Question 1

if government spending and the price level increase, then

Accepted Answer

A)  the interest rate increases, consumption declines, and investment spending declines. 
B)  the interest rate decreases, consumption declines, and investment spending declines. 
C)  the interest rate increases, consumption increases, and investment spending increases. 
D)  the interest rate decreases, consumption increases, and investment spending increases. 
A)  the interest rate increases, consumption declines, and investment spending declines. 
B)  the interest rate decreases, consumption declines, and investment spending declines. 
C)  the interest rate increases, consumption increases, and investment spending increases. 
D)  the interest rate decreases, consumption increases, and investment spending increases.

Question 2

Figure 27-3  
-Decreasing government spending ________ 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 3

An increase in government spending will force an appreciation of the dollar, which causes net exports to fall.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 6

Which of the following is a government expenditure, but is not a government purchase?

Accepted Answer

A)  The federal government buys a Humvee. 
B)  The federal government pays the salary of an FBI agent. 
C)  The federal government pays out an unemployment insurance claim. 
D)  The Federal government pays to support research on Aids. 
A)  The federal government buys a Humvee. 
B)  The federal government pays the salary of an FBI agent. 
C)  The federal government pays out an unemployment insurance claim. 
D)  The Federal government pays to support research on Aids.

Question 7

What is the difference between federal purchases and federal expenditures?

Accepted Answer

Federal purchases refer to federal spend

Question 8

A tax rebate by the government would

Accepted Answer

A)  increase your pretax income, but not your disposable income. 
B)  increase your disposable income, but not your pretax income. 
C)  decrease your pretax income, but not your disposable income. 
D)  decrease your disposable income, but not your pretax income. 
A)  increase your pretax income, but not your disposable income. 
B)  increase your disposable income, but not your pretax income. 
C)  decrease your pretax income, but not your disposable income. 
D)  decrease your disposable income, but not your pretax income.

Question 9

The federal government debt equals

Accepted Answer

A)  tax revenues minus government spending. 
B)  government spending minus tax revenues. 
C)  the accumulation of past budget deficits. 
D)  the total value of U.S. Treasury bonds outstanding. 
A)  tax revenues minus government spending. 
B)  government spending minus tax revenues. 
C)  the accumulation of past budget deficits. 
D)  the total value of U.S. Treasury bonds outstanding.

Question 10

Figure 27-1  
-Refer to Figure 27-1. Suppose the economy is in short-run equilibrium above potential GDP and automatic stabilizers move the economy back to long-run equilibrium. Using the static AD-AS model in the figure above, this would be depicted as a movement from

Accepted Answer

A)  D to C. 
B)  A to E. 
C)  C to B. 
D)  B to A. 
E)  E to A. 
A)  D to C. 
B)  A to E. 
C)  C to B. 
D)  B to A. 
E)  E to A.

Question 11

What are the key differences between how we illustrate an expansionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

Accepted Answer

In the basic aggregate demand and aggreg

Question 12

An increase in the tax wedge associated with a given economic activity will decrease the level of that activity.

Accepted Answer

A) True 
 B)False

Question 13

Expansionary fiscal policy

Accepted Answer

A)  can be effective in the short run. 
B)  causes complete crowding out in the short run. 
C)  is never effective because of crowding out. 
D)  can be effective in the long run. 
A)  can be effective in the short run. 
B)  causes complete crowding out in the short run. 
C)  is never effective because of crowding out. 
D)  can be effective in the long run.

Question 14

Borrowing to pay for long-lived capital expenditures makes sense as

Accepted Answer

A)  the benefits are received in the current year so the burden of paying for them should be spread over many years. 
B)  the benefits are received over many years so the burden of paying for them should be spread over many years. 
C)  the benefits are received in the current year so the burden of paying for them should be paid in the current year. 
D)  the benefits are received over many years so the burden of paying for them should be paid in the current year. 
A)  the benefits are received in the current year so the burden of paying for them should be spread over many years. 
B)  the benefits are received over many years so the burden of paying for them should be spread over many years. 
C)  the benefits are received in the current year so the burden of paying for them should be paid in the current year. 
D)  the benefits are received over many years so the burden of paying for them should be paid in the current year.

Question 15

The budget deficit increases during wars and recessions.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Suppose President Obama 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

If policy makers implement an expansionary fiscal policy but do not take into account the potential for crowding out, the new equilibrium level of GDP is likely to

Accepted Answer

A)  be at potential GDP. 
B)  be above potential GDP. 
C)  be below potential GDP. 
D)  There is insufficient information given here to draw a conclusion. 
A)  be at potential GDP. 
B)  be above potential GDP. 
C)  be below potential GDP. 
D)  There is insufficient information given here to draw a conclusion.

Question 19

An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 27: Fiscal Policy

if government spending and the price level increase, then

Figure 27-3 -Decreasing government spending ________ the price level and ________ equilibrium real GDP.

An increase in government spending will force an appreciation of the dollar, which causes net exports to fall.

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

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 is a government expenditure, but is not a government purchase?

What is the difference between federal purchases and federal expenditures?

A tax rebate by the government would

The federal government debt equals

Figure 27-1 -Refer to Figure 27-1. Suppose the economy is in short-run equilibrium above potential GDP and automatic stabilizers move the economy back to long-run equilibrium. Using the static AD-AS model in the figure above, this would be depicted as a movement from

What are the key differences between how we illustrate an expansionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

An increase in the tax wedge associated with a given economic activity will decrease the level of that activity.

Expansionary fiscal policy

Borrowing to pay for long-lived capital expenditures makes sense as

The budget deficit increases during wars and recessions.

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

Suppose President Obama 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?

If policy makers implement an expansionary fiscal policy but do not take into account the potential for crowding out, the new equilibrium level of GDP is likely to

An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.

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

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

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

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

Figure 27-3 -Decreasing government spending the price level and equilibrium real GDP.

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 .