Question 1

In the short run,a decrease in consumption growth will cause the real GDP growth to:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  become unpredictable. 
A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  become unpredictable.

Question 2

The U.S.fiscal stimulus plan passed in 2009 was the largest fiscal stimulus in the United States since World War II.

Accepted Answer

A) True 
 B)False

Question 3

Which federal government policy influences business cycle fluctuations by taking action on taxes,spending,and borrowing?

Accepted Answer

A)  real business cycle policy 
B)  fiscal policy 
C)  monetary policy 
D)  growth policy 
A)  real business cycle policy 
B)  fiscal policy 
C)  monetary policy 
D)  growth policy

Question 4

Which refers to the decrease in private spending when government spending increases?

Accepted Answer

A)  the multiplier effect 
B)  the timing effect 
C)  the automatic stabilizing effect 
D)  the crowding out effect 
A)  the multiplier effect 
B)  the timing effect 
C)  the automatic stabilizing effect 
D)  the crowding out effect

Question 5

The time necessary for government bureaucracies to carry out a fiscal policy plan is called the:

Accepted Answer

A)  legislative lag. 
B)  recognition lag. 
C)  implementation lag. 
D)  effectiveness lag. 
A)  legislative lag. 
B)  recognition lag. 
C)  implementation lag. 
D)  effectiveness lag.

Question 6

Crowding out occurs when:

Accepted Answer

A)  higher government spending leads to less private spending. 
B)  personal consumption decreases due to an increase in savings. 
C)  overall output is crowded out by lower government spending. 
D)  increases in government spending lead to increases in taxes. 
A)  higher government spending leads to less private spending. 
B)  personal consumption decreases due to an increase in savings. 
C)  overall output is crowded out by lower government spending. 
D)  increases in government spending lead to increases in taxes.

Question 7

If government and consumers are spending more and taxes are unchanged,there will be:

Accepted Answer

A)  no crowding out,since there are no additional taxes. 
B)  crowding out,as people will buy more government bonds,but fewer private bonds. 
C)  crowding out,as people will buy more private bonds,but fewer government bonds. 
D)  crowding out,as businesses will produce more consumption goods,but less capital goods. 
A)  no crowding out,since there are no additional taxes. 
B)  crowding out,as people will buy more government bonds,but fewer private bonds. 
C)  crowding out,as people will buy more private bonds,but fewer government bonds. 
D)  crowding out,as businesses will produce more consumption goods,but less capital goods.

Question 8

If the goal of a government policy change is to increase the incentive for taxpayers to work and/or invest,which policy is MOST likely to be successful?

Accepted Answer

A)  a temporary tax rebate 
B)  a permanent tax rebate 
C)  a decrease in marginal tax rates 
D)  an increase in interest rates 
A)  a temporary tax rebate 
B)  a permanent tax rebate 
C)  a decrease in marginal tax rates 
D)  an increase in interest rates

Question 9

Which poses a limit to fiscal policy?

Accepted Answer

A)  crowding out 
B)  the size of government expenditures 
C)  legislative lags 
D)  crowding out,the size of government expenditures,and legislative lags 
A)  crowding out 
B)  the size of government expenditures 
C)  legislative lags 
D)  crowding out,the size of government expenditures,and legislative lags

Question 10

Fiscal policy involves:

Accepted Answer

A)  government borrowing to finance the national debt. 
B)  government taxes and spending that affect the income distribution among people. 
C)  government taxes,spending,and borrowing that affect business fluctuations. 
D)  the change of the money supply that affects business fluctuations. 
A)  government borrowing to finance the national debt. 
B)  government taxes and spending that affect the income distribution among people. 
C)  government taxes,spending,and borrowing that affect business fluctuations. 
D)  the change of the money supply that affects business fluctuations.

Question 11

If households use tax rebate checks to pay off their existing debt (such as credit cards and mortgages),this type of fiscal stimulus:

Accepted Answer

A)  is likely to have a large impact on aggregate demand. 
B)  is likely to have a negligible impact on aggregate demand. 
C)  will only lead to higher inflation,not to an increase in the growth rate of output. 
D)  will lead to a higher growth rate of output,but not to higher inflation. 
A)  is likely to have a large impact on aggregate demand. 
B)  is likely to have a negligible impact on aggregate demand. 
C)  will only lead to higher inflation,not to an increase in the growth rate of output. 
D)  will lead to a higher growth rate of output,but not to higher inflation.

Question 12

Explain why a negative real shock followed by an increase in government spending will lead to higher inflation.

Accepted Answer

The negative real shock causes the LRAS

Question 13

The fiscal stimulus undertaken by Argentina from 1999-2002 was counterproductive.

Accepted Answer

A) True 
 B)False

Question 14

Compared with monetary policy,fiscal policy generally involves a shorter implementation lag.

Accepted Answer

A) True 
 B)False

Question 15

The size of the spending multiplier increases from:

Accepted Answer

A)  an increased response of consumption to a change in income. 
B)  a decreased response of consumption to a change in income. 
C)  an increase in the income tax rate on marginal income. 
D)  an increase in consumer purchases of imports to a change in income. 
A)  an increased response of consumption to a change in income. 
B)  a decreased response of consumption to a change in income. 
C)  an increase in the income tax rate on marginal income. 
D)  an increase in consumer purchases of imports to a change in income.

Question 16

What explains why Argentina had a greater than 100% crowding out during the 1999 to 2002 period?

Accepted Answer

A)  The government accidentally contracted expenditure instead of expanding it. 
B)  uncertainty and pessimism 
C)  implementation lags 
D)  recognition lags 
A)  The government accidentally contracted expenditure instead of expanding it. 
B)  uncertainty and pessimism 
C)  implementation lags 
D)  recognition lags

Question 17

Most changes in government spending are large relative to the size of the economy.

Accepted Answer

A) True 
 B)False

Question 18

Given the possibilities for crowding out,bond-financed expansionary fiscal policy is MOST likely to be effective when the:

Accepted Answer

A)  public sector is keen to spend or invest. 
B)  public sector is reluctant to spend or invest. 
C)  private sector is keen to spend or invest. 
D)  private sector is reluctant to spend or invest. 
A)  public sector is keen to spend or invest. 
B)  public sector is reluctant to spend or invest. 
C)  private sector is keen to spend or invest. 
D)  private sector is reluctant to spend or invest.

Question 19

Other things being equal,a decrease in government spending growth causes:

Accepted Answer

A)  the AD curve to shift to the right. 
B)  the AD curve to shift to the left. 
C)  the LRAS curve to shift to the right. 
D)  the LRAS curve to shift to the left. 
A)  the AD curve to shift to the right. 
B)  the AD curve to shift to the left. 
C)  the LRAS curve to shift to the right. 
D)  the LRAS curve to shift to the left.

Question 20

The primary tools of fiscal policy are:

Accepted Answer

A)  money supply and money demand. 
B)  government expenditure and money supply. 
C)  government expenditure and taxation. 
D)  taxation and interest rates. 
A)  money supply and money demand. 
B)  government expenditure and money supply. 
C)  government expenditure and taxation. 
D)  taxation and interest rates.

Exam 18: Fiscal Policy

In the short run,a decrease in consumption growth will cause the real GDP growth to:

The U.S.fiscal stimulus plan passed in 2009 was the largest fiscal stimulus in the United States since World War II.

Which federal government policy influences business cycle fluctuations by taking action on taxes,spending,and borrowing?

Which refers to the decrease in private spending when government spending increases?

The time necessary for government bureaucracies to carry out a fiscal policy plan is called the:

Crowding out occurs when:

If government and consumers are spending more and taxes are unchanged,there will be:

If the goal of a government policy change is to increase the incentive for taxpayers to work and/or invest,which policy is MOST likely to be successful?

Which poses a limit to fiscal policy?

Fiscal policy involves:

If households use tax rebate checks to pay off their existing debt (such as credit cards and mortgages),this type of fiscal stimulus:

Explain why a negative real shock followed by an increase in government spending will lead to higher inflation.

The fiscal stimulus undertaken by Argentina from 1999-2002 was counterproductive.

Compared with monetary policy,fiscal policy generally involves a shorter implementation lag.

The size of the spending multiplier increases from:

What explains why Argentina had a greater than 100% crowding out during the 1999 to 2002 period?

Most changes in government spending are large relative to the size of the economy.

Given the possibilities for crowding out,bond-financed expansionary fiscal policy is MOST likely to be effective when the:

Other things being equal,a decrease in government spending growth causes:

The primary tools of fiscal policy are:

The Big Ideas

The Power of Trade

Supply and Demand

Equilibrium- How Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth,capital Accumulation

Saving,investment,and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations

Transmission and Amplification Mechanisms

The Federal Reserve System

Monetary Policy

The Federal Budget- Taxes and Spending

International Trade

International Finance

Political Economy and Public Choice

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