Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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 3

Raising taxes on interest and dividend income will increase the level of investment and economic growth.

Accepted Answer

A) True 
 B)False

Question 4

The federal government debt as a percentage of GDP did not rise

Accepted Answer

A)  during the Great Depression. 
B)  during World War II. 
C)  during the 1960s. 
D)  during the 1980s. 
A)  during the Great Depression. 
B)  during World War II. 
C)  during the 1960s. 
D)  during the 1980s.

Question 5

If Congress passed a one-time tax cut in order to stimulate the economy in 2014, and tax rate levels returned to their pre-2014 level in 2015, how should this tax cut affect the economy?

Accepted Answer

A)  The tax cut would increase consumption spending less than would a permanent tax cut. 
B)  The tax cut would increase consumption spending more than would a permanent tax cut. 
C)  The tax cut would increase consumption spending by the same amount as would a permanent tax cut. 
D)  The tax cut would raise the price level in 2014. 
A)  The tax cut would increase consumption spending less than would a permanent tax cut. 
B)  The tax cut would increase consumption spending more than would a permanent tax cut. 
C)  The tax cut would increase consumption spending by the same amount as would a permanent tax cut. 
D)  The tax cut would raise the price level in 2014.

Question 6

Fiscal policy refers to changes in

Accepted Answer

A)  state and local taxes and purchases that are intended to achieve macroeconomic policy objectives. 
B)  federal taxes and purchases that are intended to achieve macroeconomic policy objectives. 
C)  federal taxes and purchases that are intended to fund the war on terrorism. 
D)  the money supply and interest rates that are intended to achieve macroeconomic policy objectives. 
A)  state and local taxes and purchases that are intended to achieve macroeconomic policy objectives. 
B)  federal taxes and purchases that are intended to achieve macroeconomic policy objectives. 
C)  federal taxes and purchases that are intended to fund the war on terrorism. 
D)  the money supply and interest rates that are intended to achieve macroeconomic policy objectives.

Question 7

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 ex

Question 8

The tax multiplier is smaller in absolute value than the government purchases multiplier because some portion of the

Accepted Answer

A)  decrease in taxes will be saved by households and not spent, and some portion will be spent on imported goods. 
B)  decrease in taxes will be saved by households and not spent, and some portion will be spent on consumer durable goods. 
C)  increase in government purchases will be saved by households and not spent, and some portion will be spent on imported goods. 
D)  increase in government purchases will be saved by households and not spent, and some portion will be spent on consumer durable goods. 
A)  decrease in taxes will be saved by households and not spent, and some portion will be spent on imported goods. 
B)  decrease in taxes will be saved by households and not spent, and some portion will be spent on consumer durable goods. 
C)  increase in government purchases will be saved by households and not spent, and some portion will be spent on imported goods. 
D)  increase in government purchases will be saved by households and not spent, and some portion will be spent on consumer durable goods.

Question 9

Assume a closed economy, that taxes are fixed, and the marginal propensity to consume is equal to 0.8. What is the government spending multiplier?

Accepted Answer

A)  10 
B)  5 
C)  4 
D)  3 
A)  10 
B)  5 
C)  4 
D)  3

Question 10

Figure 27-5  
-If real GDP exceeded potential real GDP and inflation was increasing, which of the following would be an appropriate fiscal policy?

Accepted Answer

A)  a decrease in the money supply and an increase in the interest rate 
B)  an increase in government spending 
C)  an increase in taxes 
D)  an increase in oil prices 
A)  a decrease in the money supply and an increase in the interest rate 
B)  an increase in government spending 
C)  an increase in taxes 
D)  an increase in oil prices

Question 11

________ and ________ are the largest sources of revenue collected by the federal government.

Accepted Answer

A)  Individual income taxes; corporate income taxes 
B)  Individual income taxes; social insurance taxes 
C)  Corporate income taxes; excise and other taxes 
D)  Excise and other taxes; individual income taxes 
A)  Individual income taxes; corporate income taxes 
B)  Individual income taxes; social insurance taxes 
C)  Corporate income taxes; excise and other taxes 
D)  Excise and other taxes; individual income taxes

Question 12

The majority of the federal government debt is held by government agencies.

Accepted Answer

A) True 
 B)False

Question 13

The multiplier effect following an increase in expenditure is generated by induced increases in consumption expenditure as income rises.

Accepted Answer

A) True 
 B)False

Question 14

Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in a long-run macroeconomic equilibrium. For Year 2, graph aggregate demand, long-run aggregate supply, and short-run aggregate supply such that the condition of the economy will induce the president and the Congress to conduct contractionary fiscal policy. Briefly explain the condition of the economy and what the president and the Congress are attempting to do.

Accepted Answer

The president and the Congress conduct c

Question 15

In the long run, most economists agree that a permanent increase in government spending leads to

Accepted Answer

A)  no decrease in private spending. 
B)  a decrease in private spending by less than the amount that government spending increased. 
C)  a decrease in private spending by the same amount that government spending increased. 
D)  a decrease in private spending by more than the amount that government spending increased. 
A)  no decrease in private spending. 
B)  a decrease in private spending by less than the amount that government spending increased. 
C)  a decrease in private spending by the same amount that government spending increased. 
D)  a decrease in private spending by more than the amount that government spending increased.

Question 16

Figure 27-1  
-Refer to Figure 27-1. Suppose the economy is in a recession and expansionary fiscal policy is pursued. Using the static AD-AS model in the figure above, this would be depicted as a movement from

Accepted Answer

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

Question 17

Figure 27-4  
-The problem causing most recessions is too little

Accepted Answer

A)  money (currency plus checking accounts). 
B)  spending. 
C)  unemployment. 
D)  taxes. 
A)  money (currency plus checking accounts). 
B)  spending. 
C)  unemployment. 
D)  taxes.

Question 18

Increasing the federal budget deficit will contribute to increasing the federal government debt.

Accepted Answer

A) True 
 B)False

Question 19

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009, the largest tax cuts occurred in which category?

Accepted Answer

A)  business tax cuts 
B)  energy tax cuts 
C)  individual tax cuts 
D)  infrastructure tax cuts 
A)  business tax cuts 
B)  energy tax cuts 
C)  individual tax cuts 
D)  infrastructure tax cuts

Question 20

A permanent tax cut would likely ________ consumption spending ________ than would a tax rebate like the one issued in 2008.

Accepted Answer

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

Exam 27: Fiscal Policy

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

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

Raising taxes on interest and dividend income will increase the level of investment and economic growth.

The federal government debt as a percentage of GDP did not rise

If Congress passed a one-time tax cut in order to stimulate the economy in 2014, and tax rate levels returned to their pre-2014 level in 2015, how should this tax cut affect the economy?

Fiscal policy refers to changes in

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?

The tax multiplier is smaller in absolute value than the government purchases multiplier because some portion of the

Assume a closed economy, that taxes are fixed, and the marginal propensity to consume is equal to 0.8. What is the government spending multiplier?

Figure 27-5 -If real GDP exceeded potential real GDP and inflation was increasing, which of the following would be an appropriate fiscal policy?

________ and ________ are the largest sources of revenue collected by the federal government.

The majority of the federal government debt is held by government agencies.

The multiplier effect following an increase in expenditure is generated by induced increases in consumption expenditure as income rises.

In the long run, most economists agree that a permanent increase in government spending leads to

Figure 27-1 -Refer to Figure 27-1. Suppose the economy is in a recession and expansionary fiscal policy is pursued. Using the static AD-AS model in the figure above, this would be depicted as a movement from

Figure 27-4 -The problem causing most recessions is too little

Increasing the federal budget deficit will contribute to increasing the federal government debt.

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009, the largest tax cuts occurred in which category?

A permanent tax cut would likely ________ consumption spending ________ than would a tax rebate like the one issued in 2008.

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

and are the largest sources of revenue collected by the federal government.

A permanent tax cut would likely consumption spending than would a tax rebate like the one issued in 2008.