. 
D) It reinforces the business cycle.

Question 11

What is net tax revenue?

Accepted Answer

A) It is the total of all taxes collected by the government. 
B) It is the total of all taxes collected by government less spending by government on goods and services. 
C) It is the total of all taxes collected by government plus transfer payments. 
D) It is the total of all taxes collected by government less transfer payments. 
A) It is the total of all taxes collected by the government. 
B) It is the total of all taxes collected by government less spending by government on goods and services. 
C) It is the total of all taxes collected by government plus transfer payments. 
D) It is the total of all taxes collected by government less transfer payments.

Question 12

Which of the following would help eliminate a recessionary gap?

Accepted Answer

A) An increase in consumer spending. 
B) An increase in investment. 
C) An increase in exports. 
D) An increase in government spending 
E) All of the above. 
A) An increase in consumer spending. 
B) An increase in investment. 
C) An increase in exports. 
D) An increase in government spending 
E) All of the above.

Question 13

Graphically,what happened to the aggregate demand curve during World War II?

Accepted Answer

A) It did not shift,but the capacity of the economy increased thus shifting the aggregate supply curve to the left. 
B) It did not shift since the economy was already at capacity. 
C) It shifted to the right leading to a big increase in real GDP but to no change in the price level. 
D) It shifted to the right thus causing an inflationary gap. 
E) It shifted to the left since a big portion of expenditures was diverted to military spending. 
A) It did not shift,but the capacity of the economy increased thus shifting the aggregate supply curve to the left. 
B) It did not shift since the economy was already at capacity. 
C) It shifted to the right leading to a big increase in real GDP but to no change in the price level. 
D) It shifted to the right thus causing an inflationary gap. 
E) It shifted to the left since a big portion of expenditures was diverted to military spending.

Question 14

-Refer to the graph above to answer this question.Which of the following is true?

Accepted Answer

A) A balanced budget would occur at income level Y1. 
B) A balanced budget would occur at income level Y2. 
C) A balanced budget could occur at income levels Y1,Y2 or Y3. 
D) The existence of a balanced budget cannot be determined because no information on tax revenues is given. 
A) A balanced budget would occur at income level Y1. 
B) A balanced budget would occur at income level Y2. 
C) A balanced budget could occur at income levels Y1,Y2 or Y3. 
D) The existence of a balanced budget cannot be determined because no information on tax revenues is given.

Question 15

Suppose the government is expecting a budget surplus.List three things governments can do to reduce or eliminate the expected budget surplus.

Accepted Answer

The government can:
· increase

Question 16

If government spending on goods and services is increased by exactly the same amount that taxes are increased,the level of GDP will not change.

Accepted Answer

A) True 
 B)False

Question 17

Suppose that an economy is simultaneously experiencing a budget deficit and an inflationary gap.If the government attempts to balance the budget,what will be the effect?

Accepted Answer

A) Real GDP will increase,and the deficit will increase. 
B) Real GDP will increase,and the deficit will decrease. 
C) Real GDP will decrease,and the deficit will increase. 
D) Real GDP will decrease,and the deficit will decrease. 
A) Real GDP will increase,and the deficit will increase. 
B) Real GDP will increase,and the deficit will decrease. 
C) Real GDP will decrease,and the deficit will increase. 
D) Real GDP will decrease,and the deficit will decrease.

Question 18

What is involved in counter-cyclical fiscal policy?

Accepted Answer

A) Higher government spending if used to eliminate an inflationary gap. 
B) Higher government spending if used to eliminate a recessionary gap. 
C) Higher taxes if used to eliminate a recessionary gap. 
D) Lower taxes if used to eliminate an inflationary gap. 
E) Government spending but not taxes. 
A) Higher government spending if used to eliminate an inflationary gap. 
B) Higher government spending if used to eliminate a recessionary gap. 
C) Higher taxes if used to eliminate a recessionary gap. 
D) Lower taxes if used to eliminate an inflationary gap. 
E) Government spending but not taxes.

Question 19

Suppose the government's budget is balanced.What is the consequence to the level of national debt if expansionary fiscal policy is used to eliminate a recessionary gap?

Accepted Answer

To eliminate a recessionary gap with exp

Question 20

-Refer to the figure above to answer this question.If government spending is G1 and GDP is Y1,why won't a reduction in government spending by the size of the budget deficit eliminate the deficit?

Accepted Answer

A) Because GDP and NTR will decrease as a result of the decrease in government spending. 
B) Because government spending is a function of income. 
C) Because GDP will rise as a result of the decrease in government spending. 
D) Because NTR will rise as a result of the decrease in government spending. 
A) Because GDP and NTR will decrease as a result of the decrease in government spending. 
B) Because government spending is a function of income. 
C) Because GDP will rise as a result of the decrease in government spending. 
D) Because NTR will rise as a result of the decrease in government spending.

-Refer to the graph above to answer this question.The shift in the budget line from BL₁ to BL₂ could be caused by which of the following?

Which of the following is a stock concept?

What can cause an upward (left)shift in the budget line?

What is true regarding counter-cyclical fiscal policy?

Explain how counter-cyclical fiscal policy might lead to serious budget deficits.

What will counter-cyclical fiscal policy do?

Refer to the graph to answer this question.Which of the following is verified by the graph?

What is the effect of counter-cyclical fiscal policy on the price level?

When a recessionary gap exists,what should the government do to address the situation?

All of the following,except one,is a criticism of using counter-cyclical fiscal policy during a recession.Which is the exception?

What is net tax revenue?

Which of the following would help eliminate a recessionary gap?

Graphically,what happened to the aggregate demand curve during World War II?

-Refer to the graph above to answer this question.Which of the following is true?

Suppose the government is expecting a budget surplus.List three things governments can do to reduce or eliminate the expected budget surplus.

If government spending on goods and services is increased by exactly the same amount that taxes are increased,the level of GDP will not change.

Suppose that an economy is simultaneously experiencing a budget deficit and an inflationary gap.If the government attempts to balance the budget,what will be the effect?

What is involved in counter-cyclical fiscal policy?

Suppose the government's budget is balanced.What is the consequence to the level of national debt if expansionary fiscal policy is used to eliminate a recessionary gap?

-Refer to the figure above to answer this question.If government spending is G₁ and GDP is Y₁,why won't a reduction in government spending by the size of the budget deficit eliminate the deficit?

The Economic Problem

Demand and Supply: an Introduction

Measuring the Economy 1: GDP and Economic Growth

Measuring the Economy 2: Unemployment and Inflation

Aggregate Demand and Supply

Aggregate Expenditures

Money and Banking

The Money Market and Monetary Policy

International Trade

Exchange Rates and the Balance of Payments

Macroeconomic Policy Revisited

A Walk Through the Twentieth Century and Beyond

Filters

Exam 7: Fiscal Policy

-Refer to the graph above to answer this question.The shift in the budget line from BL1 to BL2 could be caused by which of the following?

Which of the following is a stock concept?

What can cause an upward (left)shift in the budget line?

What is true regarding counter-cyclical fiscal policy?

Explain how counter-cyclical fiscal policy might lead to serious budget deficits.

What will counter-cyclical fiscal policy do?

Refer to the graph to answer this question.Which of the following is verified by the graph?

What is the effect of counter-cyclical fiscal policy on the price level?

When a recessionary gap exists,what should the government do to address the situation?

All of the following,except one,is a criticism of using counter-cyclical fiscal policy during a recession.Which is the exception?

What is net tax revenue?

Which of the following would help eliminate a recessionary gap?

Graphically,what happened to the aggregate demand curve during World War II?

-Refer to the graph above to answer this question.Which of the following is true?

Suppose the government is expecting a budget surplus.List three things governments can do to reduce or eliminate the expected budget surplus.

If government spending on goods and services is increased by exactly the same amount that taxes are increased,the level of GDP will not change.

Suppose that an economy is simultaneously experiencing a budget deficit and an inflationary gap.If the government attempts to balance the budget,what will be the effect?

What is involved in counter-cyclical fiscal policy?

Suppose the government's budget is balanced.What is the consequence to the level of national debt if expansionary fiscal policy is used to eliminate a recessionary gap?

-Refer to the figure above to answer this question.If government spending is G1 and GDP is Y1,why won't a reduction in government spending by the size of the budget deficit eliminate the deficit?

The Economic Problem

Demand and Supply: an Introduction

Measuring the Economy 1: GDP and Economic Growth

Measuring the Economy 2: Unemployment and Inflation

Aggregate Demand and Supply

Aggregate Expenditures

Money and Banking

The Money Market and Monetary Policy

International Trade

Exchange Rates and the Balance of Payments

Macroeconomic Policy Revisited

A Walk Through the Twentieth Century and Beyond

Filters

-Refer to the graph above to answer this question.The shift in the budget line from BL₁ to BL₂ could be caused by which of the following?

-Refer to the figure above to answer this question.If government spending is G₁ and GDP is Y₁,why won't a reduction in government spending by the size of the budget deficit eliminate the deficit?