Question 1

If there is a recessionary gap, discretionary fiscal policy would likely include action to:

Accepted Answer

A) shift aggregate demand to the right. 
B) shift aggregate demand to the left. 
C) leave aggregate demand alone and shift short-run aggregate supply to the left. 
D) shift aggregate demand to the right and shift short-run aggregate supply to the left. 
A) shift aggregate demand to the right. 
B) shift aggregate demand to the left. 
C) leave aggregate demand alone and shift short-run aggregate supply to the left. 
D) shift aggregate demand to the right and shift short-run aggregate supply to the left.

Question 2

Fiscal policy that increases aggregate demand is:

Accepted Answer

A) balanced. 
B) supplemental. 
C) contractionary. 
D) expansionary. 
A) balanced. 
B) supplemental. 
C) contractionary. 
D) expansionary.

Question 3

Use the following to answer questions:
Figure: Inflationary and Recessionary Gaps  
-(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E1, the economy:

Accepted Answer

A) is in equilibrium. 
B) has an inflationary gap. 
C) has a recessionary gap. 
D) has low unemployment. 
A) is in equilibrium. 
B) has an inflationary gap. 
C) has a recessionary gap. 
D) has low unemployment.

Question 4

Use the following to answer questions :
Figure: Fiscal Policy Choices  
-(Figure: Fiscal Policy Choices) Look at the figure Fiscal Policy Choices. In panel (b), if real GDP is equal to Y1, there is:

Accepted Answer

A) an inflationary gap. 
B) a recessionary gap. 
C) equilibrium at full employment. 
D) no gap. 
A) an inflationary gap. 
B) a recessionary gap. 
C) equilibrium at full employment. 
D) no gap.

Question 5

An increase in government spending for goods and services is an autonomous increase in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 6

Use the following to answer questions :
Figure: Short- and Long-Run Equilibrium  
-(Figure: Short- and Long-Run Equilibrium) Look at the figure Short- and Long-Run Equilibrium. If the economy is at equilibrium at E1, the government should use _____ fiscal policy to shift the aggregate demand curve to the _____ .

Accepted Answer

A) expansionary; right 
B) expansionary; left 
C) contractionary; right 
D) contractionary; left 
A) expansionary; right 
B) expansionary; left 
C) contractionary; right 
D) contractionary; left

Question 7

The decision to build more aircraft carriers to keep employment high is an example of:

Accepted Answer

A) prudent defense spending. 
B) expansionary fiscal policy. 
C) neutral fiscal policy. 
D) being prepared to defend our country. 
A) prudent defense spending. 
B) expansionary fiscal policy. 
C) neutral fiscal policy. 
D) being prepared to defend our country.

Question 8

The federal government's largest source of revenue is:

Accepted Answer

A) property taxes. 
B) personal income and corporate profit taxes. 
C) sales taxes. 
D) social insurance taxes. 
A) property taxes. 
B) personal income and corporate profit taxes. 
C) sales taxes. 
D) social insurance taxes.

Question 9

Congress increases personal income tax rates to balance the budget. Automatic stabilizers will _____ the _____ effect of the _____ in aggregate demand.

Accepted Answer

A) increase; contractionary; decrease 
B) decrease; contractionary; decrease 
C) increase; expansionary; increase 
D) decrease; expansionary; increase 
A) increase; contractionary; decrease 
B) decrease; contractionary; decrease 
C) increase; expansionary; increase 
D) decrease; expansionary; increase

Question 10

An expansionary fiscal policy either _____ government spending or _____ taxes.

Accepted Answer

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

Question 11

Use the following to answer questions:
Figure: Inflationary and Recessionary Gaps  
-(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E3, the economy:

Accepted Answer

A) is in equilibrium. 
B) has an inflationary gap. 
C) has a recessionary gap. 
D) is stagnating. 
A) is in equilibrium. 
B) has an inflationary gap. 
C) has a recessionary gap. 
D) is stagnating.

Question 12

Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If real GDP is $700 billion:

Accepted Answer

A) there is an inflationary gap. 
B) there is a recessionary gap. 
C) the economy is in long-run equilibrium. 
D) government transfers should be decreased. 
A) there is an inflationary gap. 
B) there is a recessionary gap. 
C) the economy is in long-run equilibrium. 
D) government transfers should be decreased.

Question 13

A cut in taxes will have the most effect on aggregate demand if it is given to:

Accepted Answer

A) people with a low marginal propensity to consume. 
B) people with a high marginal propensity to consume. 
C) everyone in the economy. 
D) those who hold a large amount of wealth. 
A) people with a low marginal propensity to consume. 
B) people with a high marginal propensity to consume. 
C) everyone in the economy. 
D) those who hold a large amount of wealth.

Question 14

Contractionary fiscal policy shifts the aggregate demand curve to the _____ and is used to close a(n) _____ gap.

Accepted Answer

A) right; inflationary 
B) right; recessionary 
C) left; inflationary 
D) left; recessionary 
A) right; inflationary 
B) right; recessionary 
C) left; inflationary 
D) left; recessionary

Question 15

Use the following to answer questions :
Scenario: Fiscal Policy
Consider the economy of Arcadia. Its households spend 75% of increases in their income. There are no taxes and no foreign trade. Its currency is the arc. Potential output is 600 billion arcs.
-(Scenario: Fiscal Policy) Look at the scenario Fiscal Policy. Suppose actual real GDP in Arcadia is 500 billion arcs. This economy has:

Accepted Answer

A) a recessionary gap. 
B) production at the full employment level. 
C) an inflationary gap. 
D) a liquidity trap. 
A) a recessionary gap. 
B) production at the full employment level. 
C) an inflationary gap. 
D) a liquidity trap.

Question 16

Automatic stabilizers are government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economy contracts and automatically contractionary when the economy expands.

Accepted Answer

A) True 
 B)False

Question 17

Transfer payments are payments that:

Accepted Answer

A) governments make to households although the government did not receive a good or service from the household. 
B) governments make to households when the government receives a good or service. 
C) erode the purchasing power of the economy. 
D) are essentially tax refunds. 
A) governments make to households although the government did not receive a good or service from the household. 
B) governments make to households when the government receives a good or service. 
C) erode the purchasing power of the economy. 
D) are essentially tax refunds.

Question 18

Suppose the marginal propensity to consume is 0.8. If the government cut taxes by $100 billion, then real GDP would increase by $400 billion.

Accepted Answer

A) True 
 B)False

Question 19

If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should increase government purchases of goods and services by $75 billion.

Accepted Answer

A) True 
 B)False

Question 20

Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If real GDP is $850 billion, to bring the economy to potential output the government should:

Accepted Answer

A) decrease spending by $50 billion. 
B) increase spending by $50 billion. 
C) decrease transfers by $50 billion. 
D) decrease spending by $10 billion. 
A) decrease spending by $50 billion. 
B) increase spending by $50 billion. 
C) decrease transfers by $50 billion. 
D) decrease spending by $10 billion.

If there is a recessionary gap, discretionary fiscal policy would likely include action to:

Fiscal policy that increases aggregate demand is:

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E₁, the economy:

Use the following to answer questions : Figure: Fiscal Policy Choices -(Figure: Fiscal Policy Choices) Look at the figure Fiscal Policy Choices. In panel (b), if real GDP is equal to Y₁, there is:

An increase in government spending for goods and services is an autonomous increase in aggregate demand.

The decision to build more aircraft carriers to keep employment high is an example of:

The federal government's largest source of revenue is:

Congress increases personal income tax rates to balance the budget. Automatic stabilizers will ___ the _ effect of the ___ in aggregate demand.

An expansionary fiscal policy either _ government spending or _ taxes.

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E₃, the economy:

Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If real GDP is $700 billion:

A cut in taxes will have the most effect on aggregate demand if it is given to:

Contractionary fiscal policy shifts the aggregate demand curve to the _ and is used to close a(n) _ gap.

Automatic stabilizers are government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economy contracts and automatically contractionary when the economy expands.

Transfer payments are payments that:

Suppose the marginal propensity to consume is 0.8. If the government cut taxes by $100 billion, then real GDP would increase by $400 billion.

If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should increase government purchases of goods and services by $75 billion.

Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If real GDP is $850 billion, to bring the economy to potential output the government should:

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

Exam 13: Fiscal Policy Appendix Taxes and the Multiplier

If there is a recessionary gap, discretionary fiscal policy would likely include action to:

Fiscal policy that increases aggregate demand is:

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E1, the economy:

Use the following to answer questions : Figure: Fiscal Policy Choices -(Figure: Fiscal Policy Choices) Look at the figure Fiscal Policy Choices. In panel (b), if real GDP is equal to Y1, there is:

An increase in government spending for goods and services is an autonomous increase in aggregate demand.

The decision to build more aircraft carriers to keep employment high is an example of:

The federal government's largest source of revenue is:

Congress increases personal income tax rates to balance the budget. Automatic stabilizers will _____ the _____ effect of the _____ in aggregate demand.

An expansionary fiscal policy either _____ government spending or _____ taxes.

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E3, the economy:

Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If real GDP is $700 billion:

A cut in taxes will have the most effect on aggregate demand if it is given to:

Contractionary fiscal policy shifts the aggregate demand curve to the _____ and is used to close a(n) _____ gap.

Automatic stabilizers are government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economy contracts and automatically contractionary when the economy expands.

Transfer payments are payments that:

Suppose the marginal propensity to consume is 0.8. If the government cut taxes by $100 billion, then real GDP would increase by $400 billion.

If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should increase government purchases of goods and services by $75 billion.

Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If real GDP is $850 billion, to bring the economy to potential output the government should:

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E₁, the economy:

Use the following to answer questions : Figure: Fiscal Policy Choices -(Figure: Fiscal Policy Choices) Look at the figure Fiscal Policy Choices. In panel (b), if real GDP is equal to Y₁, there is:

Congress increases personal income tax rates to balance the budget. Automatic stabilizers will ___ the _ effect of the ___ in aggregate demand.

An expansionary fiscal policy either _ government spending or _ taxes.

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E₃, the economy:

Contractionary fiscal policy shifts the aggregate demand curve to the _ and is used to close a(n) _ gap.