Question 1

-Refer to the above figure. A budget deficit occurs when real national income is

Accepted Answer

A)  Y1. 
B)  Y2. 
C)  Y3. 
D)  None of the above: cannot be determined given the information. 
A)  Y1. 
B)  Y2. 
C)  Y3. 
D)  None of the above: cannot be determined given the information.

Question 2

All of the following are automatic stabilizers EXCEPT

Accepted Answer

A)  discretionary increases in government spending. 
B)  income transfer payments. 
C)  progressive income tax system. 
D)  unemployment compensation. 
A)  discretionary increases in government spending. 
B)  income transfer payments. 
C)  progressive income tax system. 
D)  unemployment compensation.

Question 3

Unemployment compensation programs are called automatic stabilizers because payments increase during

Accepted Answer

A)  expansionary periods. 
B)  periods of high unemployment. 
C)  both recessions and expansions. 
D)  wartime only. 
A)  expansionary periods. 
B)  periods of high unemployment. 
C)  both recessions and expansions. 
D)  wartime only.

Question 4

-Refer to the above figure. Suppose the economy is operating at point A. There is a recessionary gap of ________, which can be closed by ________.

Accepted Answer

A)  $3 trillion; increasing government spending by $1 trillion 
B)  $1 trillion; expansionary fiscal policy that shifts the short-run aggregate supply curve through point C 
C)  $2 trillion; expansionary fiscal policy that generates another $2 trillion in total spending 
D)  $2 trillion; an increase in government spending of $14 trillion 
A)  $3 trillion; increasing government spending by $1 trillion 
B)  $1 trillion; expansionary fiscal policy that shifts the short-run aggregate supply curve through point C 
C)  $2 trillion; expansionary fiscal policy that generates another $2 trillion in total spending 
D)  $2 trillion; an increase in government spending of $14 trillion

Question 5

Fiscal policy involves discretionary changes in

Accepted Answer

A)  interest rates. 
B)  exchange rates. 
C)  lump-sum taxes. 
D)  the rate of growth of the money supply. 
A)  interest rates. 
B)  exchange rates. 
C)  lump-sum taxes. 
D)  the rate of growth of the money supply.

Question 6

Explain why proponents of supply-side effects of tax rate variations who also believe that tax-rate changes influence aggregate demand might claim that cuts in marginal income tax rates can potentially push up real Gross Domestic Product (GDP) without generating inflation.

Accepted Answer

According to supply-side economics, a re

Question 7

In the extreme case of a complete crowding-out effect

Accepted Answer

A)  an increase in interest rates will stimulate investment spending. 
B)  an increase in tax rates will stimulate work effort. 
C)  an increase in government spending will not increase aggregate demand. 
D)  an increase in government spending will stimulate investment spending. 
A)  an increase in interest rates will stimulate investment spending. 
B)  an increase in tax rates will stimulate work effort. 
C)  an increase in government spending will not increase aggregate demand. 
D)  an increase in government spending will stimulate investment spending.

Question 8

When there is an interval between when the fiscal policy changes and corresponding changes in aggregate spending, we have a(n)

Accepted Answer

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

Question 9

If the government wishes to promote a higher rate of growth of real GDP, a supply-side economist would argue the appropriate policy is

Accepted Answer

A)  engaging in expansionary fiscal policy by lowering marginal tax rates. 
B)  engaging in expansionary fiscal policy of increasing government spending. 
C)  lowering marginal tax rates on people and raising them on corporations. 
D)  leaving the economy alone and letting the natural forces bring it into a long-run equilibrium. 
A)  engaging in expansionary fiscal policy by lowering marginal tax rates. 
B)  engaging in expansionary fiscal policy of increasing government spending. 
C)  lowering marginal tax rates on people and raising them on corporations. 
D)  leaving the economy alone and letting the natural forces bring it into a long-run equilibrium.

Question 10

Suppose the economy is experiencing an inflationary gap at the current level of GDP. Which of the following fiscal policy actions would be most appropriate given this gap?

Accepted Answer

A)  decreasing interest rates 
B)  decreasing the money supply 
C)  increasing taxes 
D)  a simultaneous and equal increase in taxes and increase in government spending 
A)  decreasing interest rates 
B)  decreasing the money supply 
C)  increasing taxes 
D)  a simultaneous and equal increase in taxes and increase in government spending

Question 11

Automatic stabilizers are designed to

Accepted Answer

A)  promote global trade. 
B)  simplify the tax system. 
C)  moderate changes in disposable income. 
D)  stabilize the bi-partisan budget process. 
A)  promote global trade. 
B)  simplify the tax system. 
C)  moderate changes in disposable income. 
D)  stabilize the bi-partisan budget process.

Question 12

According to the Laffer curve, we know with certainty that an increase in the tax rate will

Accepted Answer

A)  cause tax revenue to increase. 
B)  cause tax revenue to decrease. 
C)  have no effect on tax revenue. 
D)  cause tax revenue to increase, decrease, or remain unchanged. 
A)  cause tax revenue to increase. 
B)  cause tax revenue to decrease. 
C)  have no effect on tax revenue. 
D)  cause tax revenue to increase, decrease, or remain unchanged.

Question 13

The government has decided to give every resident a $1000 coupon that they can use to purchase their choice of a new car. We would expect this policy to lead to

Accepted Answer

A)  an increase in aggregate demand equivalent to the full impact of all of the coupons redeemable. 
B)  no increase in aggregate demand due to the Ricardian equivalence theorem. 
C)  no increase in aggregate demand because there would be no direct expenditure offset. 
D)  an increase in aggregate demand but not equivalent to the full impact of all of the coupons redeemed due to some direct expenditure offset. 
A)  an increase in aggregate demand equivalent to the full impact of all of the coupons redeemable. 
B)  no increase in aggregate demand due to the Ricardian equivalence theorem. 
C)  no increase in aggregate demand because there would be no direct expenditure offset. 
D)  an increase in aggregate demand but not equivalent to the full impact of all of the coupons redeemed due to some direct expenditure offset.

Question 14

One part of the supply-side argument is that

Accepted Answer

A)  lower marginal tax rates are required to induce Congress to reduce government spending. 
B)  lower marginal tax rates can increase total tax revenues. 
C)  the marginal tax rate should be set at 50 percent. 
D)  the relevant aggregate supply curve is close to horizontal. 
A)  lower marginal tax rates are required to induce Congress to reduce government spending. 
B)  lower marginal tax rates can increase total tax revenues. 
C)  the marginal tax rate should be set at 50 percent. 
D)  the relevant aggregate supply curve is close to horizontal.

Question 15

According to the Laffer curve, increases in the tax rate will lead to a(n)

Accepted Answer

A)  steady decrease in tax revenues. 
B)  steady increase in tax revenues. 
C)  initial decrease in tax revenues and then an increase in tax revenues. 
D)  initial increase in tax revenues and then a decrease in tax revenues. 
A)  steady decrease in tax revenues. 
B)  steady increase in tax revenues. 
C)  initial decrease in tax revenues and then an increase in tax revenues. 
D)  initial increase in tax revenues and then a decrease in tax revenues.

Question 16

Supply-side economists argue that decreasing marginal tax rates

Accepted Answer

A)  increases productivity and shifts the AS curve to the right. 
B)  decreases productivity and shifts the AD curve to the right. 
C)  increases productivity and shifts the AD curve to the left. 
D)  due to the Ricardian equivalence, has no impact on the economy. 
A)  increases productivity and shifts the AS curve to the right. 
B)  decreases productivity and shifts the AD curve to the right. 
C)  increases productivity and shifts the AD curve to the left. 
D)  due to the Ricardian equivalence, has no impact on the economy.

Question 17

A decrease in government spending would cause which of the following to happen?

Accepted Answer

A)  The aggregate demand curve would shift to the left. 
B)  The aggregate demand curve would shift to the right. 
C)  The aggregate supply curve would shift to the right. 
D)  The aggregate supply curve would shift to the left. 
A)  The aggregate demand curve would shift to the left. 
B)  The aggregate demand curve would shift to the right. 
C)  The aggregate supply curve would shift to the right. 
D)  The aggregate supply curve would shift to the left.

Question 18

What do automatic stabilizers attempt to stabilize?

Accepted Answer

A)  long-run aggregate supply 
B)  aggregate demand 
C)  exports 
D)  imports 
A)  long-run aggregate supply 
B)  aggregate demand 
C)  exports 
D)  imports

Question 19

The amount of time that elapses between the implementation of a policy and the results of that policy is

Accepted Answer

A)  fiscal policy. 
B)  the recognition time lag. 
C)  the effect time lag. 
D)  the action time lag. 
A)  fiscal policy. 
B)  the recognition time lag. 
C)  the effect time lag. 
D)  the action time lag.

Question 20

The proposition that an increase in the federal budget deficit caused entirely by a current tax cut has no effect on aggregate demand is called the

Accepted Answer

A)  indirect effect. 
B)  interest rate effect. 
C)  open-economy effect. 
D)  Ricardian equivalence theorem. 
A)  indirect effect. 
B)  interest rate effect. 
C)  open-economy effect. 
D)  Ricardian equivalence theorem.

Exam 13: Fiscal Policy

-Refer to the above figure. A budget deficit occurs when real national income is

All of the following are automatic stabilizers EXCEPT

Unemployment compensation programs are called automatic stabilizers because payments increase during

-Refer to the above figure. Suppose the economy is operating at point A. There is a recessionary gap of ________, which can be closed by ________.

Fiscal policy involves discretionary changes in

Explain why proponents of supply-side effects of tax rate variations who also believe that tax-rate changes influence aggregate demand might claim that cuts in marginal income tax rates can potentially push up real Gross Domestic Product (GDP) without generating inflation.

In the extreme case of a complete crowding-out effect

When there is an interval between when the fiscal policy changes and corresponding changes in aggregate spending, we have a(n)

If the government wishes to promote a higher rate of growth of real GDP, a supply-side economist would argue the appropriate policy is

Suppose the economy is experiencing an inflationary gap at the current level of GDP. Which of the following fiscal policy actions would be most appropriate given this gap?

Automatic stabilizers are designed to

According to the Laffer curve, we know with certainty that an increase in the tax rate will

The government has decided to give every resident a $1000 coupon that they can use to purchase their choice of a new car. We would expect this policy to lead to

One part of the supply-side argument is that

According to the Laffer curve, increases in the tax rate will lead to a(n)

Supply-side economists argue that decreasing marginal tax rates

A decrease in government spending would cause which of the following to happen?

What do automatic stabilizers attempt to stabilize?

The amount of time that elapses between the implementation of a policy and the results of that policy is

The proposition that an increase in the federal budget deficit caused entirely by a current tax cut has no effect on aggregate demand is called the

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

Filters

-Refer to the above figure. Suppose the economy is operating at point A. There is a recessionary gap of , which can be closed by .