Question 1

Budget surpluses exist when:

Accepted Answer

A) government spending exceeds its tax revenues. 
B) government tax revenues exceed its spending. 
C) government spending equals its tax revenues. 
D) expansionary fiscal policies increase real GDP and the price level. 
A) government spending exceeds its tax revenues. 
B) government tax revenues exceed its spending. 
C) government spending equals its tax revenues. 
D) expansionary fiscal policies increase real GDP and the price level.

Question 2

What is the common method of financing budget deficit?

Accepted Answer

The budget deficit is financed usually b

Question 3

If the marginal propensity to consume is 0.8, the marginal propensity to save is:

Accepted Answer

A) 0.8 
B) 0.4 
C) 0.2 
D) 0.3 
E) Data insufficient 
A) 0.8 
B) 0.4 
C) 0.2 
D) 0.3 
E) Data insufficient

Question 4

A contractionary fiscal policy is implemented in order to:

Accepted Answer

A) increase a budget deficit. 
B) reduce a budget surplus. 
C) create or expand a budget surplus. 
D) increase government purchases. 
A) increase a budget deficit. 
B) reduce a budget surplus. 
C) create or expand a budget surplus. 
D) increase government purchases.

Question 5

An investment tax credit, which would lower taxes for firms that invested in new capital equipment, would shift the long-run aggregate supply curve to the right over time.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) the government budget surplus increases because government purchases rose. 
B) the government budget surplus increases because taxes fell. 
C) the government budget surplus increases because transfer payments rose. 
D) under any of the above circumstances. 
E) under none of the above circumstances. 
A) the government budget surplus increases because government purchases rose. 
B) the government budget surplus increases because taxes fell. 
C) the government budget surplus increases because transfer payments rose. 
D) under any of the above circumstances. 
E) under none of the above circumstances.

Question 7

If there is initially a federal budget surplus, and taxes and transfer payments:

Accepted Answer

A) there is an indeterminate effect on both AD and the budget surplus. 
B) AD increases and the budget surplus increases. 
C) AD increases and the budget surplus decreases. 
D) AD decreases and the budget surplus increases. 
E) AD decreases and the budget surplus decreases. 
A) there is an indeterminate effect on both AD and the budget surplus. 
B) AD increases and the budget surplus increases. 
C) AD increases and the budget surplus decreases. 
D) AD decreases and the budget surplus increases. 
E) AD decreases and the budget surplus decreases.

Question 8

What is the impact of a $10 billion tax cut on consumer spending, if MPC is equal to 0.8?

Accepted Answer

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

Question 9

Economists agree that the multiplier is close to zero when:

Accepted Answer

A) inflation is very low. 
B) the economy is at or near full employment. 
C) the national debt is relatively small. 
D) "shovel-ready" projects exist. 
A) inflation is very low. 
B) the economy is at or near full employment. 
C) the national debt is relatively small. 
D) "shovel-ready" projects exist.

Question 10

Which of the following propositions would a proponent of supply-side economics be most likely to stress?

Accepted Answer

A) Higher marginal tax rates will lead to a reduction in the budget deficit and lower interest rates, because they expand government revenues. 
B) Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output, because they encourage investors to undertake low-productivity projects with substantial tax-shelter benefits. 
C) Income redistribution payments will exert little impact on real aggregate supply, since they do not consume resources directly. 
D) A tax reduction will increase the disposable income of households. Thus the primary impact of a tax reduction on aggregate supply will stem from the influence of the tax change on the size of the budget deficit or surplus. 
A) Higher marginal tax rates will lead to a reduction in the budget deficit and lower interest rates, because they expand government revenues. 
B) Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output, because they encourage investors to undertake low-productivity projects with substantial tax-shelter benefits. 
C) Income redistribution payments will exert little impact on real aggregate supply, since they do not consume resources directly. 
D) A tax reduction will increase the disposable income of households. Thus the primary impact of a tax reduction on aggregate supply will stem from the influence of the tax change on the size of the budget deficit or surplus.

Question 11

Other things being constant, a reduction in marginal tax rates will tend to increase aggregate supply because:

Accepted Answer

A) tax reduction increases disposable income, which will induce an increase in consumption and aggregate supply. 
B) lower tax rates will increase business optimism, which will induce additional investment expenditures and lead to a direct increase in aggregate supply. 
C) lower tax rates will lead to an increase in saving, which will lead to lower interest rates, and increase in consumption, and an increase in aggregate supply. 
D) tax reduction will increase the relative attractiveness of productive activity in comparison with leisure and tax avoidance, thereby increasing aggregate supply. 
A) tax reduction increases disposable income, which will induce an increase in consumption and aggregate supply. 
B) lower tax rates will increase business optimism, which will induce additional investment expenditures and lead to a direct increase in aggregate supply. 
C) lower tax rates will lead to an increase in saving, which will lead to lower interest rates, and increase in consumption, and an increase in aggregate supply. 
D) tax reduction will increase the relative attractiveness of productive activity in comparison with leisure and tax avoidance, thereby increasing aggregate supply.

Question 12

Obama economists believe that the multiplier for government purchases is:

Accepted Answer

A) equal to zero. 
B) less than 1. 
C) equal to one. 
D) greater than one. 
A) equal to zero. 
B) less than 1. 
C) equal to one. 
D) greater than one.

Question 13

Which policy would a supply-sider prefer, an across-the-board tax reduction in income tax rates or a package of tax-relief measures that would give every household a $200 tax rebate and allow them to deduct the interest they pay on credit card purchases?

Accepted Answer

Supply-siders would prefer an across-the

Question 14

Running a federal budget deficit would tend to increase real output in the short run, but running persistent large federal budget deficits could result in reducing real output in the long run, other things being equal.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) reduce "first round" consumption by $160 billion; reduce AD by $640 billion 
B) reduce consumption by $120 billion; reduce AD by $480 billion 
C) reduce consumption by $40 billion; reduce AD by $160 billion 
D) reduce consumption by $30 billion; reduce AD by $160 billion 
A) reduce "first round" consumption by $160 billion; reduce AD by $640 billion 
B) reduce consumption by $120 billion; reduce AD by $480 billion 
C) reduce consumption by $40 billion; reduce AD by $160 billion 
D) reduce consumption by $30 billion; reduce AD by $160 billion

Question 16

If there is initially a federal budget surplus and government purchases and transfer payments both rise:

Accepted Answer

A) AD increases and the budget surplus increases. 
B) AD increases and the budget surplus decreases. 
C) AD decreases and the budget surplus increases. 
D) AD decreases and the budget surplus decreases. 
E) there is an indeterminate effect on both AD and the budget surplus. 
A) AD increases and the budget surplus increases. 
B) AD increases and the budget surplus decreases. 
C) AD decreases and the budget surplus increases. 
D) AD decreases and the budget surplus decreases. 
E) there is an indeterminate effect on both AD and the budget surplus.

Question 17

When the economy goes into a ____, the amount of taxes collected by the government ____ automatically.

Accepted Answer

A) recession; falls 
B) recession; rises 
C) boom; falls 
D) None of the above. 
A) recession; falls 
B) recession; rises 
C) boom; falls 
D) None of the above.

Question 18

The federal government buys $10 million worth of aircraft engines from General Motors.If the MPC is .80 what will be the impact on aggregate demand, other things being equal?

Accepted Answer

A) Aggregate demand will increase $8 million. 
B) Aggregate demand will increase $10 million. 
C) Aggregate demand will increase $12.5 million. 
D) Aggregate demand will increase $18 million. 
E) Aggregate demand will increase $50 million. 
A) Aggregate demand will increase $8 million. 
B) Aggregate demand will increase $10 million. 
C) Aggregate demand will increase $12.5 million. 
D) Aggregate demand will increase $18 million. 
E) Aggregate demand will increase $50 million.

Question 19

If investment decreases by $20 billion and the MPC = 0.8, the resulting decrease in the consumption component of AD is:

Accepted Answer

A) $16 billion. 
B) $4 billion. 
C) $100 billion. 
D) $80 billion. 
A) $16 billion. 
B) $4 billion. 
C) $100 billion. 
D) $80 billion.

Question 20

The larger the marginal propensity to consume, the larger the multiplier effect.

Accepted Answer

A) True 
 B)False

Budget surpluses exist when:

What is the common method of financing budget deficit?

If the marginal propensity to consume is 0.8, the marginal propensity to save is:

A contractionary fiscal policy is implemented in order to:

An investment tax credit, which would lower taxes for firms that invested in new capital equipment, would shift the long-run aggregate supply curve to the right over time.

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

If there is initially a federal budget surplus, and taxes and transfer payments:

What is the impact of a $10 billion tax cut on consumer spending, if MPC is equal to 0.8?

Economists agree that the multiplier is close to zero when:

Which of the following propositions would a proponent of supply-side economics be most likely to stress?

Other things being constant, a reduction in marginal tax rates will tend to increase aggregate supply because:

Obama economists believe that the multiplier for government purchases is:

Which policy would a supply-sider prefer, an across-the-board tax reduction in income tax rates or a package of tax-relief measures that would give every household a $200 tax rebate and allow them to deduct the interest they pay on credit card purchases?

Running a federal budget deficit would tend to increase real output in the short run, but running persistent large federal budget deficits could result in reducing real output in the long run, other things being equal.

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

If there is initially a federal budget surplus and government purchases and transfer payments both rise:

When the economy goes into a , the amount of taxes collected by the government automatically.

The federal government buys $10 million worth of aircraft engines from General Motors.If the MPC is .80 what will be the impact on aggregate demand, other things being equal?

If investment decreases by $20 billion and the MPC = 0.8, the resulting decrease in the consumption component of AD is:

The larger the marginal propensity to consume, the larger the multiplier effect.

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

Budget surpluses exist when:

What is the common method of financing budget deficit?

If the marginal propensity to consume is 0.8, the marginal propensity to save is:

A contractionary fiscal policy is implemented in order to:

An investment tax credit, which would lower taxes for firms that invested in new capital equipment, would shift the long-run aggregate supply curve to the right over time.

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

If there is initially a federal budget surplus, and taxes and transfer payments:

What is the impact of a $10 billion tax cut on consumer spending, if MPC is equal to 0.8?

Economists agree that the multiplier is close to zero when:

Which of the following propositions would a proponent of supply-side economics be most likely to stress?

Other things being constant, a reduction in marginal tax rates will tend to increase aggregate supply because:

Obama economists believe that the multiplier for government purchases is:

Which policy would a supply-sider prefer, an across-the-board tax reduction in income tax rates or a package of tax-relief measures that would give every household a $200 tax rebate and allow them to deduct the interest they pay on credit card purchases?

Running a federal budget deficit would tend to increase real output in the short run, but running persistent large federal budget deficits could result in reducing real output in the long run, other things being equal.

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

If there is initially a federal budget surplus and government purchases and transfer payments both rise:

When the economy goes into a ____, the amount of taxes collected by the government ____ automatically.

The federal government buys $10 million worth of aircraft engines from General Motors.If the MPC is .80 what will be the impact on aggregate demand, other things being equal?

If investment decreases by $20 billion and the MPC = 0.8, the resulting decrease in the consumption component of AD is:

The larger the marginal propensity to consume, the larger the multiplier effect.

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

When the economy goes into a , the amount of taxes collected by the government automatically.