Question 1

The larger the marginal propensity to save,the smaller the multiplier is.

Accepted Answer

A) True 
 B)False

Question 2

A decrease in individual income taxes ________ disposable income,which ________ consumption spending.

Accepted Answer

A)  increases; increases 
B)  increases; decreases 
C)  decreases; increases 
D)  decreases; decreases 
A)  increases; increases 
B)  increases; decreases 
C)  decreases; increases 
D)  decreases; decreases

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

A change in tax rates

Accepted Answer

A)  has a less complicated effect on GDP than a tax cut of a fixed amount. 
B)  has a larger multiplier effect the smaller the tax rate. 
C)  will not affect disposable income. 
D)  will not affect the size of the multiplier. 
A)  has a less complicated effect on GDP than a tax cut of a fixed amount. 
B)  has a larger multiplier effect the smaller the tax rate. 
C)  will not affect disposable income. 
D)  will not affect the size of the multiplier.

Question 5

Suppose real GDP is $13 trillion,potential GDP is $13.5 trillion,and the government plans to use fiscal policy to restore the economy to potential GDP.Assuming a constant price level,the government 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 these options is correct. The government 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 these options is correct. The government must act to decrease government purchases in this case.

Question 6

Discretionary fiscal policy is when

Accepted Answer

A)  existing taxation policy automatically smooths out business cycle fluctuations in the economy. 
B)  the government changes the level of expenditure or taxation to achieve a macroeconomic aim. 
C)  policy is left to the discretion of the Reserve Bank of Australia. 
D)  politicians are discrete about policy changes, and do not advise consumers or producers of new policies. 
A)  existing taxation policy automatically smooths out business cycle fluctuations in the economy. 
B)  the government changes the level of expenditure or taxation to achieve a macroeconomic aim. 
C)  policy is left to the discretion of the Reserve Bank of Australia. 
D)  politicians are discrete about policy changes, and do not advise consumers or producers of new policies.

Question 7

Use the following information to draw a graph showing the short-run and long-run Phillips curves.
Natural rate of unemployment = 5 per cent
Current rate of unemployment = 3 per cent
Expected inflation rate = 2.9 per cent
Current inflation rate = 6.2 per cent

Accepted Answer

@#IMG-DLM& The economy is at point B in the above

Question 8

Federal government expenditure as a proportion of GDP in Australia between 1980 and 2010 has varied between

Accepted Answer

A)  8 per cent and 12 per cent. 
B)  15 per cent and 20 per cent. 
C)  22 per cent and 28 per cent. 
D)  40 per cent and 45 per cent. 
A)  8 per cent and 12 per cent. 
B)  15 per cent and 20 per cent. 
C)  22 per cent and 28 per cent. 
D)  40 per cent and 45 per cent.

Question 9

Figure 17.4  
-Given that the economy has moved from A to B in Figure 17.4,which of the following would be the appropriate fiscal policy to achieve potential GDP?

Accepted Answer

A)  Decrease taxes 
B)  Decrease government spending 
C)  Expansionary fiscal policy 
D)  Increase interest rates 
A)  Decrease taxes 
B)  Decrease government spending 
C)  Expansionary fiscal policy 
D)  Increase interest rates

Question 10

Policy makers in the 1960s believed that there was a structural relationship between unemployment and inflation.This meant that the cost of lower unemployment was a

Accepted Answer

A)  permanently higher inflation rate. 
B)  permanently lower inflation rate. 
C)  temporarily higher inflation rate. 
D)  temporarily lower inflation rate. 
A)  permanently higher inflation rate. 
B)  permanently lower inflation rate. 
C)  temporarily higher inflation rate. 
D)  temporarily lower inflation rate.

Question 11

What did Milton Friedman and Edmund Phelps argue about the long-run Phillips curve?

Accepted Answer

They argued that,in the long run,there w

Question 12

Figure 17.1  
-If the economy moves from A to B in Figure 17.1,which of the following would be the appropriate fiscal policy to achieve potential GDP?

Accepted Answer

A)  Increase taxes 
B)  Increase government spending 
C)  Contractionary fiscal policy 
D)  Decrease interest rates 
A)  Increase taxes 
B)  Increase government spending 
C)  Contractionary fiscal policy 
D)  Decrease interest rates

Question 13

If the absolute value of the tax multiplier equals 1.6,real GDP is $13 trillion,and potential GDP is $13.4 trillion,then taxes would need to be cut by ________ to restore the economy to potential GDP.

Accepted Answer

A)  $250 billion 
B)  $400 billion 
C)  $640 billion 
D)  None of these options is correct. Taxes should be increased in this case. 
A)  $250 billion 
B)  $400 billion 
C)  $640 billion 
D)  None of these options is correct. Taxes should be increased in this case.

Question 14

What is contractionary fiscal policy and under what circumstances would it be used?

Accepted Answer

Contractionary fiscal policy involves re

Question 15

Crowding out will be greater

Accepted Answer

A)  the less sensitive consumption spending is to changes in the interest rate. 
B)  the further equilibrium GDP is below potential GDP. 
C)  the more sensitive investment spending is to changes in the interest rate. 
D)  if the economy is in recession, rather than at full employment. 
A)  the less sensitive consumption spending is to changes in the interest rate. 
B)  the further equilibrium GDP is below potential GDP. 
C)  the more sensitive investment spending is to changes in the interest rate. 
D)  if the economy is in recession, rather than at full employment.

Question 16

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 stabilisers; discretionary fiscal policy 
B)  discretionary fiscal policy; automatic stabilisers 
C)  automatic stabilisers; monetary policy 
D)  discretionary fiscal policy; conscious fiscal policy 
A)  automatic stabilisers; discretionary fiscal policy 
B)  discretionary fiscal policy; automatic stabilisers 
C)  automatic stabilisers; monetary policy 
D)  discretionary fiscal policy; conscious fiscal policy

Question 17

Which of the following is an example of discretionary fiscal policy?

Accepted Answer

A)  An increase in the number of unemployment benefit payments during a recession due to rising unemployment. 
B)  An increase in income tax receipts during an expansion because incomes are rising. 
C)  Tax increases to combat rising inflation. 
D)  A decrease in income tax receipts during a recession because incomes are falling. 
A)  An increase in the number of unemployment benefit payments during a recession due to rising unemployment. 
B)  An increase in income tax receipts during an expansion because incomes are rising. 
C)  Tax increases to combat rising inflation. 
D)  A decrease in income tax receipts during a recession because incomes are falling.

Question 18

Outline the differences between the government purchases multiplier and the tax multiplier.

Accepted Answer

First,changes in government purchases af

Question 19

Which of the following is the largest category of Australian federal government expenditures?

Accepted Answer

A)  Defence spending 
B)  Social security and welfare payments 
C)  Interest on debt 
D)  Health care 
A)  Defence spending 
B)  Social security and welfare payments 
C)  Interest on debt 
D)  Health care

Question 20

Assuming a fixed amount of taxes and a closed economy,calculate the value of the government purchases multiplier,the tax multiplier,and the balanced budget multiplier if the marginal propensity to consume equals 0.75.

Accepted Answer

Government purchases multiplie

The larger the marginal propensity to save,the smaller the multiplier is.

A decrease in individual income taxes disposable income,which consumption spending.

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

A change in tax rates

Suppose real GDP is $13 trillion,potential GDP is $13.5 trillion,and the government plans to use fiscal policy to restore the economy to potential GDP.Assuming a constant price level,the government would need to increase government purchases by

Discretionary fiscal policy is when

Use the following information to draw a graph showing the short-run and long-run Phillips curves. Natural rate of unemployment = 5 per cent Current rate of unemployment = 3 per cent Expected inflation rate = 2.9 per cent Current inflation rate = 6.2 per cent

Federal government expenditure as a proportion of GDP in Australia between 1980 and 2010 has varied between

Figure 17.4 -Given that the economy has moved from A to B in Figure 17.4,which of the following would be the appropriate fiscal policy to achieve potential GDP?

Policy makers in the 1960s believed that there was a structural relationship between unemployment and inflation.This meant that the cost of lower unemployment was a

What did Milton Friedman and Edmund Phelps argue about the long-run Phillips curve?

Figure 17.1 -If the economy moves from A to B in Figure 17.1,which of the following would be the appropriate fiscal policy to achieve potential GDP?

If the absolute value of the tax multiplier equals 1.6,real GDP is $13 trillion,and potential GDP is $13.4 trillion,then taxes would need to be cut by ________ to restore the economy to potential GDP.

What is contractionary fiscal policy and under what circumstances would it be used?

Crowding out will be greater

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 an example of discretionary fiscal policy?

Outline the differences between the government purchases multiplier and the tax multiplier.

Which of the following is the largest category of Australian federal government expenditures?

Assuming a fixed amount of taxes and a closed economy,calculate the value of the government purchases multiplier,the tax multiplier,and the balanced budget multiplier if the marginal propensity to consume equals 0.75.

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

The larger the marginal propensity to save,the smaller the multiplier is.

A decrease in individual income taxes ________ disposable income,which ________ consumption spending.

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

A change in tax rates

Suppose real GDP is $13 trillion,potential GDP is $13.5 trillion,and the government plans to use fiscal policy to restore the economy to potential GDP.Assuming a constant price level,the government would need to increase government purchases by

Discretionary fiscal policy is when

Use the following information to draw a graph showing the short-run and long-run Phillips curves. Natural rate of unemployment = 5 per cent Current rate of unemployment = 3 per cent Expected inflation rate = 2.9 per cent Current inflation rate = 6.2 per cent

Federal government expenditure as a proportion of GDP in Australia between 1980 and 2010 has varied between

Figure 17.4 -Given that the economy has moved from A to B in Figure 17.4,which of the following would be the appropriate fiscal policy to achieve potential GDP?

Policy makers in the 1960s believed that there was a structural relationship between unemployment and inflation.This meant that the cost of lower unemployment was a

What did Milton Friedman and Edmund Phelps argue about the long-run Phillips curve?

Figure 17.1 -If the economy moves from A to B in Figure 17.1,which of the following would be the appropriate fiscal policy to achieve potential GDP?

If the absolute value of the tax multiplier equals 1.6,real GDP is $13 trillion,and potential GDP is $13.4 trillion,then taxes would need to be cut by ________ to restore the economy to potential GDP.

What is contractionary fiscal policy and under what circumstances would it be used?

Crowding out will be greater

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 an example of discretionary fiscal policy?

Outline the differences between the government purchases multiplier and the tax multiplier.

Which of the following is the largest category of Australian federal government expenditures?

Assuming a fixed amount of taxes and a closed economy,calculate the value of the government purchases multiplier,the tax multiplier,and the balanced budget multiplier if the marginal propensity to consume equals 0.75.

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

A decrease in individual income taxes disposable income,which consumption spending.

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 .