Question 1

For the federal deficit to be lowered,

Accepted Answer

A)  the federal government must decrease its spending and increase net exports. 
B)  the federal government's expenditures must be lower than its tax revenue. 
C)  the Federal Reserve must raise interest rates and lower the required reserve ratio. 
D)  the Federal Reserve must reduce the money supply. 
A)  the federal government must decrease its spending and increase net exports. 
B)  the federal government's expenditures must be lower than its tax revenue. 
C)  the Federal Reserve must raise interest rates and lower the required reserve ratio. 
D)  the Federal Reserve must reduce the money supply.

Question 2

If real GDP is $300 billion below potential GDP and the tax multiplier equals -1.5,then how much would the government need to change taxes to bring the economy to equilibrium at potential?

Accepted Answer

The government would need to c

Question 3

A decrease in the marginal income tax rate is a fiscal policy which will increase aggregate demand.

Accepted Answer

A) True 
 B)False

Question 4

Congress and the president carry out fiscal policy through changes in

Accepted Answer

A)  interest rates and the money supply. 
B)  taxes and the interest rate. 
C)  government purchases and the money supply. 
D)  government purchases and taxes. 
A)  interest rates and the money supply. 
B)  taxes and the interest rate. 
C)  government purchases and the money supply. 
D)  government purchases and taxes.

Question 5

Expansionary fiscal policy

Accepted Answer

A)  can be effective in the short run. 
B)  causes complete crowding out in the short run. 
C)  is never effective because of crowding out. 
D)  can be effective in the long run. 
A)  can be effective in the short run. 
B)  causes complete crowding out in the short run. 
C)  is never effective because of crowding out. 
D)  can be effective in the long run.

Question 6

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 7

Of the $825 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,approximately ________ took the form of tax cuts and ________ took the form of increases in government expenditures.

Accepted Answer

A)  one-half; one-half 
B)  three-fourths; one-fourth 
C)  one-tenth; nine-tenths 
D)  one-third; two-thirds 
A)  one-half; one-half 
B)  three-fourths; one-fourth 
C)  one-tenth; nine-tenths 
D)  one-third; two-thirds

Question 8

Expansionary fiscal policy involves increasing government purchases or increasing taxes.

Accepted Answer

A) True 
 B)False

Question 9

Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced.What will happen to real equilibrium GDP?

Accepted Answer

A)  Real equilibrium GDP will fall. 
B)  Real equilibrium GDP will rise. 
C)  There will be no change in real equilibrium GDP. 
D)  Real equilibrium GDP will initially rise, but then fall below its previous equilibrium value. 
A)  Real equilibrium GDP will fall. 
B)  Real equilibrium GDP will rise. 
C)  There will be no change in real equilibrium GDP. 
D)  Real equilibrium GDP will initially rise, but then fall below its previous equilibrium value.

Question 10

Assume a country is required by law to balance the budget every year.Suppose aggregate demand falls,causing a recession and a budget deficit.To balance the budget,what would the government need to do with the level of government spending and taxes? How would these changes in government spending and taxes affect aggregate demand and the economy?

Accepted Answer

To balance the budget,the gove

Question 11

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower 
A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower

Question 12

Suppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion.If the president and the Congress increased government purchases by $500 billion,what would be the result on the economy?

Accepted Answer

The economy would go from a short-run eq

Question 13

Government transfer payments include which of the following?

Accepted Answer

A)  interest on the national debt 
B)  grants to state and local governments 
C)  Social Security and Medicare programs 
D)  national defense 
A)  interest on the national debt 
B)  grants to state and local governments 
C)  Social Security and Medicare programs 
D)  national defense

Question 14

Figure 27-1  
-Refer to Figure 27-1.Suppose the economy is in short-run equilibrium above potential GDP and automatic stabilizers move the economy back to long-run equilibrium.Using the static AD-AS model in the figure above,this would be depicted as a movement from
A) D to C.
B) A to E.
C) C to B.
D) B to A.
E) E to A.

Accepted Answer

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

Question 15

Which of the following would be classified as fiscal policy?

Accepted Answer

A)  The federal government passes tax cuts to encourage firms to reduce air pollution. 
B)  The Federal Reserve cuts interest rates to stimulate the economy. 
C)  A state government cuts taxes to help the economy of the state. 
D)  The federal government cuts taxes to stimulate the economy. 
E)  States increase taxes to fund education. 
A)  The federal government passes tax cuts to encourage firms to reduce air pollution. 
B)  The Federal Reserve cuts interest rates to stimulate the economy. 
C)  A state government cuts taxes to help the economy of the state. 
D)  The federal government cuts taxes to stimulate the economy. 
E)  States increase taxes to fund education.

Question 16

Automatic stabilizers refer to

Accepted Answer

A)  the money supply and interest rates that automatically increase or decrease along with the business cycle. 
B)  government spending and taxes that automatically increase or decrease along with the business cycle. 
C)  changes in the money supply and interest rates that are intended to achieve macroeconomic policy objectives. 
D)  changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives. 
A)  the money supply and interest rates that automatically increase or decrease along with the business cycle. 
B)  government spending and taxes that automatically increase or decrease along with the business cycle. 
C)  changes in the money supply and interest rates that are intended to achieve macroeconomic policy objectives. 
D)  changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

Question 17

A recession 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 18

From an initial long-run equilibrium,if aggregate demand grows faster than long-run and short-run aggregate supply,then Congress and the president would most likely

Accepted Answer

A)  decrease the required reserve ratio. 
B)  decrease government spending. 
C)  decrease oil prices. 
D)  decrease tax rates. 
A)  decrease the required reserve ratio. 
B)  decrease government spending. 
C)  decrease oil prices. 
D)  decrease tax rates.

Question 19

The larger the marginal propensity to import,the larger the government purchases multiplier.

Accepted Answer

A) True 
 B)False

Question 20

Show the impact of tax reduction and simplification using the dynamic aggregate demand and aggregate supply model.Clearly show and identify the impact of the tax change.Assume that aggregate demand and short-run aggregate supply shift as they typically do in the dynamic model.Show what happens to the price level and real GDP because of the tax change.

Accepted Answer

@#IMG-DLM& The economy's initial equilibrium is at

Exam 27: Fiscal Policy

For the federal deficit to be lowered,

If real GDP is $300 billion below potential GDP and the tax multiplier equals -1.5,then how much would the government need to change taxes to bring the economy to equilibrium at potential?

A decrease in the marginal income tax rate is a fiscal policy which will increase aggregate demand.

Congress and the president carry out fiscal policy through changes in

Expansionary fiscal policy

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

Of the $825 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,approximately ________ took the form of tax cuts and ________ took the form of increases in government expenditures.

Expansionary fiscal policy involves increasing government purchases or increasing taxes.

Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced.What will happen to real equilibrium GDP?

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Suppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion.If the president and the Congress increased government purchases by $500 billion,what would be the result on the economy?

Government transfer payments include which of the following?

Which of the following would be classified as fiscal policy?

Automatic stabilizers refer to

A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

From an initial long-run equilibrium,if aggregate demand grows faster than long-run and short-run aggregate supply,then Congress and the president would most likely

The larger the marginal propensity to import,the larger the government purchases multiplier.

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

Of the $825 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,approximately took the form of tax cuts and took the form of increases in government expenditures.

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be and real GDP to be .

A recession tends to cause the federal budget deficit to because tax revenues and government spending on transfer payments .