Question 1

Government transfer payments are a good example of an automatic stabilizer.

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 11-1
 
-In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS50 in Exhibit 11-1,the government could decrease government spending to shift the aggregate demand curve to AD' in order to eliminate the recessionary gap.

Accepted Answer

A) True 
 B)False

Question 3

According to classical economists,government intervention is

Accepted Answer

A) necessary to maintain a stable price level in the long run 
B) necessary to maintain a stable price level in the short run 
C) necessary to maintain full employment in the long run 
D) necessary to maintain full employment in the short run 
E) not necessary to maintain full employment 
A) necessary to maintain a stable price level in the long run 
B) necessary to maintain a stable price level in the short run 
C) necessary to maintain full employment in the long run 
D) necessary to maintain full employment in the short run 
E) not necessary to maintain full employment

Question 4

Because of automatic stabilizers,disposable income varies proportionately less than real GDP during periods of economic fluctuations.

Accepted Answer

A) True 
 B)False

Question 5

Given the desire of politicians to get reelected,they might try in the short run to use the economic tool of

Accepted Answer

A) monetary policy 
B) fiscal policy 
C) dirty tricks 
D) tax increases 
E) increases in the price level 
A) monetary policy 
B) fiscal policy 
C) dirty tricks 
D) tax increases 
E) increases in the price level

Question 6

According to Keynes,

Accepted Answer

A) fiscal policy should not be used to influence the economy 
B) the economy eventually tends toward the potential output 
C) to get the economy to potential output,the SRAS curve must shift to the right 
D) the economy could be stuck at equilibrium below the potential output for a prolonged period 
E) deviations from potential output are short-lived 
A) fiscal policy should not be used to influence the economy 
B) the economy eventually tends toward the potential output 
C) to get the economy to potential output,the SRAS curve must shift to the right 
D) the economy could be stuck at equilibrium below the potential output for a prolonged period 
E) deviations from potential output are short-lived

Question 7

If fiscal policy makers increase aggregate demand in an attempt to decrease the unemployment rate below the natural rate of unemployment,then

Accepted Answer

A) the potential GDP level will decrease 
B) the potential GDP level will increase 
C) the only lasting impact of the policy is a higher price level 
D) the only lasting impact of the policy is greater real GDP 
E) the only lasting impact of the policy is lower real GDP 
A) the potential GDP level will decrease 
B) the potential GDP level will increase 
C) the only lasting impact of the policy is a higher price level 
D) the only lasting impact of the policy is greater real GDP 
E) the only lasting impact of the policy is lower real GDP

Question 8

All of the following are tools of fiscal policy except one.Which is the exception?

Accepted Answer

A) taxes 
B) transfer payments 
C) interest rates 
D) government purchases of goods 
E) government purchases of services 
A) taxes 
B) transfer payments 
C) interest rates 
D) government purchases of goods 
E) government purchases of services

Question 9

Fiscal policy under the Reagan administration was intended to

Accepted Answer

A) stimulate the economy by decreasing taxes in order to increase consumption 
B) increase tax revenues by increasing the tax rate 
C) balance the budget by increasing defense spending and increasing taxes 
D) stimulate the economy by decreasing taxes in order to increase aggregate supply 
E) stimulate the economy by increasing government spending in order to increase aggregate supply 
A) stimulate the economy by decreasing taxes in order to increase consumption 
B) increase tax revenues by increasing the tax rate 
C) balance the budget by increasing defense spending and increasing taxes 
D) stimulate the economy by decreasing taxes in order to increase aggregate supply 
E) stimulate the economy by increasing government spending in order to increase aggregate supply

Question 10

The goal of fiscal policy after the Great Depression was to

Accepted Answer

A) manipulate aggregate demand and supply toward equilibrium 
B) manipulate aggregate demand and supply to fight unemployment 
C) influence aggregate demand 
D) influence aggregate supply 
E) push the aggregate demand and supply curves to the right 
A) manipulate aggregate demand and supply toward equilibrium 
B) manipulate aggregate demand and supply to fight unemployment 
C) influence aggregate demand 
D) influence aggregate supply 
E) push the aggregate demand and supply curves to the right

Question 11

Which of the following is not an automatic stabilizer?

Accepted Answer

A) a progressive income-tax system 
B) unemployment compensation 
C) new legislation to increase tax rates 
D) unemployment insurance 
E) welfare programs 
A) a progressive income-tax system 
B) unemployment compensation 
C) new legislation to increase tax rates 
D) unemployment insurance 
E) welfare programs

Question 12

The government can close an expansionary gap by increasing the price level.

Accepted Answer

A) True 
 B)False

Question 13

The Cash for Clunkers program was intended to help the US auto industry and help the environment.Which of the following is often cited as a unintended consequence of the program?

Accepted Answer

A) it contributed to an increase in the US trade deficit 
B) it helped Toyota surpass GM as the #1 auto maker in the world 
C) it helped used car dealers more than new car dealers 
D) it increased the federal deficit 
E) it led to an acceleration of inflation in the USeconomy 
A) it contributed to an increase in the US trade deficit 
B) it helped Toyota surpass GM as the #1 auto maker in the world 
C) it helped used car dealers more than new car dealers 
D) it increased the federal deficit 
E) it led to an acceleration of inflation in the USeconomy

Question 14

The steeper the short-run aggregate supply curve,

Accepted Answer

A) the steeper the aggregate demand curve 
B) the larger the value of the spending multiplier 
C) the smaller the value of the spending multiplier 
D) the larger the impact of a shift in aggregate demand on the equilibrium price level 
E) the larger the impact of a shift in aggregate demand on the equilibrium output level 
A) the steeper the aggregate demand curve 
B) the larger the value of the spending multiplier 
C) the smaller the value of the spending multiplier 
D) the larger the impact of a shift in aggregate demand on the equilibrium price level 
E) the larger the impact of a shift in aggregate demand on the equilibrium output level

Question 15

If the government wants to cause equilibrium income to rise by $100 through a change in autonomous net taxes and the MPC is 0.8,it should decrease autonomous net taxes by

Accepted Answer

A) $100 
B) $25 
C) $20 
D) $300 
E) $400 
A) $100 
B) $25 
C) $20 
D) $300 
E) $400

Question 16

The Golden Age of fiscal policy was

Accepted Answer

A) the years before the Great Depression 
B) during the Great Depression 
C) during World War II 
D) during the Kennedy administration 
E) during the Reagan administration 
A) the years before the Great Depression 
B) during the Great Depression 
C) during World War II 
D) during the Kennedy administration 
E) during the Reagan administration

Question 17

The rate of unemployment that occurs when the economy is producing its potential GDP

Accepted Answer

A) is called the natural rate of unemployment 
B) is zero 
C) is thought to be approximately 10% 
D) can be kept at zero through fiscal policy 
E) is equal to the rate of stagflation in most years 
A) is called the natural rate of unemployment 
B) is zero 
C) is thought to be approximately 10% 
D) can be kept at zero through fiscal policy 
E) is equal to the rate of stagflation in most years

Question 18

To close a contractionary gap using fiscal policy,the government can

Accepted Answer

A) increase taxes by the size of the gap 
B) decrease taxes by the size of the gap 
C) increase taxes by more than the size of the gap 
D) decrease taxes by less than the size of the gap 
E) decrease taxes by more than the size of the gap 
A) increase taxes by the size of the gap 
B) decrease taxes by the size of the gap 
C) increase taxes by more than the size of the gap 
D) decrease taxes by less than the size of the gap 
E) decrease taxes by more than the size of the gap

Question 19

To close an expansionary gap,the government can

Accepted Answer

A) increase government spending,which will increase aggregate demand 
B) increase government spending,which will decrease aggregate demand 
C) decrease government spending,which will increase aggregate demand 
D) decrease government spending,which will decrease aggregate demand 
E) increase government spending,which will increase aggregate supply 
A) increase government spending,which will increase aggregate demand 
B) increase government spending,which will decrease aggregate demand 
C) decrease government spending,which will increase aggregate demand 
D) decrease government spending,which will decrease aggregate demand 
E) increase government spending,which will increase aggregate supply

Question 20

Raising taxes as an element of discretionary fiscal policy is intended to reduce aggregate demand,but it can also reduce aggregate supply if

Accepted Answer

A) the higher taxes lead workers to seek out a second job 
B) the higher taxes cause workers to work less 
C) the government purchases goods with the additional revenue 
D) the government uses the additional revenue to retire some of the federal debt 
E) the higher taxes cause people to save less 
A) the higher taxes lead workers to seek out a second job 
B) the higher taxes cause workers to work less 
C) the government purchases goods with the additional revenue 
D) the government uses the additional revenue to retire some of the federal debt 
E) the higher taxes cause people to save less

Exam 12: Fiscal Policy

Government transfer payments are a good example of an automatic stabilizer.

Exhibit 11-1 -In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS50 in Exhibit 11-1,the government could decrease government spending to shift the aggregate demand curve to AD' in order to eliminate the recessionary gap.

According to classical economists,government intervention is

Because of automatic stabilizers,disposable income varies proportionately less than real GDP during periods of economic fluctuations.

Given the desire of politicians to get reelected,they might try in the short run to use the economic tool of

According to Keynes,

If fiscal policy makers increase aggregate demand in an attempt to decrease the unemployment rate below the natural rate of unemployment,then

All of the following are tools of fiscal policy except one.Which is the exception?

Fiscal policy under the Reagan administration was intended to

The goal of fiscal policy after the Great Depression was to

Which of the following is not an automatic stabilizer?

The government can close an expansionary gap by increasing the price level.

The Cash for Clunkers program was intended to help the US auto industry and help the environment.Which of the following is often cited as a unintended consequence of the program?

The steeper the short-run aggregate supply curve,

If the government wants to cause equilibrium income to rise by $100 through a change in autonomous net taxes and the MPC is 0.8,it should decrease autonomous net taxes by

The Golden Age of fiscal policy was

The rate of unemployment that occurs when the economy is producing its potential GDP

To close a contractionary gap using fiscal policy,the government can

To close an expansionary gap,the government can

Raising taxes as an element of discretionary fiscal policy is intended to reduce aggregate demand,but it can also reduce aggregate supply if

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand, supply, and Markets

Introduction to Macroeconomics

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Aaggregate Expenditure and Aggregate Demand

Baggregate Expenditure and Aggregate Demand

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Macro Policy Debate: Active or Passive

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Externalities and the Environment

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understanding Graphs

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The Algebra of Demand-Side Equilibrium

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Exhibit 11-1 -In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS₅₀in Exhibit 11-1,the government could decrease government spending to shift the aggregate demand curve to AD' in order to eliminate the recessionary gap.