Question 1

An advantage of automatic stabilizers over discretionary fiscal policy is that

Accepted Answer

A)  automatic stabilizers are not subject to the same time lags as discretionary fiscal policy. 
B)  automatic stabilizers can be easily fine-tuned to move the economy to full employment. 
C)  only policymakers are involved in implementing automatic stabilizers. 
D)  the Ricardian equivalence theorem applies more readily to automatic stabilizers than to discretionary fiscal policy. 
A)  automatic stabilizers are not subject to the same time lags as discretionary fiscal policy. 
B)  automatic stabilizers can be easily fine-tuned to move the economy to full employment. 
C)  only policymakers are involved in implementing automatic stabilizers. 
D)  the Ricardian equivalence theorem applies more readily to automatic stabilizers than to discretionary fiscal policy.

Question 2

If the government increases its spending but does NOT raise taxes

Accepted Answer

A)  aggregate demand will increase without any effect on the price level. 
B)  the government will have to borrow funds. 
C)  the government will have to reduce the money supply. 
D)  the government will have to raise expenditures or lower taxes the next year. 
A)  aggregate demand will increase without any effect on the price level. 
B)  the government will have to borrow funds. 
C)  the government will have to reduce the money supply. 
D)  the government will have to raise expenditures or lower taxes the next year.

Question 3

Supply-side economists argue that changes in tax rates cause changes in

Accepted Answer

A)  the full-employment level of output. 
B)  labor supply. 
C)  tax revenues. 
D)  all of the above. 
A)  the full-employment level of output. 
B)  labor supply. 
C)  tax revenues. 
D)  all of the above.

Question 4

What are the various time lags that affect discretionary fiscal policy, and what are their effects?

Accepted Answer

The recognition lag refers to the time i

Question 5

According to supply-side economics, changes in marginal tax rates will have which of the following effects?

Accepted Answer

A)  change the incentive to work 
B)  change the incentive to save 
C)  change the incentive to invest 
D)  all of the above 
A)  change the incentive to work 
B)  change the incentive to save 
C)  change the incentive to invest 
D)  all of the above

Question 6

Supply-side theory suggests that

Accepted Answer

A)  aggregate supply does not depend on labor productivity. 
B)  increased government spending does not increase aggregate demand. 
C)  higher tax rates may not increase overall tax revenues. 
D)  increased labor productivity may not increase real output. 
A)  aggregate supply does not depend on labor productivity. 
B)  increased government spending does not increase aggregate demand. 
C)  higher tax rates may not increase overall tax revenues. 
D)  increased labor productivity may not increase real output.

Question 7

Other factors being constant, what happens when the federal government finances a growing budget deficit by increasing the amount it borrows from the private sector?

Accepted Answer

A)  There will be an increase in the interest rate. 
B)  There will be a decrease in the interest rate. 
C)  The crowding out effect will be cancelled out. 
D)  There will be an increase in net exports. 
A)  There will be an increase in the interest rate. 
B)  There will be a decrease in the interest rate. 
C)  The crowding out effect will be cancelled out. 
D)  There will be an increase in net exports.

Question 8

A direct expenditure offset occurs when an increase in government spending

Accepted Answer

A)  results in an increase in household saving for retirement. 
B)  is followed by an increase in consumer spending 
C)  results in a decrease in private spending. 
D)  is followed by an increase in taxes. 
A)  results in an increase in household saving for retirement. 
B)  is followed by an increase in consumer spending 
C)  results in a decrease in private spending. 
D)  is followed by an increase in taxes.

Question 9

The idea that creating incentives for individuals and firms to increase productivity leading to an increase in long-run aggregate supply is

Accepted Answer

A)  supply-side economics. 
B)  demand-side economics. 
C)  the Ricardian equivalence theorem. 
D)  laissez-faire economics. 
A)  supply-side economics. 
B)  demand-side economics. 
C)  the Ricardian equivalence theorem. 
D)  laissez-faire economics.

Question 10

Which of the following is an example of an automatic stabilizer?

Accepted Answer

A)  cost of living adjustments to Social Security payments 
B)  unemployment benefits 
C)  a temporary tax rebate 
D)  all of the above 
A)  cost of living adjustments to Social Security payments 
B)  unemployment benefits 
C)  a temporary tax rebate 
D)  all of the above

Question 11

The recognition time lag is the time between

Accepted Answer

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

Question 12

How might fiscal policy be used to correct an inflationary gap?

Accepted Answer

A)  The exchange rate would be adjusted to encourage imports. 
B)  The exchange rate would be adjusted to discourage imports. 
C)  Government spending would be adjusted to reduce consumer spending. 
D)  Business operations would be regulated by the government to become more efficient. 
A)  The exchange rate would be adjusted to encourage imports. 
B)  The exchange rate would be adjusted to discourage imports. 
C)  Government spending would be adjusted to reduce consumer spending. 
D)  Business operations would be regulated by the government to become more efficient.

Question 13

Suppose the government believes the economy is operating beyond the full-employment real GDP. What kind of fiscal policy could it pursue?

Accepted Answer

The government could initiate contractio

Question 14

When data on the economy requires some time to gather and interpret, there is

Accepted Answer

A)  an aggregate time lag. 
B)  an action time lag. 
C)  a recognition time lag. 
D)  an effect time lag. 
A)  an aggregate time lag. 
B)  an action time lag. 
C)  a recognition time lag. 
D)  an effect time lag.

Question 15

Explain how indirect crowding out can offset expansionary fiscal policy.

Accepted Answer

If the government increases spending, it

Question 16

Discretionary fiscal policy

Accepted Answer

A)  is the use of government spending and tax policies to influence economic growth and inflation. 
B)  is the use of regulation to influence economic growth and inflation. 
C)  is the purchase and sale of Treasury securities to influence economic growth and inflation. 
D)  is the use of the money supply to maintain stable prices. 
A)  is the use of government spending and tax policies to influence economic growth and inflation. 
B)  is the use of regulation to influence economic growth and inflation. 
C)  is the purchase and sale of Treasury securities to influence economic growth and inflation. 
D)  is the use of the money supply to maintain stable prices.

Question 17

What are the automatic stabilizers the United States has in place, and how do they function differently from discretionary fiscal policy?

Accepted Answer

Automatic stabilizers are provisions of

Question 18

Fiscal policy involves the actions of

Accepted Answer

A)  taxation and spending in an effort to address inflation and unemployment. 
B)  business regulation to increase economic efficiency. 
C)  changing interest rates to stimulate private savings. 
D)  changing the exchange rate to discourage imports. 
A)  taxation and spending in an effort to address inflation and unemployment. 
B)  business regulation to increase economic efficiency. 
C)  changing interest rates to stimulate private savings. 
D)  changing the exchange rate to discourage imports.

Question 19

Supply-side economists argue cuts in tax rates

Accepted Answer

A)  always reduce tax revenues. 
B)  can raise tax revenues. 
C)  always increase budget deficits. 
D)  only lead to reductions in government spending. 
A)  always reduce tax revenues. 
B)  can raise tax revenues. 
C)  always increase budget deficits. 
D)  only lead to reductions in government spending.

Question 20

-Refer to the above figure. Suppose that the economy starts at AD1. If the government reduces taxes, then the economy goes to AD2, but then falls back to AD3. This is an example of

Accepted Answer

A)  partial crowding-out effect. 
B)  Ricardian equivalence. 
C)  laissez-faire. 
D)  complete crowding-out effect. 
A)  partial crowding-out effect. 
B)  Ricardian equivalence. 
C)  laissez-faire. 
D)  complete crowding-out effect.

Exam 13: Fiscal Policy

An advantage of automatic stabilizers over discretionary fiscal policy is that

If the government increases its spending but does NOT raise taxes

Supply-side economists argue that changes in tax rates cause changes in

What are the various time lags that affect discretionary fiscal policy, and what are their effects?

According to supply-side economics, changes in marginal tax rates will have which of the following effects?

Supply-side theory suggests that

Other factors being constant, what happens when the federal government finances a growing budget deficit by increasing the amount it borrows from the private sector?

A direct expenditure offset occurs when an increase in government spending

The idea that creating incentives for individuals and firms to increase productivity leading to an increase in long-run aggregate supply is

Which of the following is an example of an automatic stabilizer?

The recognition time lag is the time between

How might fiscal policy be used to correct an inflationary gap?

Suppose the government believes the economy is operating beyond the full-employment real GDP. What kind of fiscal policy could it pursue?

When data on the economy requires some time to gather and interpret, there is

Explain how indirect crowding out can offset expansionary fiscal policy.

Discretionary fiscal policy

What are the automatic stabilizers the United States has in place, and how do they function differently from discretionary fiscal policy?

Fiscal policy involves the actions of

Supply-side economists argue cuts in tax rates

-Refer to the above figure. Suppose that the economy starts at AD1. If the government reduces taxes, then the economy goes to AD2, but then falls back to AD3. This is an example of

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

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Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

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Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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