Question 1

What primary benefit can a temporary investment tax credit have?

Accepted Answer

A)  It can accelerate capital outlays in an economic downturn. 
B)  It can encourage workers to work extra hours. 
C)  It can encourage consumers to save more. 
D)  It can encourage firms to hire more workers. 
A)  It can accelerate capital outlays in an economic downturn. 
B)  It can encourage workers to work extra hours. 
C)  It can encourage consumers to save more. 
D)  It can encourage firms to hire more workers.

Question 2

Identify and explain the lags relevant to the use of fiscal policy.

Accepted Answer

(1)Recognition lag: The problem must be

Question 3

Explain the multiplier effect.

Accepted Answer

The multiplier effect refers to a situat

Question 4

Ricardian equivalence:

Accepted Answer

A)  is the decrease in private spending that occurs when government increases spending. 
B)  occurs when people see that lower taxes today means higher taxes in the future,so instead of spending their tax cut they save it to pay future taxes. 
C)  is federal government policy on taxes,spending,and borrowing that is designed to influence business fluctuations. 
D)  is central bank policy on the monetary base,interest rates,and bank reserves that is designed to influence business fluctuations. 
A)  is the decrease in private spending that occurs when government increases spending. 
B)  occurs when people see that lower taxes today means higher taxes in the future,so instead of spending their tax cut they save it to pay future taxes. 
C)  is federal government policy on taxes,spending,and borrowing that is designed to influence business fluctuations. 
D)  is central bank policy on the monetary base,interest rates,and bank reserves that is designed to influence business fluctuations.

Question 5

When the government increases its spending growth,the subsequent increase in nongovernment spending stimulates aggregate demand and is called the _____ effect.

Accepted Answer

A)  crowding out 
B)  endowment 
C)  multiplier 
D)  automatic stabilizing 
A)  crowding out 
B)  endowment 
C)  multiplier 
D)  automatic stabilizing

Question 6

People holding more cash because of a decrease in consumer confidence would cause:

Accepted Answer

A)  a decrease in both the growth rate of output and inflation. 
B)  a decrease in the growth rate of output and an increase in the inflation rate. 
C)  an increase in the growth rate of output and a decrease in the inflation rate. 
D)  an increase in both the growth rate of output and inflation. 
A)  a decrease in both the growth rate of output and inflation. 
B)  a decrease in the growth rate of output and an increase in the inflation rate. 
C)  an increase in the growth rate of output and a decrease in the inflation rate. 
D)  an increase in both the growth rate of output and inflation.

Question 7

Is fiscal policy effective in reducing both inflation and unemployment at the same time?

Accepted Answer

Generally not.Fiscal policy is primarily

Question 8

Which could be sources of funding for a government that wants to increase government expenditures?

Accepted Answer

A)  taxes only 
B)  borrowing only 
C)  both taxes and borrowing 
D)  neither taxes nor borrowing 
A)  taxes only 
B)  borrowing only 
C)  both taxes and borrowing 
D)  neither taxes nor borrowing

Question 9

When a recession is caused by a real shock,an expansionary fiscal policy will result in an increase in:

Accepted Answer

A)  the growth rate which is higher than the increase in the inflation rate. 
B)  productivity. 
C)  the inflation rate which is higher than the increase in the growth rate. 
D)  the unemployment rate. 
A)  the growth rate which is higher than the increase in the inflation rate. 
B)  productivity. 
C)  the inflation rate which is higher than the increase in the growth rate. 
D)  the unemployment rate.

Question 10

Fiscal policy refers to changes in:

Accepted Answer

A)  government regulations that affect the level of market competition. 
B)  interest rates that affect the credit markets. 
C)  the money supply in an attempt to raise the standard of living. 
D)  government spending or taxes in an attempt to influence the overall economy. 
A)  government regulations that affect the level of market competition. 
B)  interest rates that affect the credit markets. 
C)  the money supply in an attempt to raise the standard of living. 
D)  government spending or taxes in an attempt to influence the overall economy.

Question 11

Which is the MOST effective fiscal policy for influencing the economy?

Accepted Answer

A)  a temporary tax rebate 
B)  a permanent tax cut 
C)  a tax hike with no response of consumption to an income change 
D)  tax hike that is matched by a government spending cut 
A)  a temporary tax rebate 
B)  a permanent tax cut 
C)  a tax hike with no response of consumption to an income change 
D)  tax hike that is matched by a government spending cut

Question 12

A decrease in consumers' confidence in banks would lead to _____ in the velocity of money and result in the AD curve shifting to the _____.

Accepted Answer

A)  an increase;left 
B)  an increase;right 
C)  a decrease;left 
D)  a decrease;right 
A)  an increase;left 
B)  an increase;right 
C)  a decrease;left 
D)  a decrease;right

Question 13

During a recession,consumers hold more money by cutting back on their spending,resulting in _____ in inflation and _____ in real growth.

Accepted Answer

A)  a decrease;an increase 
B)  a decrease;a decrease 
C)  an increase;an increase 
D)  an increase;a decrease 
A)  a decrease;an increase 
B)  a decrease;a decrease 
C)  an increase;an increase 
D)  an increase;a decrease

Question 14

The multiplier effect is the increase in AD when private spending augments the effect of expansionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 15

Under which scenario would expansionary fiscal policy work BEST?

Accepted Answer

A)  when two real shocks have occurred 
B)  when the economy is at equilibrium in the long run 
C)  when the economy has had a large negative supply shock 
D)  when AD is low compared with the long-run equilibrium position of the economy 
A)  when two real shocks have occurred 
B)  when the economy is at equilibrium in the long run 
C)  when the economy has had a large negative supply shock 
D)  when AD is low compared with the long-run equilibrium position of the economy

Question 16

Ideal fiscal policy will:

Accepted Answer

A)  decrease aggregate demand in good times and pay off the debt in bad times. 
B)  decrease aggregate demand in bad times and pay off the debt in good times. 
C)  increase aggregate demand in good times and pay off the debt in bad times. 
D)  increase aggregate demand in bad times and pay off the debt in good times. 
A)  decrease aggregate demand in good times and pay off the debt in bad times. 
B)  decrease aggregate demand in bad times and pay off the debt in good times. 
C)  increase aggregate demand in good times and pay off the debt in bad times. 
D)  increase aggregate demand in bad times and pay off the debt in good times.

Question 17

Raising taxes to finance increases in government spending will only be an effective means of increasing aggregate demand if private savings rates are very low.

Accepted Answer

A) True 
 B)False

Question 18

Use the following to answer questions 
Figure: A Real Shock  
-(Figure: A Real Shock)Refer to the figure.After a real shock,the economy is operating at point Y in the figure.In the presence of crowding out,fiscal policy that would have shifted aggregate demand from AD0 to AD2 will only move the economy to point:

Accepted Answer

A)  A. 
B)  B. 
C)  V. 
D)  X. 
A)  A. 
B)  B. 
C)  V. 
D)  X.

Question 19

Which statement is TRUE of the difference between a tax cut and a tax rebate?

Accepted Answer

A)  A tax cut only increases the incentive to spend,while a tax rebate only increases the incentive to work. 
B)  A tax cut only increases the incentive to work,while a tax rebate only increases spending. 
C)  A tax cut increases the incentive to work and the incentive to spend,while a tax rebate only increases the incentive to spend. 
D)  A tax cut only increases the incentive to spend,but a tax rebate increases the incentive to work and the incentive to spend. 
A)  A tax cut only increases the incentive to spend,while a tax rebate only increases the incentive to work. 
B)  A tax cut only increases the incentive to work,while a tax rebate only increases spending. 
C)  A tax cut increases the incentive to work and the incentive to spend,while a tax rebate only increases the incentive to spend. 
D)  A tax cut only increases the incentive to spend,but a tax rebate increases the incentive to work and the incentive to spend.

Question 20

Fiscal policy is a good option to stimulate an economy when:

Accepted Answer

A)  consumer saving is very low. 
B)  consumer spending is very low. 
C)  there has been a negative technological shock in the economy. 
D)  LRAS has suddenly shifted to the left. 
A)  consumer saving is very low. 
B)  consumer spending is very low. 
C)  there has been a negative technological shock in the economy. 
D)  LRAS has suddenly shifted to the left.

What primary benefit can a temporary investment tax credit have?

Identify and explain the lags relevant to the use of fiscal policy.

Explain the multiplier effect.

Ricardian equivalence:

When the government increases its spending growth,the subsequent increase in nongovernment spending stimulates aggregate demand and is called the _____ effect.

People holding more cash because of a decrease in consumer confidence would cause:

Is fiscal policy effective in reducing both inflation and unemployment at the same time?

Which could be sources of funding for a government that wants to increase government expenditures?

When a recession is caused by a real shock,an expansionary fiscal policy will result in an increase in:

Fiscal policy refers to changes in:

Which is the MOST effective fiscal policy for influencing the economy?

A decrease in consumers' confidence in banks would lead to _ in the velocity of money and result in the AD curve shifting to the _.

During a recession,consumers hold more money by cutting back on their spending,resulting in _ in inflation and _ in real growth.

The multiplier effect is the increase in AD when private spending augments the effect of expansionary fiscal policy.

Under which scenario would expansionary fiscal policy work BEST?

Ideal fiscal policy will:

Raising taxes to finance increases in government spending will only be an effective means of increasing aggregate demand if private savings rates are very low.

Which statement is TRUE of the difference between a tax cut and a tax rebate?

Fiscal policy is a good option to stimulate an economy when:

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

Filters

Exam 18: Fiscal Policy

What primary benefit can a temporary investment tax credit have?

Identify and explain the lags relevant to the use of fiscal policy.

Explain the multiplier effect.

Ricardian equivalence:

When the government increases its spending growth,the subsequent increase in nongovernment spending stimulates aggregate demand and is called the _____ effect.

People holding more cash because of a decrease in consumer confidence would cause:

Is fiscal policy effective in reducing both inflation and unemployment at the same time?

Which could be sources of funding for a government that wants to increase government expenditures?

When a recession is caused by a real shock,an expansionary fiscal policy will result in an increase in:

Fiscal policy refers to changes in:

Which is the MOST effective fiscal policy for influencing the economy?

A decrease in consumers' confidence in banks would lead to _____ in the velocity of money and result in the AD curve shifting to the _____.

During a recession,consumers hold more money by cutting back on their spending,resulting in _____ in inflation and _____ in real growth.

The multiplier effect is the increase in AD when private spending augments the effect of expansionary fiscal policy.

Under which scenario would expansionary fiscal policy work BEST?

Ideal fiscal policy will:

Raising taxes to finance increases in government spending will only be an effective means of increasing aggregate demand if private savings rates are very low.

Which statement is TRUE of the difference between a tax cut and a tax rebate?

Fiscal policy is a good option to stimulate an economy when:

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

Filters

A decrease in consumers' confidence in banks would lead to _ in the velocity of money and result in the AD curve shifting to the _.

During a recession,consumers hold more money by cutting back on their spending,resulting in _ in inflation and _ in real growth.