Question 1

Justification of a government program based on the jobs that it will create rather than the merits of the program itself is known as the:

Accepted Answer

A) ​law of unintended consequences. 
B) ​invisible hand. 
C) ​crowding out effect. 
D) ​broken window fallacy. 
A) ​law of unintended consequences. 
B) ​invisible hand. 
C) ​crowding out effect. 
D) ​broken window fallacy. D

Question 2

Supply-siders are generally critical of government intervention and regulation, since they believe regulations can be costly impediments to economic growth.

Accepted Answer

A) True 
 B)False  True

Question 3

After legislation is signed into law, the time it takes before actual fiscal stimulus is noticed is termed as:

Accepted Answer

A) ​signal lag. 
B) ​implementation lag. 
C) ​impact lag. 
D) ​recognition lag. 
A) ​signal lag. 
B) ​implementation lag. 
C) ​impact lag. 
D) ​recognition lag. C

Question 4

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 5

Why does a larger government budget deficit increase the magnitude of the crowding-out effect?

Accepted Answer

The crowding-out effect states that the

Question 6

A tax rate cut, increase in government purchases, and creating an investment tax credit would shift:

Accepted Answer

A) ​only the aggregate demand curve. 
B) ​only the aggregate supply curve. 
C) ​both the aggregate supply and aggregate demand curves. 
D) ​neither the aggregate supply nor the aggregate demand curve. 
A) ​only the aggregate demand curve. 
B) ​only the aggregate supply curve. 
C) ​both the aggregate supply and aggregate demand curves. 
D) ​neither the aggregate supply nor the aggregate demand curve.

Question 7

How does the multiplier work and what might government use it for?

Accepted Answer

The initial purchase of goods or service

Question 8

Which of the following is true about time lags and fiscal policy?

Accepted Answer

A) ​Changes in federal taxes can be implemented easily by the President without the approval of Congress. 
B) ​Changes in fiscal policy that involves changes in government spending on public works projects do not involve significant time lags. 
C) ​Once an appropriate fiscal policy has been determined it can be implemented quickly. 
D) ​The lag time between when a fiscal policy is needed and when it is actually implemented is considerable. 
A) ​Changes in federal taxes can be implemented easily by the President without the approval of Congress. 
B) ​Changes in fiscal policy that involves changes in government spending on public works projects do not involve significant time lags. 
C) ​Once an appropriate fiscal policy has been determined it can be implemented quickly. 
D) ​The lag time between when a fiscal policy is needed and when it is actually implemented is considerable.

Question 9

The issuance of debt involves some intergenerational transfer of income; long after the debt is issued, a new generation of taxpayers must make interest payments on the debt.

Accepted Answer

A) True 
 B)False

Question 10

A decrease in transfer payments or an increase in taxes would ____ disposable income of households and thus ____ in consumption purchases.

Accepted Answer

A) ​increase; increase. 
B) ​increase; decrease. 
C) ​decrease; increase. 
D) ​decrease; decrease. 
A) ​increase; increase. 
B) ​increase; decrease. 
C) ​decrease; increase. 
D) ​decrease; decrease.

Question 11

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 12

Which group or groups buy U.S. public debt?

Accepted Answer

A) ​Government agencies 
B) ​Private individuals 
C) ​Private institutions 
D) ​All of the above. 
A) ​Government agencies 
B) ​Private individuals 
C) ​Private institutions 
D) ​All of the above.

Question 13

If the MPC is 2/3, then 2/3 of the effect of an increase in government purchases on aggregate demand will come from increased consumption.

Accepted Answer

A) True 
 B)False

Question 14

The argument that an increase in aggregate demand, as a result of an increase in government purchases, will be offset by increases in savings (less current consumer spending) for future taxes is called:

Accepted Answer

A) ​the crowding out effect 
B) ​the Ricardian equivalence theorem 
C) ​the budget deficit effect 
D) ​the budget surplus effect 
A) ​the crowding out effect 
B) ​the Ricardian equivalence theorem 
C) ​the budget deficit effect 
D) ​the budget surplus effect

Question 15

If the government decides to spend an extra $5 billion on fighter jets that they would otherwise have spent on road construction, and the MPC = 0.75, what is the effect on AD?

Accepted Answer

A) ​It has no effect. 
B) ​It increases by $5 billion. 
C) ​It increases by $15 billion. 
D) ​It increases by $20 billion. 
A) ​It has no effect. 
B) ​It increases by $5 billion. 
C) ​It increases by $15 billion. 
D) ​It increases by $20 billion.

Question 16

If there is initially a federal budget deficit, and taxes fall while transfer payments rise:

Accepted Answer

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

Question 17

When the crowding-out effect of an increase in government purchases is included in the analysis:

Accepted Answer

A) ​AD shifts left, but by more than the simple multiplier analysis would imply. 
B) ​AD shifts left, but by less than the simple multiplier analysis would imply. 
C) ​AD shifts right, but by more than the simple multiplier analysis would imply. 
D) ​AD shifts right, but by less than the simple multiplier analysis would imply. 
A) ​AD shifts left, but by more than the simple multiplier analysis would imply. 
B) ​AD shifts left, but by less than the simple multiplier analysis would imply. 
C) ​AD shifts right, but by more than the simple multiplier analysis would imply. 
D) ​AD shifts right, but by less than the simple multiplier analysis would imply.

Question 18

Contractionary fiscal policy, other things being equal, will tend to:

Accepted Answer

A) ​increase interest rates. 
B) ​increase investment. 
C) ​increase net exports. 
D) ​do both (b) and (c). 
A) ​increase interest rates. 
B) ​increase investment. 
C) ​increase net exports. 
D) ​do both (b) and (c).

Question 19

A cut in marginal tax rates would:

Accepted Answer

A) ​increase the price level and real GDP in the short run if it has no effect on short-run aggregate supply. 
B) ​increase the price level and real GDP in the short run, even if possible aggregate supply effects are included. 
C) ​increase real GDP in the short run, but there is an indeterminate effect on the price level if there is no supply-side effect on aggregate supply. 
D) ​increase real GDP in the short run, but there is an indeterminate effect on the price level if supply-side effects on aggregate supply are included. 
A) ​increase the price level and real GDP in the short run if it has no effect on short-run aggregate supply. 
B) ​increase the price level and real GDP in the short run, even if possible aggregate supply effects are included. 
C) ​increase real GDP in the short run, but there is an indeterminate effect on the price level if there is no supply-side effect on aggregate supply. 
D) ​increase real GDP in the short run, but there is an indeterminate effect on the price level if supply-side effects on aggregate supply are included.

Question 20

The crowding-out effect occurs when household consumption and investment spending decrease as a result of financing a budget deficit.

Accepted Answer

A) True 
 B)False

Exam 16: The Markets for Labor, Capital, and Land

Justification of a government program based on the jobs that it will create rather than the merits of the program itself is known as the:

Supply-siders are generally critical of government intervention and regulation, since they believe regulations can be costly impediments to economic growth.

After legislation is signed into law, the time it takes before actual fiscal stimulus is noticed is termed as:

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?

Why does a larger government budget deficit increase the magnitude of the crowding-out effect?

A tax rate cut, increase in government purchases, and creating an investment tax credit would shift:

How does the multiplier work and what might government use it for?

Which of the following is true about time lags and fiscal policy?

The issuance of debt involves some intergenerational transfer of income; long after the debt is issued, a new generation of taxpayers must make interest payments on the debt.

A decrease in transfer payments or an increase in taxes would ____ disposable income of households and thus ____ in consumption purchases.

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.

Which group or groups buy U.S. public debt?

If the MPC is 2/3, then 2/3 of the effect of an increase in government purchases on aggregate demand will come from increased consumption.

The argument that an increase in aggregate demand, as a result of an increase in government purchases, will be offset by increases in savings (less current consumer spending) for future taxes is called:

If the government decides to spend an extra $5 billion on fighter jets that they would otherwise have spent on road construction, and the MPC = 0.75, what is the effect on AD?

If there is initially a federal budget deficit, and taxes fall while transfer payments rise:

When the crowding-out effect of an increase in government purchases is included in the analysis:

Contractionary fiscal policy, other things being equal, will tend to:

A cut in marginal tax rates would:

The crowding-out effect occurs when household consumption and investment spending decrease as a result of financing a budget deficit.

The Role and Method of Economics

Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Market in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

Income, Poverty and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Filters

A decrease in transfer payments or an increase in taxes would disposable income of households and thus in consumption purchases.