Question 1

When $\vec { C }$ falls,the LRAS curve:

Accepted Answer

A)  shifts to the right. 
B)  shifts to the left. 
C)  becomes flatter. 
D)  does not move. 
A)  shifts to the right. 
B)  shifts to the left. 
C)  becomes flatter. 
D)  does not move.

Question 2

Which of these would help a government fight a recession?

Accepted Answer

A)  raising taxes 
B)  cutting taxes 
C)  cutting spending 
D)  paying down the national debt 
A)  raising taxes 
B)  cutting taxes 
C)  cutting spending 
D)  paying down the national debt

Question 3

Which statement is NOT a reason government spending sometimes increases growth?

Accepted Answer

A)  Spending can lower inflation and keep prices and wages steady. 
B)  Spending can move unemployed factors of production into productive activities. 
C)  Spending can encourage additional private investment. 
D)  Spending can increase consumer confidence. 
A)  Spending can lower inflation and keep prices and wages steady. 
B)  Spending can move unemployed factors of production into productive activities. 
C)  Spending can encourage additional private investment. 
D)  Spending can increase consumer confidence.

Question 4

In 2008,tax rebates were an effective means of fiscal policy since almost all of the money was spent immediately.

Accepted Answer

A) True 
 B)False

Question 5

Explain the difference between a tax cut and a tax rebate.

Accepted Answer

A tax cut refers to a reduction in the t

Question 6

As a result of the multiplier effect,a tax cut causes a:

Accepted Answer

A)  larger shift of the aggregate demand curve to the left. 
B)  smaller shift of the aggregate demand curve to the left. 
C)  larger shift of the aggregate demand curve to the right. 
D)  smaller shift of the aggregate demand curve to the right. 
A)  larger shift of the aggregate demand curve to the left. 
B)  smaller shift of the aggregate demand curve to the left. 
C)  larger shift of the aggregate demand curve to the right. 
D)  smaller shift of the aggregate demand curve to the right.

Question 7

The implementation lag is likely to be:

Accepted Answer

A)  longer for changes in government spending than for changes in taxation. 
B)  shorter for changes in government spending than for changes in taxation. 
C)  indefinitely long for both changes in government spending and changes in taxation. 
D)  similar in length for both changes in government spending and changes in taxation. 
A)  longer for changes in government spending than for changes in taxation. 
B)  shorter for changes in government spending than for changes in taxation. 
C)  indefinitely long for both changes in government spending and changes in taxation. 
D)  similar in length for both changes in government spending and changes in taxation.

Question 8

Fiscal policy:

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 9

If $500,000 in new taxes is raised and spent on building a new school and $300,000 in private spending would have been spent anyway,how much is added to short-run aggregate demand?

Accepted Answer

A)  $100,000 
B)  $200,000 
C)  $300,000 
D)  $500,000 
A)  $100,000 
B)  $200,000 
C)  $300,000 
D)  $500,000

Question 10

When an economy experiences a negative real shock,fiscal policy:

Accepted Answer

A)  using tax cuts is appropriate. 
B)  using increased government expenditures is appropriate. 
C)  is generally not appropriate. 
D)  is never used by politicians. 
A)  using tax cuts is appropriate. 
B)  using increased government expenditures is appropriate. 
C)  is generally not appropriate. 
D)  is never used by politicians.

Question 11

Figure: Aggregate Demand and Fiscal Policy   Refer to the figure.Assume the government of an economy in recession at point Y in the diagram is aware of the expenditure multiplier when it formulates policy decisions.If it chooses to increase government spending growth by 4percentage points,it should expect the economy to:

Accepted Answer

A)  move at least to point W. 
B)  move at least to point X. 
C)  move at least to point Z. 
D)  stay at point Y. 
A)  move at least to point W. 
B)  move at least to point X. 
C)  move at least to point Z. 
D)  stay at point Y.

Question 12

When consumers spend all of their tax rebate checks,what takes place in the economy?

Accepted Answer

A)  Aggregate demand shifts to the right. 
B)  Aggregate demand shifts to the left. 
C)  The LRAS curve shifts left. 
D)  Inflation decreases. 
A)  Aggregate demand shifts to the right. 
B)  Aggregate demand shifts to the left. 
C)  The LRAS curve shifts left. 
D)  Inflation decreases.

Question 13

The primary concern of economists worried about the crowding out effect is the:

Accepted Answer

A)  growing size of the national debt. 
B)  size of the interest payments on the national debt as compared with GDP. 
C)  debate over future generations. 
D)  upward pressure that increased borrowing places on interest rates. 
A)  growing size of the national debt. 
B)  size of the interest payments on the national debt as compared with GDP. 
C)  debate over future generations. 
D)  upward pressure that increased borrowing places on interest rates.

Question 14

The crowding out effect reduces the effectiveness of fiscal policy in combating economic shocks.

Accepted Answer

A) True 
 B)False

Question 15

When fiscal policy is done through tax cuts instead of spending increases:

Accepted Answer

A)  the resulting fiscal stimulus will be spent by the private sector. 
B)  there are likely to be many "bridges to nowhere." 
C)  the resulting spending won't pass the cost-benefit test. 
D)  the resulting fiscal stimulus will be spent by the government. 
A)  the resulting fiscal stimulus will be spent by the private sector. 
B)  there are likely to be many "bridges to nowhere." 
C)  the resulting spending won't pass the cost-benefit test. 
D)  the resulting fiscal stimulus will be spent by the government.

Question 16

Because of the multiplier effect,a smaller change in government spending is needed to generate a given change in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 17

When the government sells bonds,some of the funds that would have gone to private investments go to the government.This situation is called:

Accepted Answer

A)  overcrowding. 
B)  funneling. 
C)  crowding out. 
D)  under bidding. 
A)  overcrowding. 
B)  funneling. 
C)  crowding out. 
D)  under bidding.

Question 18

The worst case for fiscal policy is when a recession is caused by a decrease in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 19

When expansionary fiscal policy increases income and thus consumer spending,the additional increase in AD it causes is called the:

Accepted Answer

A)  crowding out effect. 
B)  secondary effect. 
C)  spending effect. 
D)  multiplier effect. 
A)  crowding out effect. 
B)  secondary effect. 
C)  spending effect. 
D)  multiplier effect.

Question 20

An increase in government spending is MOST effective at improving aggregate demand when:

Accepted Answer

A)  private sector spending is very low. 
B)  wages stay low. 
C)  banks are not lending. 
D)  consumers are increasing their spending. 
A)  private sector spending is very low. 
B)  wages stay low. 
C)  banks are not lending. 
D)  consumers are increasing their spending.

When $\vec { C }$ falls,the LRAS curve:

Which of these would help a government fight a recession?

Which statement is NOT a reason government spending sometimes increases growth?

In 2008,tax rebates were an effective means of fiscal policy since almost all of the money was spent immediately.

Explain the difference between a tax cut and a tax rebate.

As a result of the multiplier effect,a tax cut causes a:

The implementation lag is likely to be:

Fiscal policy:

If $500,000 in new taxes is raised and spent on building a new school and $300,000 in private spending would have been spent anyway,how much is added to short-run aggregate demand?

When an economy experiences a negative real shock,fiscal policy:

When consumers spend all of their tax rebate checks,what takes place in the economy?

The primary concern of economists worried about the crowding out effect is the:

The crowding out effect reduces the effectiveness of fiscal policy in combating economic shocks.

When fiscal policy is done through tax cuts instead of spending increases:

Because of the multiplier effect,a smaller change in government spending is needed to generate a given change in aggregate demand.

When the government sells bonds,some of the funds that would have gone to private investments go to the government.This situation is called:

The worst case for fiscal policy is when a recession is caused by a decrease in aggregate demand.

When expansionary fiscal policy increases income and thus consumer spending,the additional increase in AD it causes is called the:

An increase in government spending is MOST effective at improving aggregate demand 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

When C⃗\vec { C }C falls,the LRAS curve:

Which of these would help a government fight a recession?

Which statement is NOT a reason government spending sometimes increases growth?

In 2008,tax rebates were an effective means of fiscal policy since almost all of the money was spent immediately.

Explain the difference between a tax cut and a tax rebate.

As a result of the multiplier effect,a tax cut causes a:

The implementation lag is likely to be:

Fiscal policy:

If $500,000 in new taxes is raised and spent on building a new school and $300,000 in private spending would have been spent anyway,how much is added to short-run aggregate demand?

When an economy experiences a negative real shock,fiscal policy:

When consumers spend all of their tax rebate checks,what takes place in the economy?

The primary concern of economists worried about the crowding out effect is the:

The crowding out effect reduces the effectiveness of fiscal policy in combating economic shocks.

When fiscal policy is done through tax cuts instead of spending increases:

Because of the multiplier effect,a smaller change in government spending is needed to generate a given change in aggregate demand.

When the government sells bonds,some of the funds that would have gone to private investments go to the government.This situation is called:

The worst case for fiscal policy is when a recession is caused by a decrease in aggregate demand.

When expansionary fiscal policy increases income and thus consumer spending,the additional increase in AD it causes is called the:

An increase in government spending is MOST effective at improving aggregate demand 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

When $\vec { C }$ falls,the LRAS curve: