Question 1

Induced taxes and transfer payments reduce the multiplier effects.

Accepted Answer

A) True 
 B)False

Question 2

An increase in government spending lowers interest rates and increases the rate of investment in new capital.

Accepted Answer

A) True 
 B)False

Question 3

Government expenditure in Australia as a percentage of GDP has consistently trended upward since the 1960s.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following would be considered a fiscal policy action?

Accepted Answer

A)  A city changes its rates of land tax. 
B)  A federal government subsidy for hybrid cars to encourage the purchase of fuel-efficient cars. 
C)  Foreign aid given to Indonesia. 
D)  A tax cut designed to stimulate spending during an economic contraction. 
A)  A city changes its rates of land tax. 
B)  A federal government subsidy for hybrid cars to encourage the purchase of fuel-efficient cars. 
C)  Foreign aid given to Indonesia. 
D)  A tax cut designed to stimulate spending during an economic contraction.

Question 5

Increasing government debt relative to GDP does not cause which of the following?

Accepted Answer

A)  Crowding out 
B)  An opportunity cost for the funds used to service the debt 
C)  The possibility of higher taxes in the future 
D)  Lower interest repayments relative to the size of GDP 
A)  Crowding out 
B)  An opportunity cost for the funds used to service the debt 
C)  The possibility of higher taxes in the future 
D)  Lower interest repayments relative to the size of GDP

Question 6

The nominal wage,expected inflation,and actual inflation for a hypothetical economy in 2012 are presented in the following table.Calculate the actual and expected real wage,assuming the price level is 100 in 2011.Explain how firms will use this information in terms of hiring and what will happen to the unemployment rate.

Accepted Answer

@#IMG-DLM& × 100 = @#IMG-DLM& × 100 = $19.61.
The actual rea

Question 7

The Phillips curve shows the short-run relationship between

Accepted Answer

A)  real GDP and the inflation rate. 
B)  real wages and real GDP. 
C)  real wages and the inflation rate. 
D)  the unemployment rate and the inflation rate. 
A)  real GDP and the inflation rate. 
B)  real wages and real GDP. 
C)  real wages and the inflation rate. 
D)  the unemployment rate and the inflation rate.

Question 8

As the tax wedge associated with a given economic activity gets smaller,we would expect

Accepted Answer

A)  more of that economic activity to occur. 
B)  the distortions caused by taxes on that activity to be greater. 
C)  people to engage in less of that particular activity. 
D)  no change in the practice of that activity until the tax wedge ultimately disappears. 
A)  more of that economic activity to occur. 
B)  the distortions caused by taxes on that activity to be greater. 
C)  people to engage in less of that particular activity. 
D)  no change in the practice of that activity until the tax wedge ultimately disappears.

Question 9

A vertical long-run Phillips curve implies that in the long run there is no trade-off between unemployment and inflation.

Accepted Answer

A) True 
 B)False

Question 10

Figure 17.7  
-Suppose the economy is at point A on the Phillips curve in Figure 17.7.If the aggregate demand curve shifts to the right by more than the long-run aggregate supply curve does,then the economy will

Accepted Answer

A)  remain at point A on the Phillips curve. 
B)  move to point B on the Phillips curve. 
C)  move to point C on the Phillips curve. 
D)  move to point D on the Phillips curve. 
A)  remain at point A on the Phillips curve. 
B)  move to point B on the Phillips curve. 
C)  move to point C on the Phillips curve. 
D)  move to point D on the Phillips curve.

Question 11

If the federal budget has an actual budget surplus of $75 billion,but a cyclically adjusted budget surplus of $50 billion,then the economy must be above potential GDP.

Accepted Answer

A) True 
 B)False

Question 12

Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability,healthy rates of economic growth,and high employment.

Accepted Answer

A)  taxes; interest rates 
B)  taxes; financial liquidity in the economy 
C)  interest rates; financial liquidity in the economy 
D)  taxes; purchases 
A)  taxes; interest rates 
B)  taxes; financial liquidity in the economy 
C)  interest rates; financial liquidity in the economy 
D)  taxes; purchases

Question 13

In Australia in 2005/06,the federal government had zero net debt for the first time in over

Accepted Answer

A)  5 years. 
B)  15 years. 
C)  20 years. 
D)  30 years. 
A)  5 years. 
B)  15 years. 
C)  20 years. 
D)  30 years.

Question 14

Between 1970 and 2014 in Australia,the largest budget deficits occurred

Accepted Answer

A)  during the early to mid-1990s. 
B)  during the early 1980s. 
C)  between 2009 and 2011. 
D)  following the 1974 oil price shock. 
A)  during the early to mid-1990s. 
B)  during the early 1980s. 
C)  between 2009 and 2011. 
D)  following the 1974 oil price shock.

Question 15

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

Accepted Answer

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

Question 16

Would a larger multiplier lead to longer and more severe recessions or shorter and less severe recessions? Briefly explain.

Accepted Answer

A larger multiplier would be l

Question 17

Reducing the marginal tax rate on individual income will

Accepted Answer

A)  reduce the tax wedge faced by workers and increase labour supplied. 
B)  raise the return to entrepreneurship and discourage the opening of new businesses. 
C)  lower the return to entrepreneurship and encourage the opening of new businesses. 
D)  increase the tax wedge faced by workers and increase labour supplied. 
A)  reduce the tax wedge faced by workers and increase labour supplied. 
B)  raise the return to entrepreneurship and discourage the opening of new businesses. 
C)  lower the return to entrepreneurship and encourage the opening of new businesses. 
D)  increase the tax wedge faced by workers and increase labour supplied.

Question 18

Assume that the federal government gives a $5 billion tax cut.Assume that tax rates 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 19

The Phillips curve illustrates that there is a

Accepted Answer

A)  short-run negative relationship between the unemployment rate and the inflation rate. 
B)  short-run positive relationship between the unemployment rate and the inflation rate. 
C)  long-run negative relationship between the unemployment rate and the inflation rate. 
D)  long-run positive relationship between the unemployment rate and the inflation rate. 
A)  short-run negative relationship between the unemployment rate and the inflation rate. 
B)  short-run positive relationship between the unemployment rate and the inflation rate. 
C)  long-run negative relationship between the unemployment rate and the inflation rate. 
D)  long-run positive relationship between the unemployment rate and the inflation rate.

Question 20

Suppose the current equilibrium GDP for a country is $14.5 trillion and potential GDP is $14.3 trillion.Will decreasing government purchases by $200 billion or raising taxes by $200 billion restore the economy to potential GDP? Briefly explain why.

Accepted Answer

Neither policy is appropriate because th

Induced taxes and transfer payments reduce the multiplier effects.

An increase in government spending lowers interest rates and increases the rate of investment in new capital.

Government expenditure in Australia as a percentage of GDP has consistently trended upward since the 1960s.

Which of the following would be considered a fiscal policy action?

Increasing government debt relative to GDP does not cause which of the following?

The Phillips curve shows the short-run relationship between

As the tax wedge associated with a given economic activity gets smaller,we would expect

A vertical long-run Phillips curve implies that in the long run there is no trade-off between unemployment and inflation.

Figure 17.7 -Suppose the economy is at point A on the Phillips curve in Figure 17.7.If the aggregate demand curve shifts to the right by more than the long-run aggregate supply curve does,then the economy will

If the federal budget has an actual budget surplus of $75 billion,but a cyclically adjusted budget surplus of $50 billion,then the economy must be above potential GDP.

Fiscal policy is defined as changes in federal and to achieve macroeconomic objectives such as price stability,healthy rates of economic growth,and high employment.

In Australia in 2005/06,the federal government had zero net debt for the first time in over

Between 1970 and 2014 in Australia,the largest budget deficits occurred

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

Would a larger multiplier lead to longer and more severe recessions or shorter and less severe recessions? Briefly explain.

Reducing the marginal tax rate on individual income will

Assume that the federal government gives a $5 billion tax cut.Assume that tax rates are fixed,the economy is closed,and the marginal propensity to consume is 0.75.What happens to equilibrium GDP?

The Phillips curve illustrates that there is a

Suppose the current equilibrium GDP for a country is $14.5 trillion and potential GDP is $14.3 trillion.Will decreasing government purchases by $200 billion or raising taxes by $200 billion restore the economy to potential GDP? Briefly explain why.

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Exam 17: Monetary Policy

Induced taxes and transfer payments reduce the multiplier effects.

An increase in government spending lowers interest rates and increases the rate of investment in new capital.

Government expenditure in Australia as a percentage of GDP has consistently trended upward since the 1960s.

Which of the following would be considered a fiscal policy action?

Increasing government debt relative to GDP does not cause which of the following?

The Phillips curve shows the short-run relationship between

As the tax wedge associated with a given economic activity gets smaller,we would expect

A vertical long-run Phillips curve implies that in the long run there is no trade-off between unemployment and inflation.

Figure 17.7 -Suppose the economy is at point A on the Phillips curve in Figure 17.7.If the aggregate demand curve shifts to the right by more than the long-run aggregate supply curve does,then the economy will

If the federal budget has an actual budget surplus of $75 billion,but a cyclically adjusted budget surplus of $50 billion,then the economy must be above potential GDP.

Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability,healthy rates of economic growth,and high employment.

In Australia in 2005/06,the federal government had zero net debt for the first time in over

Between 1970 and 2014 in Australia,the largest budget deficits occurred

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

Would a larger multiplier lead to longer and more severe recessions or shorter and less severe recessions? Briefly explain.

Reducing the marginal tax rate on individual income will

Assume that the federal government gives a $5 billion tax cut.Assume that tax rates are fixed,the economy is closed,and the marginal propensity to consume is 0.75.What happens to equilibrium GDP?

The Phillips curve illustrates that there is a

Suppose the current equilibrium GDP for a country is $14.5 trillion and potential GDP is $14.3 trillion.Will decreasing government purchases by $200 billion or raising taxes by $200 billion restore the economy to potential GDP? Briefly explain why.

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Fiscal policy is defined as changes in federal and to achieve macroeconomic objectives such as price stability,healthy rates of economic growth,and high employment.