Question 1

Consumers are more likely to spend tax rebates that they believe are:

Accepted Answer

A)  permanent. 
B)  temporary. 
C)  large. 
D)  small. 
A)  permanent. 
B)  temporary. 
C)  large. 
D)  small.

Question 2

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.Assuming there is no crowding out,fiscal policy that shifts aggregate demand from AD0 to AD2 will move the economy to point:

Accepted Answer

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

Question 3

When fiscal stimulus is used to address a decrease in $\vec { C }$ that causes a reduction in AD,the increase in government spending must be the same size as the change in $\vec { C }$ .

Accepted Answer

A) True 
 B)False

Question 4

After a real negative shock,government spending only improves growth minimally and aggregate demand doesn't fully recover because of:

Accepted Answer

A)  crowding out. 
B)  Ricardian equivalence. 
C)  effectiveness lags. 
D)  wealth effects. 
A)  crowding out. 
B)  Ricardian equivalence. 
C)  effectiveness lags. 
D)  wealth effects.

Question 5

The time necessary for a fiscal policy plan to have an impact 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

In 2008,taxpayers used approximately _____ of their tax rebate checks to reduce their current debt instead of increasing their spending.

Accepted Answer

A)  10% 
B)  20% 
C)  45% 
D)  80% 
A)  10% 
B)  20% 
C)  45% 
D)  80%

Question 7

If consumption growth decreases,the government spending "multiplier effect" means that in order to counter the recession:

Accepted Answer

A)  the government cannot use fiscal policy. 
B)  the government is forced to use both tax cuts and increases in
$\vec { G }$ . 
C)  fiscal policy needs to raise
$\vec { G }$ by less than the decrease in
$\vec { C }$ . 
D)  fiscal policy needs to raise
$\vec { G }$ by more than the decrease in
$\vec { C }$ . 
A)  the government cannot use fiscal policy. 
B)  the government is forced to use both tax cuts and increases in
$\vec { G }$ . 
C)  fiscal policy needs to raise
$\vec { G }$ by less than the decrease in
$\vec { C }$ . 
D)  fiscal policy needs to raise
$\vec { G }$ by more than the decrease in
$\vec { C }$ .

Question 8

Fiscal policy is often implemented very quickly and effectively.

Accepted Answer

A) True 
 B)False

Question 9

A tax rebate will be effective in stimulating aggregate demand if funds from the rebate are saved.

Accepted Answer

A) True 
 B)False

Question 10

The economist John Maynard Keynes said,"In the long run,we are all _____."

Accepted Answer

A)  old 
B)  tired 
C)  dead 
D)  sticky 
A)  old 
B)  tired 
C)  dead 
D)  sticky

Question 11

When expansionary fiscal policy subsequently increases income and consumer spending,the subsequent increase in AD is called the _____ effect.

Accepted Answer

A)  expansionary 
B)  secondary 
C)  multiplier 
D)  crowding out 
A)  expansionary 
B)  secondary 
C)  multiplier 
D)  crowding out

Question 12

Fiscal policy under the 2009 American Recovery and Reinvestment Act took the form of:

Accepted Answer

A)  government spending alone. 
B)  tax cuts alone. 
C)  a mix of government spending and tax cuts. 
D)  neither government spending nor tax cuts. 
A)  government spending alone. 
B)  tax cuts alone. 
C)  a mix of government spending and tax cuts. 
D)  neither government spending nor tax cuts.

Question 13

What are the four major limits to fiscal policy?

Accepted Answer

A)  crowding out,a drop in the bucket,a matter of timing,and real shocks 
B)  poor information,the multiplier effect,the bandwagon effect,and election timing 
C)  sticky wages,Ricardian equivalence,recognition lag,and crowding out 
D)  aggregate demand deficiency,unemployed resources,long-run expenses,and implementation lag 
A)  crowding out,a drop in the bucket,a matter of timing,and real shocks 
B)  poor information,the multiplier effect,the bandwagon effect,and election timing 
C)  sticky wages,Ricardian equivalence,recognition lag,and crowding out 
D)  aggregate demand deficiency,unemployed resources,long-run expenses,and implementation lag

Question 14

In the short run,a decrease in consumption growth will cause the inflation rate to:

Accepted Answer

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

Question 15

The multiplier effect is the:

Accepted Answer

A)  subsequent consumer spending that increases AD from expansionary fiscal policy. 
B)  subsequent consumer spending that increases AD from contractionary fiscal policy. 
C)  increase in GDP from an increase in the money supply and decrease in taxes. 
D)  increase in GDP from increased consumer savings and private investment. 
A)  subsequent consumer spending that increases AD from expansionary fiscal policy. 
B)  subsequent consumer spending that increases AD from contractionary fiscal policy. 
C)  increase in GDP from an increase in the money supply and decrease in taxes. 
D)  increase in GDP from increased consumer savings and private investment.

Question 16

If the government gave a tax rebate to the people,but aggregate demand remained unchanged,the MOST likely reason is that:

Accepted Answer

A)  people saved all the additional money from the rebate in order to pay for future tax increases. 
B)  people spent all the additional money from the rebate. 
C)  the government spent the same amount as the total amount of the tax rebate. 
D)  the government financed the tax rebate through printing more money. 
A)  people saved all the additional money from the rebate in order to pay for future tax increases. 
B)  people spent all the additional money from the rebate. 
C)  the government spent the same amount as the total amount of the tax rebate. 
D)  the government financed the tax rebate through printing more money.

Question 17

The time between which an economic shock is recognized and when the government passes a plan to carry out a policy response is called the:

Accepted Answer

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

Question 18

Which is NOT a lag associated with the implementation of fiscal policy?

Accepted Answer

A)  legislative lag 
B)  recognition lag 
C)  monetary lag 
D)  effectiveness lag 
A)  legislative lag 
B)  recognition lag 
C)  monetary lag 
D)  effectiveness lag

Question 19

A decrease in consumption growth will cause:

Accepted Answer

A)  AD to shift to the left. 
B)  SRAS to shift to the left. 
C)  LRAS to shift to the left. 
D)  AD,SRAS,and LRAS to shift to the left. 
A)  AD to shift to the left. 
B)  SRAS to shift to the left. 
C)  LRAS to shift to the left. 
D)  AD,SRAS,and LRAS to shift to the left.

Question 20

Fiscal policy is MOST effective if:

Accepted Answer

A)  nominal wages and prices are totally flexible. 
B)  taxpayers care about how fiscal policy is financed. 
C)  the economy is hit by a shock to aggregate demand. 
D)  most resources are fully employed. 
A)  nominal wages and prices are totally flexible. 
B)  taxpayers care about how fiscal policy is financed. 
C)  the economy is hit by a shock to aggregate demand. 
D)  most resources are fully employed.

Exam 18: Fiscal Policy

Consumers are more likely to spend tax rebates that they believe are:

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.Assuming there is no crowding out,fiscal policy that shifts aggregate demand from AD0 to AD2 will move the economy to point:

When fiscal stimulus is used to address a decrease in C⃗\vec { C }C that causes a reduction in AD,the increase in government spending must be the same size as the change in C⃗\vec { C }C .

After a real negative shock,government spending only improves growth minimally and aggregate demand doesn't fully recover because of:

The time necessary for a fiscal policy plan to have an impact is called the:

In 2008,taxpayers used approximately _____ of their tax rebate checks to reduce their current debt instead of increasing their spending.

If consumption growth decreases,the government spending "multiplier effect" means that in order to counter the recession:

Fiscal policy is often implemented very quickly and effectively.

A tax rebate will be effective in stimulating aggregate demand if funds from the rebate are saved.

The economist John Maynard Keynes said,"In the long run,we are all _____."

When expansionary fiscal policy subsequently increases income and consumer spending,the subsequent increase in AD is called the _____ effect.

Fiscal policy under the 2009 American Recovery and Reinvestment Act took the form of:

What are the four major limits to fiscal policy?

In the short run,a decrease in consumption growth will cause the inflation rate to:

The multiplier effect is the:

If the government gave a tax rebate to the people,but aggregate demand remained unchanged,the MOST likely reason is that:

The time between which an economic shock is recognized and when the government passes a plan to carry out a policy response is called the:

Which is NOT a lag associated with the implementation of fiscal policy?

A decrease in consumption growth will cause:

Fiscal policy is MOST effective if:

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

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.Assuming there is no crowding out,fiscal policy that shifts aggregate demand from AD₀ to AD₂ will move the economy to point:

When fiscal stimulus is used to address a decrease in $\vec { C }$ that causes a reduction in AD,the increase in government spending must be the same size as the change in $\vec { C }$ .