Question 1

The Congressional Budget Office estimates of the effects of the 2009 stimulus package indicate that the stimulus package caused real GDP to equal potential GDP in 2011.

Accepted Answer

A) True 
 B)False

Question 2

Economists refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the ________ effect.

Accepted Answer

A)  multiplier 
B)  expenditure 
C)  consumption 
D)  aggregate demand 
A)  multiplier 
B)  expenditure 
C)  consumption 
D)  aggregate demand

Question 3

An increase in the sensitivity of private spending (consumption,investment,and net exports)to changes in the interest rate ________ the government purchases multiplier.

Accepted Answer

A)  will decrease 
B)  will increase 
C)  will not change 
D)  may increase or may decrease 
A)  will decrease 
B)  will increase 
C)  will not change 
D)  may increase or may decrease

Question 4

The largest source of federal government revenue in 2010 was

Accepted Answer

A)  sales taxes. 
B)  corporate income taxes. 
C)  individual income taxes. 
D)  payroll taxes to fund Social Security and Medicare programs. 
A)  sales taxes. 
B)  corporate income taxes. 
C)  individual income taxes. 
D)  payroll taxes to fund Social Security and Medicare programs.

Question 5

The use of fiscal policy to stabilize the economy is limited because

Accepted Answer

A)  changes in government spending and tax rates have a small effect on aggregate demand. 
B)  changes in government spending and tax rates have a small effect on interest rates. 
C)  the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way. 
D)  the Internal Revenue Service (IRS) resists changes in tax rates because of all the changes they would have to make to the tax code. 
A)  changes in government spending and tax rates have a small effect on aggregate demand. 
B)  changes in government spending and tax rates have a small effect on interest rates. 
C)  the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way. 
D)  the Internal Revenue Service (IRS) resists changes in tax rates because of all the changes they would have to make to the tax code.

Question 6

In absolute value,the tax multiplier is greater than the government purchases multiplier.

Accepted Answer

A) True 
 B)False

Question 7

Suppose President Obama is successful in passing a $10 billion tax increase.Assume that taxes are fixed,the economy is closed,and the marginal propensity to consume is 0.8.What happens to equilibrium GDP?

Accepted Answer

A)  There is a $50 billion increase in equilibrium GDP. 
B)  There is a $50 billion decrease in equilibrium GDP. 
C)  There is a $40 billion increase in equilibrium GDP. 
D)  There is a $40 billion decrease in equilibrium GDP. 
A)  There is a $50 billion increase in equilibrium GDP. 
B)  There is a $50 billion decrease in equilibrium GDP. 
C)  There is a $40 billion increase in equilibrium GDP. 
D)  There is a $40 billion decrease in equilibrium GDP.

Question 8

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

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

Question 9

Compare the effect on the price level and real GDP of a decrease in tax rates assuming a supply-side effect versus no supply-side effect.Compared to no supply-side effect,including a supply-side effect for the decrease in tax rates will cause the price level to increase ________ and real GDP to increase ________.

Accepted Answer

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

Question 10

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 11

Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion.To move the economy back to potential GDP,Congress should

Accepted Answer

A)  lower government purchases by an amount less than $200 billion. 
B)  lower government purchases by $200 billion. 
C)  raise taxes by $200 billion. 
D)  lower taxes by $200 billion. 
E)  raise taxes by an amount more than $200 billion. 
A)  lower government purchases by an amount less than $200 billion. 
B)  lower government purchases by $200 billion. 
C)  raise taxes by $200 billion. 
D)  lower taxes by $200 billion. 
E)  raise taxes by an amount more than $200 billion.

Question 12

The government purchases multiplier will be larger if the marginal income tax rate decreases.

Accepted Answer

A) True 
 B)False

Question 13

Proponents of spending on infrastructure as a means to stimulate the economy note that the multiplier effect for ________ is estimated to be larger than the multiplier effect for ________,and would therefore have a greater impact on expanding GDP.

Accepted Answer

A)  increases in government spending; tax cuts 
B)  tax increases; increases in government spending 
C)  decreases in government spending; a balanced budget 
D)  a balanced budget; tax increases 
A)  increases in government spending; tax cuts 
B)  tax increases; increases in government spending 
C)  decreases in government spending; a balanced budget 
D)  a balanced budget; tax increases

Question 14

Calculate the value of the government purchases multiplier if the marginal propensity to consume equals 0.9,the tax rate equals 0.25,and the marginal propensity to import equals 0.15.

Accepted Answer

Government purchases

Question 15

The tax wedge is the difference between the

Accepted Answer

A)  amount of taxes needed to balance the federal budget and the actual amount of taxes. 
B)  amount of taxes needed to pay off the national debt and the actual amount of taxes. 
C)  pretax and posttax returns to an economic activity. 
D)  nominal and real interest rates. 
A)  amount of taxes needed to balance the federal budget and the actual amount of taxes. 
B)  amount of taxes needed to pay off the national debt and the actual amount of taxes. 
C)  pretax and posttax returns to an economic activity. 
D)  nominal and real interest rates.

Question 16

The crowding out of private spending by government spending will be greater the

Accepted Answer

A)  less sensitive consumption, investment, and net exports are to changes in interest rates. 
B)  more sensitive consumption, investment, and net exports are to changes in interest rates. 
C)  less sensitive consumption, investment, and net exports are to changes in the price level. 
D)  more sensitive consumption, investment, and net exports are to changes in the price level. 
A)  less sensitive consumption, investment, and net exports are to changes in interest rates. 
B)  more sensitive consumption, investment, and net exports are to changes in interest rates. 
C)  less sensitive consumption, investment, and net exports are to changes in the price level. 
D)  more sensitive consumption, investment, and net exports are to changes in the price level.

Question 17

Federal government purchases,as a percentage of GDP,

Accepted Answer

A)  have risen since the early 1950s. 
B)  have fallen since the early 1950s. 
C)  have remained roughly the same since the early 1950s. 
D)  rose from the early 1950s until the mid 1980s, and then fell. 
A)  have risen since the early 1950s. 
B)  have fallen since the early 1950s. 
C)  have remained roughly the same since the early 1950s. 
D)  rose from the early 1950s until the mid 1980s, and then fell.

Question 18

The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession is an example of

Accepted Answer

A)  automatic stabilizers. 
B)  discretionary fiscal policy. 
C)  discretionary monetary policy. 
D)  automatic monetary policy. 
A)  automatic stabilizers. 
B)  discretionary fiscal policy. 
C)  discretionary monetary policy. 
D)  automatic monetary policy.

Question 19

Expansionary fiscal policy involves

Accepted Answer

A)  increasing government purchases or decreasing taxes. 
B)  increasing taxes or decreasing government purchases. 
C)  increasing the money supply and decreasing interest rates. 
D)  decreasing the money supply and increasing interest rates. 
A)  increasing government purchases or decreasing taxes. 
B)  increasing taxes or decreasing government purchases. 
C)  increasing the money supply and decreasing interest rates. 
D)  decreasing the money supply and increasing interest rates.

Question 20

Figure 27-3  
-Refer to Figure 27-3.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,and no fiscal or monetary policy is pursued,then at point B

Accepted Answer

A)  the unemployment rate is very low. 
B)  firms are operating at below capacity. 
C)  the economy is below full employment. 
D)  income and profits are falling. 
E)  there is pressure on wages and prices to fall. 
A)  the unemployment rate is very low. 
B)  firms are operating at below capacity. 
C)  the economy is below full employment. 
D)  income and profits are falling. 
E)  there is pressure on wages and prices to fall.

Exam 27: Fiscal Policy

The Congressional Budget Office estimates of the effects of the 2009 stimulus package indicate that the stimulus package caused real GDP to equal potential GDP in 2011.

Economists refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the ________ effect.

An increase in the sensitivity of private spending (consumption,investment,and net exports)to changes in the interest rate ________ the government purchases multiplier.

The largest source of federal government revenue in 2010 was

The use of fiscal policy to stabilize the economy is limited because

In absolute value,the tax multiplier is greater than the government purchases multiplier.

Suppose President Obama is successful in passing a $10 billion tax increase.Assume that taxes are fixed,the economy is closed,and the marginal propensity to consume is 0.8.What happens to equilibrium GDP?

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

Fiscal policy refers to changes in

Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion.To move the economy back to potential GDP,Congress should

The government purchases multiplier will be larger if the marginal income tax rate decreases.

Proponents of spending on infrastructure as a means to stimulate the economy note that the multiplier effect for ________ is estimated to be larger than the multiplier effect for ________,and would therefore have a greater impact on expanding GDP.

Calculate the value of the government purchases multiplier if the marginal propensity to consume equals 0.9,the tax rate equals 0.25,and the marginal propensity to import equals 0.15.

The tax wedge is the difference between the

The crowding out of private spending by government spending will be greater the

Federal government purchases,as a percentage of GDP,

The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession is an example of

Expansionary fiscal policy involves

Figure 27-3 -Refer to Figure 27-3.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,and no fiscal or monetary policy is pursued,then at point B

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

Proponents of spending on infrastructure as a means to stimulate the economy note that the multiplier effect for is estimated to be larger than the multiplier effect for ,and would therefore have a greater impact on expanding GDP.