Question 1

An example of an automatic stabilizer is

Accepted Answer

A)  the progressive tax system. 
B)  the decision of the President to cut taxes in a recession. 
C)  the Congressional decision to increase unemployment benefits in a recession. 
D)  the raising of taxes on cigarettes to discourage smoking to stabilize health-care costs. 
A)  the progressive tax system. 
B)  the decision of the President to cut taxes in a recession. 
C)  the Congressional decision to increase unemployment benefits in a recession. 
D)  the raising of taxes on cigarettes to discourage smoking to stabilize health-care costs.

Question 2

When private expenditures decrease as a result of increased government spending, this is known as

Accepted Answer

A)  a monetary effect. 
B)  the crowding out effect. 
C)  the multiplier effect. 
D)  an automatic stabilizer. 
A)  a monetary effect. 
B)  the crowding out effect. 
C)  the multiplier effect. 
D)  an automatic stabilizer.

Question 3

The changing of government expenditures to achieve national economic goals is

Accepted Answer

A)  discretionary fiscal policy. 
B)  automatic fiscal policy. 
C)  budget deficit policy. 
D)  inflationary fiscal policy. 
A)  discretionary fiscal policy. 
B)  automatic fiscal policy. 
C)  budget deficit policy. 
D)  inflationary fiscal policy.

Question 4

Three candidates for political office disagree over the benefits of enlarging the federal budget deficit. Candidate X says the stimulation package is needed to increase employment and real GDP; Candidate Y says it will only cause higher prices; and Candidate Z says it will have no effect on either real GDP or the price level. How do the three candidates differ with respect to the condition of the economy and the effects of fiscal policy?

Accepted Answer

A)  Candidate X thinks the simple Keynesian model is applicable, while Y thinks the expansionary policy will fully crowd out private investment. Z believes the economy is experiencing a recessionary gap. 
B)  Candidate X thinks the simple Keynesian model is applicable; Y thinks the short-run aggregate supply curve is horizontal; and Z thinks the expansionary policy will generate lower interest rates. 
C)  Candidate X thinks the economy is below the full-employment real GDP and that the short-run aggregate supply curve is horizontal. Candidate Y believes the economy is at full employment. Candidate Z believes the expansionary policy will result only in direct fiscal offsets. 
D)  Candidate X thinks the short-run aggregate supply curve is upward sloping; Y thinks interest rates will rise; and Z thinks the economy is at full employment. 
A)  Candidate X thinks the simple Keynesian model is applicable, while Y thinks the expansionary policy will fully crowd out private investment. Z believes the economy is experiencing a recessionary gap. 
B)  Candidate X thinks the simple Keynesian model is applicable; Y thinks the short-run aggregate supply curve is horizontal; and Z thinks the expansionary policy will generate lower interest rates. 
C)  Candidate X thinks the economy is below the full-employment real GDP and that the short-run aggregate supply curve is horizontal. Candidate Y believes the economy is at full employment. Candidate Z believes the expansionary policy will result only in direct fiscal offsets. 
D)  Candidate X thinks the short-run aggregate supply curve is upward sloping; Y thinks interest rates will rise; and Z thinks the economy is at full employment.

Question 5

-Refer to the above figure. If the relevant aggregate demand curve is AD1, then the economy is experiencing

Accepted Answer

A)  an inflationary gap. 
B)  a recessionary gap. 
C)  a deflationary gap. 
D)  full employment. 
A)  an inflationary gap. 
B)  a recessionary gap. 
C)  a deflationary gap. 
D)  full employment.

Question 6

Discretionary fiscal policy

Accepted Answer

A)  may not have desired effects on real GDP because of the time lags. 
B)  may not have desired effects on real GDP because it leads to increases in aggregate demand. 
C)  may not have desired effects on real GDP because it leads to decreases in aggregate demand. 
D)  would have a larger effect on real GDP if the multiplier was smaller. 
A)  may not have desired effects on real GDP because of the time lags. 
B)  may not have desired effects on real GDP because it leads to increases in aggregate demand. 
C)  may not have desired effects on real GDP because it leads to decreases in aggregate demand. 
D)  would have a larger effect on real GDP if the multiplier was smaller.

Question 7

In the traditional Keynesian model, an income tax cut raises real GDP because

Accepted Answer

A)  consumption spending depends negatively on after-tax income. 
B)  consumption spending depends positively on after-tax income. 
C)  consumption spending is not related to after-tax income. 
D)  of the crowding-out effects of taxes. 
A)  consumption spending depends negatively on after-tax income. 
B)  consumption spending depends positively on after-tax income. 
C)  consumption spending is not related to after-tax income. 
D)  of the crowding-out effects of taxes.

Question 8

Which one of the following is an example of discretionary fiscal policy used to correct an inflationary gap?

Accepted Answer

A)  a tax increase passed into law by Congress 
B)  decrease in the money supply by the Federal Reserve 
C)  an increase in government expenditures approved by Congress 
D)  an agreement among major banks to lower interest rates 
A)  a tax increase passed into law by Congress 
B)  decrease in the money supply by the Federal Reserve 
C)  an increase in government expenditures approved by Congress 
D)  an agreement among major banks to lower interest rates

Question 9

Tax policy conducted for the purpose of achieving full employment, price stability, or economic growth is an example of

Accepted Answer

A)  monetary policy. 
B)  interest-rate policy. 
C)  exchange-rate policy. 
D)  discretionary fiscal policy. 
A)  monetary policy. 
B)  interest-rate policy. 
C)  exchange-rate policy. 
D)  discretionary fiscal policy.

Question 10

What is discretionary fiscal policy and what is its purpose?

Accepted Answer

Discretionary fiscal policy is the delib

Question 11

At tax rates higher than the tax rate that maximizes tax revenues along a Laffer curve

Accepted Answer

A)  an increase in tax rates increases tax revenues. 
B)  a reduction in tax rates reduces tax revenues. 
C)  a reduction in tax rates increases tax revenues. 
D)  any variation in tax rates has no effect on tax revenues. 
A)  an increase in tax rates increases tax revenues. 
B)  a reduction in tax rates reduces tax revenues. 
C)  a reduction in tax rates increases tax revenues. 
D)  any variation in tax rates has no effect on tax revenues.

Question 12

The effect time lag is the time period that elapses

Accepted Answer

A)  between when an economic problem manifests itself and it is officially acknowledged. 
B)  between the recognition of an economic problem and implementing policies to solve it. 
C)  between implementing policies to solve an economic problem and when the results of that policy can be measured. 
D)  between the beginning of the budgetary process and the final budget resolution. 
A)  between when an economic problem manifests itself and it is officially acknowledged. 
B)  between the recognition of an economic problem and implementing policies to solve it. 
C)  between implementing policies to solve an economic problem and when the results of that policy can be measured. 
D)  between the beginning of the budgetary process and the final budget resolution.

Question 13

A recession begins in January but government policy makers do NOT reach a consensus that a recession had in fact begun until June. This is an example of a(n)

Accepted Answer

A)  recognition time lag. 
B)  action time lag. 
C)  effect time lag. 
D)  quick time lag. 
A)  recognition time lag. 
B)  action time lag. 
C)  effect time lag. 
D)  quick time lag.

Question 14

Supply-side economists argue that

Accepted Answer

A)  higher tax rates can lead to lower tax revenues. 
B)  higher tax rates lead to increased productivity. 
C)  lower tax rates lead to a drop in real Gross Domestic Product (GDP). 
D)  lower tax rates always lead to lower tax revenues. 
A)  higher tax rates can lead to lower tax revenues. 
B)  higher tax rates lead to increased productivity. 
C)  lower tax rates lead to a drop in real Gross Domestic Product (GDP). 
D)  lower tax rates always lead to lower tax revenues.

Question 15

The advantage of automatic stabilizers is that they

Accepted Answer

A)  help to balance the budget. 
B)  reduce the size of the net public debt. 
C)  reduce the fluctuations in the business cycle. 
D)  help reduce the inflation rate. 
A)  help to balance the budget. 
B)  reduce the size of the net public debt. 
C)  reduce the fluctuations in the business cycle. 
D)  help reduce the inflation rate.

Question 16

Which of the following might be considered an automatic fiscal stabilizer?

Accepted Answer

A)  government spending for the war effort 
B)  401(k) retirement program 
C)  unemployment compensation 
D)  government budgeting for education 
A)  government spending for the war effort 
B)  401(k) retirement program 
C)  unemployment compensation 
D)  government budgeting for education

Question 17

In the traditional Keynesian model, an increase in taxes leads to all of the following EXCEPT

Accepted Answer

A)  a decrease in aggregate demand. 
B)  an increase price level. 
C)  a decrease in consumption. 
D)  lower real GDP. 
A)  a decrease in aggregate demand. 
B)  an increase price level. 
C)  a decrease in consumption. 
D)  lower real GDP.

Question 18

Fiscal policy is implemented by

Accepted Answer

A)  the central bank. 
B)  local government units. 
C)  the Internal Revenue Service. 
D)  the federal government. 
A)  the central bank. 
B)  local government units. 
C)  the Internal Revenue Service. 
D)  the federal government.

Question 19

In the short run, if the government attempts to increase aggregate demand, it should

Accepted Answer

A)  increase government spending and reduce taxes. 
B)  decrease government spending and increase taxes. 
C)  shift the long-run aggregate supply curve to the right. 
D)  shift the short-run aggregate supply curve to the right. 
A)  increase government spending and reduce taxes. 
B)  decrease government spending and increase taxes. 
C)  shift the long-run aggregate supply curve to the right. 
D)  shift the short-run aggregate supply curve to the right.

Question 20

What are the effects of fiscal policy during normal times? What are the effects of fiscal policy during abnormal times?

Accepted Answer

During normal times, discretionary fisca

Exam 13: Fiscal Policy

An example of an automatic stabilizer is

When private expenditures decrease as a result of increased government spending, this is known as

The changing of government expenditures to achieve national economic goals is

-Refer to the above figure. If the relevant aggregate demand curve is AD1, then the economy is experiencing

Discretionary fiscal policy

In the traditional Keynesian model, an income tax cut raises real GDP because

Which one of the following is an example of discretionary fiscal policy used to correct an inflationary gap?

Tax policy conducted for the purpose of achieving full employment, price stability, or economic growth is an example of

What is discretionary fiscal policy and what is its purpose?

At tax rates higher than the tax rate that maximizes tax revenues along a Laffer curve

The effect time lag is the time period that elapses

A recession begins in January but government policy makers do NOT reach a consensus that a recession had in fact begun until June. This is an example of a(n)

Supply-side economists argue that

The advantage of automatic stabilizers is that they

Which of the following might be considered an automatic fiscal stabilizer?

In the traditional Keynesian model, an increase in taxes leads to all of the following EXCEPT

Fiscal policy is implemented by

In the short run, if the government attempts to increase aggregate demand, it should

What are the effects of fiscal policy during normal times? What are the effects of fiscal policy during abnormal times?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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