Question 1

Assume that the government is considering plans to increase aggregate demand in order to reduce unemployment.Which of the following would be effective?

Accepted Answer

A) Increase government purchases of goods and services. 
B) Decrease taxes. 
C) Increase transfer payments. 
D) Any of the above. 
A) Increase government purchases of goods and services. 
B) Decrease taxes. 
C) Increase transfer payments. 
D) Any of the above. D

Question 2

If government policy makers were worried about the inflationary potential of the economy, which of the following would be a correct fiscal policy change?

Accepted Answer

A) Decrease consumption taxes. 
B) Decrease government purchases of goods and services. 
C) Increase transfer payments. 
D) Increase the budget deficit. 
E) None of the above. 
A) Decrease consumption taxes. 
B) Decrease government purchases of goods and services. 
C) Increase transfer payments. 
D) Increase the budget deficit. 
E) None of the above. B

Question 3

Why don't governments avoid budget deficits under all circumstances?

Accepted Answer

Budget deficits can be important because they provide the federal government with the flexibility to respond appropriately to changing economic circumstances. The government may run deficits during special emergencies. The government may also use a budget deficit to avert an economic downturn.

Question 4

The multiplier will be greater, other things being equal:

Accepted Answer

A) the smaller the fraction of each dollar earned that goes to taxes. 
B) the smaller the fraction of each dollar of disposable income that is spent on imports. 
C) the smaller the fraction of each dollar of disposable income that goes to saving. 
D) All of these answers are true. 
A) the smaller the fraction of each dollar earned that goes to taxes. 
B) the smaller the fraction of each dollar of disposable income that is spent on imports. 
C) the smaller the fraction of each dollar of disposable income that goes to saving. 
D) All of these answers are true.

Question 5

Supply-side economics stress that:

Accepted Answer

A) aggregate demand is the major determinant of real output. 
B) higher tax rates discourage people from working and investing as much as they would at lower tax rates. 
C) an increase in government expenditures and tax rates will cause real income to rise. 
D) expansionary monetary policy will cause real output to expand without accelerating inflation. 
A) aggregate demand is the major determinant of real output. 
B) higher tax rates discourage people from working and investing as much as they would at lower tax rates. 
C) an increase in government expenditures and tax rates will cause real income to rise. 
D) expansionary monetary policy will cause real output to expand without accelerating inflation.

Question 6

If MPC = 0.75, a $40 billion decrease in government purchases would have what size effect on the "first round" of induced added consumption?

Accepted Answer

A) It would increase first round consumption by $30 billion. 
B) It would increase first round consumption by $40 billion. 
C) It would increase first round consumption by $120 billion. 
D) It would increase first round consumption by $160 billion. 
E) None of the above; the first round effect would be a decrease in consumption. 
A) It would increase first round consumption by $30 billion. 
B) It would increase first round consumption by $40 billion. 
C) It would increase first round consumption by $120 billion. 
D) It would increase first round consumption by $160 billion. 
E) None of the above; the first round effect would be a decrease in consumption.

Question 7

Figure 14-A  
-Refer to Figure 14-A.In order for the economy pictured to get back to RGDPNR, this economy could use:

Accepted Answer

A) decreased taxes and increased government purchases. 
B) increased taxes and increased government purchases. 
C) decreased taxes and decreased government purchases. 
D) increased taxes and decreased government purchases. 
A) decreased taxes and increased government purchases. 
B) increased taxes and increased government purchases. 
C) decreased taxes and decreased government purchases. 
D) increased taxes and decreased government purchases.

Question 8

If the government decides to spend an extra $5 billion on fighter jets that they would otherwise have spent on road construction, and the MPC = 0.75, what is the effect on AD?

Accepted Answer

A) It has no effect. 
B) It increases by $5 billion. 
C) It increases by $15 billion. 
D) It increases by $20 billion. 
A) It has no effect. 
B) It increases by $5 billion. 
C) It increases by $15 billion. 
D) It increases by $20 billion.

Question 9

To achieve a $500 billion increase in AD, if the MPC is 0.8, what increase in government purchases would be called for?

Accepted Answer

A) $625 billion 
B) $500 billion 
C) $400 billion 
D) $100 billion 
A) $625 billion 
B) $500 billion 
C) $400 billion 
D) $100 billion

Question 10

To achieve a $500 billion decrease in AD, if the MPC is 0.8, what decrease in government purchases would be called for?

Accepted Answer

A) $100 billion 
B) $400 billion 
C) $500 billion 
D) $625 billion 
A) $100 billion 
B) $400 billion 
C) $500 billion 
D) $625 billion

Question 11

You are a member of Congress when the economy is in a recession.If your goal is to achieve a fully employed labor force, which of the following fiscal policy scenarios should you follow?

Accepted Answer

A) Eliminate a federal budget deficit or add to a federal budget surplus. 
B) Raise government purchases, reduce taxes, and/or increase transfer payments. 
C) Decrease government purchases, increase taxes, and/or cut transfer payments. 
D) Raise government purchases, raise taxes by more than the increase in government purchases, and decrease transfer payments. 
A) Eliminate a federal budget deficit or add to a federal budget surplus. 
B) Raise government purchases, reduce taxes, and/or increase transfer payments. 
C) Decrease government purchases, increase taxes, and/or cut transfer payments. 
D) Raise government purchases, raise taxes by more than the increase in government purchases, and decrease transfer payments.

Question 12

If net exports increase by $10 billion and the MPC = 0.6, the resulting increase in the consumption component of AD is:

Accepted Answer

A) $25 billion. 
B) $15 billion. 
C) $6 billion. 
D) $4 billion. 
A) $25 billion. 
B) $15 billion. 
C) $6 billion. 
D) $4 billion.

Question 13

If the government decides to spend an extra $4 billion on fighter jets that they would otherwise have spent on computers, and the MPC = 0.75, what is the effect on AD?

Accepted Answer

A) AD increases by $20 billion. 
B) AD increases by $16 billion. 
C) AD increases by $4 billion. 
D) AD does not change. 
A) AD increases by $20 billion. 
B) AD increases by $16 billion. 
C) AD increases by $4 billion. 
D) AD does not change.

Question 14

Assume that there is a $20 billion increase in government purchases.If MPC = 0.8, the sum of the indirect effect on aggregate demand through induced additional consumption purchases is equal to:

Accepted Answer

A) $50 billion. 
B) $10 billion. 
C) $40 billion. 
D) $20 billion. 
A) $50 billion. 
B) $10 billion. 
C) $40 billion. 
D) $20 billion.

Question 15

If government purchases exceed tax revenue, there is a budget deficit.

Accepted Answer

A) True 
 B)False

Question 16

When the economy goes into a ____, the amount of unemployment compensation and welfare payments ____ automatically.

Accepted Answer

A) recession; decrease 
B) recession; increase 
C) boom; increase 
D) All of the above. 
A) recession; decrease 
B) recession; increase 
C) boom; increase 
D) All of the above.

Question 17

The government's fiscal policy is its plan to regulate aggregate demand by manipulating:

Accepted Answer

A) the money supply. 
B) taxation and spending. 
C) the treasury. 
D) the energy department. 
A) the money supply. 
B) taxation and spending. 
C) the treasury. 
D) the energy department.

Question 18

A decrease in net taxes (taxes minus transfer payments) would do which of the following in the short run?

Accepted Answer

A) decrease any budget deficit or increase any budget surplus 
B) reduce the price level 
C) reduce unemployment 
D) reduce consumption purchases 
E) All of the above. 
A) decrease any budget deficit or increase any budget surplus 
B) reduce the price level 
C) reduce unemployment 
D) reduce consumption purchases 
E) All of the above.

Question 19

The multiplier effect would lead to higher price levels and no increases in employment and RGDP if:

Accepted Answer

A) all resources are fully employed. 
B) resources are under-utilized. 
C) resources are idle. 
D) unemployment is high. 
A) all resources are fully employed. 
B) resources are under-utilized. 
C) resources are idle. 
D) unemployment is high.

Question 20

AD will shift to the left, other things being equal, when:

Accepted Answer

A) the government budget surplus decreases because government purchases rose. 
B) the government budget surplus increases because taxes rose. 
C) the government budget surplus decreases because transfer payments fell. 
D) under any of the above circumstances. 
A) the government budget surplus decreases because government purchases rose. 
B) the government budget surplus increases because taxes rose. 
C) the government budget surplus decreases because transfer payments fell. 
D) under any of the above circumstances.

Assume that the government is considering plans to increase aggregate demand in order to reduce unemployment.Which of the following would be effective?

If government policy makers were worried about the inflationary potential of the economy, which of the following would be a correct fiscal policy change?

Why don't governments avoid budget deficits under all circumstances?

The multiplier will be greater, other things being equal:

Supply-side economics stress that:

If MPC = 0.75, a $40 billion decrease in government purchases would have what size effect on the "first round" of induced added consumption?

Figure 14-A -Refer to Figure 14-A.In order for the economy pictured to get back to RGDP_NR, this economy could use:

If the government decides to spend an extra $5 billion on fighter jets that they would otherwise have spent on road construction, and the MPC = 0.75, what is the effect on AD?

To achieve a $500 billion increase in AD, if the MPC is 0.8, what increase in government purchases would be called for?

To achieve a $500 billion decrease in AD, if the MPC is 0.8, what decrease in government purchases would be called for?

You are a member of Congress when the economy is in a recession.If your goal is to achieve a fully employed labor force, which of the following fiscal policy scenarios should you follow?

If net exports increase by $10 billion and the MPC = 0.6, the resulting increase in the consumption component of AD is:

If the government decides to spend an extra $4 billion on fighter jets that they would otherwise have spent on computers, and the MPC = 0.75, what is the effect on AD?

Assume that there is a $20 billion increase in government purchases.If MPC = 0.8, the sum of the indirect effect on aggregate demand through induced additional consumption purchases is equal to:

If government purchases exceed tax revenue, there is a budget deficit.

When the economy goes into a , the amount of unemployment compensation and welfare payments automatically.

The government's fiscal policy is its plan to regulate aggregate demand by manipulating:

A decrease in net taxes (taxes minus transfer payments) would do which of the following in the short run?

The multiplier effect would lead to higher price levels and no increases in employment and RGDP if:

AD will shift to the left, other things being equal, when:

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Market Failure and Public Choice

Production and Costs

Firms in Competitive Markets

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Economics

Filters

Exam 14: Fiscal Policy

Assume that the government is considering plans to increase aggregate demand in order to reduce unemployment.Which of the following would be effective?

If government policy makers were worried about the inflationary potential of the economy, which of the following would be a correct fiscal policy change?

Why don't governments avoid budget deficits under all circumstances?

The multiplier will be greater, other things being equal:

Supply-side economics stress that:

If MPC = 0.75, a $40 billion decrease in government purchases would have what size effect on the "first round" of induced added consumption?

Figure 14-A -Refer to Figure 14-A.In order for the economy pictured to get back to RGDPNR, this economy could use:

If the government decides to spend an extra $5 billion on fighter jets that they would otherwise have spent on road construction, and the MPC = 0.75, what is the effect on AD?

To achieve a $500 billion increase in AD, if the MPC is 0.8, what increase in government purchases would be called for?

To achieve a $500 billion decrease in AD, if the MPC is 0.8, what decrease in government purchases would be called for?

You are a member of Congress when the economy is in a recession.If your goal is to achieve a fully employed labor force, which of the following fiscal policy scenarios should you follow?

If net exports increase by $10 billion and the MPC = 0.6, the resulting increase in the consumption component of AD is:

If the government decides to spend an extra $4 billion on fighter jets that they would otherwise have spent on computers, and the MPC = 0.75, what is the effect on AD?

Assume that there is a $20 billion increase in government purchases.If MPC = 0.8, the sum of the indirect effect on aggregate demand through induced additional consumption purchases is equal to:

If government purchases exceed tax revenue, there is a budget deficit.

When the economy goes into a ____, the amount of unemployment compensation and welfare payments ____ automatically.

The government's fiscal policy is its plan to regulate aggregate demand by manipulating:

A decrease in net taxes (taxes minus transfer payments) would do which of the following in the short run?

The multiplier effect would lead to higher price levels and no increases in employment and RGDP if:

AD will shift to the left, other things being equal, when:

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Market Failure and Public Choice

Production and Costs

Firms in Competitive Markets

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Economics

Filters

Figure 14-A -Refer to Figure 14-A.In order for the economy pictured to get back to RGDP_NR, this economy could use:

When the economy goes into a , the amount of unemployment compensation and welfare payments automatically.