Question 1

Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?

Accepted Answer

The tax rate affects how much of the additional income that results from the initial increase in government purchases is available to be consumed.A higher tax rate decreases the amount of disposable income that can be consumed at each round of the multiplier process.

Question 2

Which of the following would be most likely to induce Congress and the president to conduct contractionary fiscal policy? A significant

Accepted Answer

A)  decrease in oil prices. 
B)  decrease in real GDP. 
C)  increase in inflation. 
D)  increase in labor productivity. 
A)  decrease in oil prices. 
B)  decrease in real GDP. 
C)  increase in inflation. 
D)  increase in labor productivity. C

Question 3

Which of the following would be most likely to induce Congress and the president to conduct expansionary fiscal policy? A significant

Accepted Answer

A)  decrease in investment spending. 
B)  decrease in oil prices. 
C)  increase in consumption spending. 
D)  increase in net exports. 
A)  decrease in investment spending. 
B)  decrease in oil prices. 
C)  increase in consumption spending. 
D)  increase in net exports. A

Question 4

A decrease in the tax rate will ________ the disposable income of households and ________ the size of the multiplier effect.

Accepted Answer

A)  increase; increase 
B)  decrease; increase 
C)  increase; decrease 
D)  decrease; decrease 
E)  increase; not change 
A)  increase; increase 
B)  decrease; increase 
C)  increase; decrease 
D)  decrease; decrease 
E)  increase; not change

Question 5

Crowding out refers to a decline in ________ as a result of an increase in ________.

Accepted Answer

A)  tax revenues; unemployment 
B)  government purchases; tax rates 
C)  government purchases; private expenditures 
D)  private expenditures; government purchases 
A)  tax revenues; unemployment 
B)  government purchases; tax rates 
C)  government purchases; private expenditures 
D)  private expenditures; government purchases

Question 6

The level of crowding out associated with a tax cut will be smaller if the tax change has a supply-side effect than it will be if it only has a demand-side effect.

Accepted Answer

A) True 
 B)False

Question 7

Figure 27-1  
-Refer to Figure 27-1.Suppose the economy is in short-run equilibrium below potential GDP and no fiscal or monetary policy is pursued.Using the static AD-AS model in the figure above,this would be depicted as a movement from
A) A to B.
B) B to C.
C) C to B.
D) B to A.
E) A to E.

Accepted Answer

The answer of Figure 27-1  
-Refer to Figure 27-1.Suppose...

Question 8

Figure 27-4  
-Refer to Figure 27-4.In the graph above,the shift from AD1 to AD2 represents the total change in aggregate demand.If government purchases increased by $50 billion,then the distance from point A to point B ________ $50 billion.

Accepted Answer

A)  would be equal to 
B)  would be greater than 
C)  would be less than 
D)  may be greater than or less than 
A)  would be equal to 
B)  would be greater than 
C)  would be less than 
D)  may be greater than or less than

Question 9

The tax increases necessary to fund future Social Security and Medicare benefit payments would be

Accepted Answer

A)  small, and have little effect on economic growth. 
B)  small, but could discourage work effort, entrepreneurship and investment, thereby slowing economic growth. 
C)  large, but would have little effect on economic growth. 
D)  large, and could discourage work effort, entrepreneurship and investment, thereby slowing economic growth. 
A)  small, and have little effect on economic growth. 
B)  small, but could discourage work effort, entrepreneurship and investment, thereby slowing economic growth. 
C)  large, but would have little effect on economic growth. 
D)  large, and could discourage work effort, entrepreneurship and investment, thereby slowing economic growth.

Question 10

The aggregate demand curve will shift to the right ________ the initial decrease in taxes.

Accepted Answer

A)  by less than 
B)  by more than 
C)  by the same amount 
D)  sometimes by more than and other times by less than 
A)  by less than 
B)  by more than 
C)  by the same amount 
D)  sometimes by more than and other times by less than

Question 11

How can tax simplification be beneficial to the economy?

Accepted Answer

Tax simplification would free up resourc

Question 12

An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

Accepted Answer

A)  increase; rise; falls 
B)  increase; fall; rises 
C)  decrease; rise; falls 
D)  decrease; fall; rises 
A)  increase; rise; falls 
B)  increase; fall; rises 
C)  decrease; rise; falls 
D)  decrease; fall; rises

Question 13

Table 27-1
  
-Refer to Table 27-1.Suppose the economy is in the state described by the table above.What problem will occur in the economy if no policy is pursued? What fiscal policy tools could be used to combat the problem? Draw a dynamic aggregate demand and aggregate supply diagram to illustrate the appropriate fiscal policy to use in this situation.

Accepted Answer

@#IMG-DLM& The economy begins in equilibrium at po

Question 14

If the economy is falling below potential real GDP,which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

Accepted Answer

A)  the money supply and a decrease in interest rates. 
B)  government purchases. 
C)  oil prices. 
D)  taxes. 
A)  the money supply and a decrease in interest rates. 
B)  government purchases. 
C)  oil prices. 
D)  taxes.

Question 15

Economists who believe the supply-side effects of tax cuts are small essentially believe that

Accepted Answer

A)  tax cuts mainly affect aggregate demand. 
B)  tax cuts mainly affect aggregate supply. 
C)  tax cuts will increase the quantity of labor supplied. 
D)  tax cuts will result in relatively small changes in the price level. 
A)  tax cuts mainly affect aggregate demand. 
B)  tax cuts mainly affect aggregate supply. 
C)  tax cuts will increase the quantity of labor supplied. 
D)  tax cuts will result in relatively small changes in the price level.

Question 16

The income tax system serves as an automatic stabilizer over the course of the business cycle.

Accepted Answer

A) True 
 B)False

Question 17

A change in consumption spending caused by income changes is ________ change in spending,and a change in government spending that occurs to improve roads and bridges is ________ change in spending.

Accepted Answer

A)  an induced; an autonomous 
B)  an expansionary; a contractionary 
C)  an autonomous; an induced 
D)  a contractionary; an expansionary 
A)  an induced; an autonomous 
B)  an expansionary; a contractionary 
C)  an autonomous; an induced 
D)  a contractionary; an expansionary

Question 18

Suppose the federal budget deficit for the year was $100 billion and the economy was in a recession.If the economy had been at potential GDP,it is estimated that tax revenues would have been $60 billion higher and government spending on transfer payments $50 billion lower.Using these estimates,the cyclically adjusted budget

Accepted Answer

A)  deficit was $210 billion. 
B)  deficit was $110 billion. 
C)  surplus was $10 billion. 
D)  surplus was $110 billion. 
A)  deficit was $210 billion. 
B)  deficit was $110 billion. 
C)  surplus was $10 billion. 
D)  surplus was $110 billion.

Question 19

If Congress and the president pursue an expansionary fiscal policy at the same time as the Federal Reserve pursues an expansionary monetary policy,how might the expansionary monetary policy affect the extent of crowding out in the short run?

Accepted Answer

An expansionary fiscal policy will cause

Question 20

Which of the following best describes supply-side economics?

Accepted Answer

A)  Labor productivity affects aggregate supply. 
B)  Education affects labor productivity which affects aggregate supply. 
C)  Education affects the incentive to work, save, and invest and, therefore, aggregate supply. 
D)  Tax rates, particularly marginal tax rates, affect the incentive to work, save, and invest and, therefore, aggregate supply. 
A)  Labor productivity affects aggregate supply. 
B)  Education affects labor productivity which affects aggregate supply. 
C)  Education affects the incentive to work, save, and invest and, therefore, aggregate supply. 
D)  Tax rates, particularly marginal tax rates, affect the incentive to work, save, and invest and, therefore, aggregate supply.

Exam 27: Fiscal Policy

Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?

Which of the following would be most likely to induce Congress and the president to conduct contractionary fiscal policy? A significant

Which of the following would be most likely to induce Congress and the president to conduct expansionary fiscal policy? A significant

A decrease in the tax rate will ________ the disposable income of households and ________ the size of the multiplier effect.

Crowding out refers to a decline in ________ as a result of an increase in ________.

The level of crowding out associated with a tax cut will be smaller if the tax change has a supply-side effect than it will be if it only has a demand-side effect.

Figure 27-1 -Refer to Figure 27-1.Suppose the economy is in short-run equilibrium below potential GDP and no fiscal or monetary policy is pursued.Using the static AD-AS model in the figure above,this would be depicted as a movement from A) A to B. B) B to C. C) C to B. D) B to A. E) A to E.

Figure 27-4 -Refer to Figure 27-4.In the graph above,the shift from AD1 to AD2 represents the total change in aggregate demand.If government purchases increased by $50 billion,then the distance from point A to point B ________ $50 billion.

The tax increases necessary to fund future Social Security and Medicare benefit payments would be

The aggregate demand curve will shift to the right ________ the initial decrease in taxes.

How can tax simplification be beneficial to the economy?

An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

If the economy is falling below potential real GDP,which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

Economists who believe the supply-side effects of tax cuts are small essentially believe that

The income tax system serves as an automatic stabilizer over the course of the business cycle.

A change in consumption spending caused by income changes is ________ change in spending,and a change in government spending that occurs to improve roads and bridges is ________ change in spending.

If Congress and the president pursue an expansionary fiscal policy at the same time as the Federal Reserve pursues an expansionary monetary policy,how might the expansionary monetary policy affect the extent of crowding out in the short run?

Which of the following best describes supply-side economics?

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

A decrease in the tax rate will the disposable income of households and the size of the multiplier effect.

Crowding out refers to a decline in as a result of an increase in .

Figure 27-4 -Refer to Figure 27-4.In the graph above,the shift from AD₁ to AD₂ represents the total change in aggregate demand.If government purchases increased by $50 billion,then the distance from point A to point B ________ $50 billion.

An economic expansion tends to cause the federal budget deficit to because tax revenues and government spending on transfer payments .

A change in consumption spending caused by income changes is change in spending,and a change in government spending that occurs to improve roads and bridges is change in spending.