Question 1

Expansionary fiscal policy may have an even smaller effect on aggregate demand in the open economy than a closed economy.

Accepted Answer

A) True 
 B)False

Question 2

If the MPC = 3/4, an increase in government purchases of $40 billion will ultimately lead to:

Accepted Answer

A) ​a $160 billion increase in aggregate demand. 
B) ​a $40 billion increase in aggregate demand. 
C) ​a $30 billion increase in aggregate demand. 
D) ​a $30 billion decrease in aggregate demand. 
A) ​a $160 billion increase in aggregate demand. 
B) ​a $40 billion increase in aggregate demand. 
C) ​a $30 billion increase in aggregate demand. 
D) ​a $30 billion decrease in aggregate demand.

Question 3

In general, the multiplier effect applies to changes in government spending but not to changes in taxation.

Accepted Answer

A) True 
 B)False

Question 4

Many economists believe that tax cuts increase incentives to work and invest but current U.S. tax levels do not appear to be on the downward side of the Laffer curve.

Accepted Answer

A) True 
 B)False

Question 5

What is the common method of financing a budget deficit?

Accepted Answer

The budget deficit is financed usually b

Question 6

How serious is the national debt to our economic stability?

Accepted Answer

The debt is a significant issue but not

Question 7

Contractionary fiscal policy consists of:

Accepted Answer

A) ​increased government purchases and increased taxes. 
B) ​decreased government purchases and decreased taxes. 
C) ​decreased government purchases and increased taxes. 
D) ​increased government purchases and decreased taxes. 
A) ​increased government purchases and increased taxes. 
B) ​decreased government purchases and decreased taxes. 
C) ​decreased government purchases and increased taxes. 
D) ​increased government purchases and decreased taxes.

Question 8

The multiplier will be greater, other things being equal:

Accepted Answer

A) ​the smaller the fraction of each dollar earned that goes to taxes. 
B) ​the larger the MPC. 
C) ​the smaller the fraction of each dollar of disposable income that goes to saving. 
D) ​all of the above are true. 
A) ​the smaller the fraction of each dollar earned that goes to taxes. 
B) ​the larger the MPC. 
C) ​the smaller the fraction of each dollar of disposable income that goes to saving. 
D) ​all of the above are true.

Question 9

Which of the following would be an example or result of expansionary fiscal policy in action?

Accepted Answer

A) ​an increase in taxation 
B) ​a decrease in government purchases 
C) ​a budget deficit 
D) ​a budget surplus 
A) ​an increase in taxation 
B) ​a decrease in government purchases 
C) ​a budget deficit 
D) ​a budget surplus

Question 10

The primary benefit of the automatic stabilizers is:

Accepted Answer

A) ​they provide public assistance through legislative decision making. 
B) ​they require no new legislative action, so there is no legislative lag before these tools respond to fluctuations in the business cycle. 
C) ​they require legislative action, so there is a lag in response to these tools to fluctuations in the business cycle, and there is time to identify the spillover effects. 
D) ​none of the above. 
A) ​they provide public assistance through legislative decision making. 
B) ​they require no new legislative action, so there is no legislative lag before these tools respond to fluctuations in the business cycle. 
C) ​they require legislative action, so there is a lag in response to these tools to fluctuations in the business cycle, and there is time to identify the spillover effects. 
D) ​none of the above.

Question 11

Proponents of a balanced budget amendment argue that the private advantages that each of us realizes from spending on our government programs are paid for almost entirely by other taxpayers.

Accepted Answer

A) True 
 B)False

Question 12

If MPC = 0.75, a $40 billion decrease in government purchases would have what size effect on the "first round" of induced added consumption?

Accepted Answer

A) ​It would increase first round consumption by $30 billion. 
B) ​It would increase first round consumption by $40 billion. 
C) ​It would increase first round consumption by $120 billion. 
D) ​None of the above; the first round effect would be a decrease in consumption. 
A) ​It would increase first round consumption by $30 billion. 
B) ​It would increase first round consumption by $40 billion. 
C) ​It would increase first round consumption by $120 billion. 
D) ​None of the above; the first round effect would be a decrease in consumption.

Question 13

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

Accepted Answer

A) ​increase interest rates. 
B) ​increase investment. 
C) ​increase net exports. 
D) ​all of the above 
A) ​increase interest rates. 
B) ​increase investment. 
C) ​increase net exports. 
D) ​all of the above

Question 14

A cut in taxes, combined with an increase in government purchases, would:

Accepted Answer

A) ​increase AD. 
B) ​decrease AD. 
C) ​leave AD unchanged. 
D) ​have an indeterminate effect on AD. 
A) ​increase AD. 
B) ​decrease AD. 
C) ​leave AD unchanged. 
D) ​have an indeterminate effect on AD.

Question 15

The federal government buys $10 million worth of aircraft engines from General Motors. If the MPC is .80 what will be the impact on aggregate demand, other things being equal?

Accepted Answer

A) ​Aggregate demand will increase $8 million. 
B) ​Aggregate demand will increase $12.5 million. 
C) ​Aggregate demand will increase $18 million. 
D) ​Aggregate demand will increase $50 million. 
A) ​Aggregate demand will increase $8 million. 
B) ​Aggregate demand will increase $12.5 million. 
C) ​Aggregate demand will increase $18 million. 
D) ​Aggregate demand will increase $50 million.

Question 16

The larger the MPC:

Accepted Answer

A) ​the smaller the multiplier. 
B) ​the smaller the effect of a given increase in government purchases on consumption purchases. 
C) ​the larger the effect of business taxes which reduce investment on aggregate demand. 
D) ​the less powerful changes in individual taxes will be in changing aggregate demand. 
A) ​the smaller the multiplier. 
B) ​the smaller the effect of a given increase in government purchases on consumption purchases. 
C) ​the larger the effect of business taxes which reduce investment on aggregate demand. 
D) ​the less powerful changes in individual taxes will be in changing aggregate demand.

Question 17

If the government cuts taxes, total spending will fall and AD will shift to the left, ceteris paribus.

Accepted Answer

A) True 
 B)False

Question 18

Expansionary fiscal policy will result in a ____ price level and ____ employment in the short run.

Accepted Answer

A) ​higher; higher. 
B) ​higher; lower. 
C) ​lower; higher. 
D) ​lower; lower. 
A) ​higher; higher. 
B) ​higher; lower. 
C) ​lower; higher. 
D) ​lower; lower.

Question 19

Which of the following is true?

Accepted Answer

A) ​The fraction of their total disposable income that households spend on consumption is called the marginal propensity to consume. 
B) ​As the real interest rate falls, additional projects with lower expected rates of return become profitable for firms, and the demand for investment curve shifts right. 
C) ​Firms with excess inventories of finished goods have an increased incentive to invest in new capital to put those inventories to productive use. 
D) ​None of the above is true. 
A) ​The fraction of their total disposable income that households spend on consumption is called the marginal propensity to consume. 
B) ​As the real interest rate falls, additional projects with lower expected rates of return become profitable for firms, and the demand for investment curve shifts right. 
C) ​Firms with excess inventories of finished goods have an increased incentive to invest in new capital to put those inventories to productive use. 
D) ​None of the above is true.

Question 20

If net exports increase by $10 billion and the MPC = 0.6, the resulting increase in the consumption component of AD is:

Accepted Answer

A) ​$25 billion. 
B) ​$15 billion. 
C) ​$6 billion. 
D) ​$4 billion. 
A) ​$25 billion. 
B) ​$15 billion. 
C) ​$6 billion. 
D) ​$4 billion.

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

Expansionary fiscal policy may have an even smaller effect on aggregate demand in the open economy than a closed economy.

If the MPC = 3/4, an increase in government purchases of $40 billion will ultimately lead to:

In general, the multiplier effect applies to changes in government spending but not to changes in taxation.

Many economists believe that tax cuts increase incentives to work and invest but current U.S. tax levels do not appear to be on the downward side of the Laffer curve.

What is the common method of financing a budget deficit?

How serious is the national debt to our economic stability?

Contractionary fiscal policy consists of:

The multiplier will be greater, other things being equal:

Which of the following would be an example or result of expansionary fiscal policy in action?

The primary benefit of the automatic stabilizers is:

Proponents of a balanced budget amendment argue that the private advantages that each of us realizes from spending on our government programs are paid for almost entirely by other taxpayers.

If MPC = 0.75, a $40 billion decrease in government purchases would have what size effect on the "first round" of induced added consumption?

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

A cut in taxes, combined with an increase in government purchases, would:

The federal government buys $10 million worth of aircraft engines from General Motors. If the MPC is .80 what will be the impact on aggregate demand, other things being equal?

The larger the MPC:

If the government cuts taxes, total spending will fall and AD will shift to the left, ceteris paribus.

Expansionary fiscal policy will result in a ____ price level and ____ employment in the short run.

Which of the following is true?

If net exports increase by $10 billion and the MPC = 0.6, the resulting increase in the consumption component of AD is:

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

Expansionary fiscal policy will result in a price level and employment in the short run.