Question 1

The government purchases multiplier is defined as

Accepted Answer

A)  $\frac {\text { Change in equilibrium real GDP  }} { \text { Change in government purchases} }$
 . 
B)  $\frac {\text {  Change in government purchases }} { \text { Change in equilibrium real GDP} }$
 . 
C)  $\frac {\text { Change in government purchases }} { \text {  Change in induced consumption} }$

. 
D)  $\frac {\text { Change in equilibrium real GDP }} { \text {  Change in autonomous consumption} }$

. 
A)  $\frac {\text { Change in equilibrium real GDP  }} { \text { Change in government purchases} }$
 . 
B)  $\frac {\text {  Change in government purchases }} { \text { Change in equilibrium real GDP} }$
 . 
C)  $\frac {\text { Change in government purchases }} { \text {  Change in induced consumption} }$

. 
D)  $\frac {\text { Change in equilibrium real GDP }} { \text {  Change in autonomous consumption} }$

.

Question 2

Which of the following is an objective of fiscal policy?

Accepted Answer

A) energy independence from Middle East oil 
B) health care coverage for all Americans 
C) discovering a cure for AIDs 
D) high rates of economic growth 
E) homeland security 
A) energy independence from Middle East oil 
B) health care coverage for all Americans 
C) discovering a cure for AIDs 
D) high rates of economic growth 
E) homeland security

Question 3

The federal government debt as a percentage of GDP fell

Accepted Answer

A) from 2002-2007. 
B) from 1980-1992. 
C) during World War I and World War II. 
D) from 1998-2001. 
E) during the Great Depression. 
A) from 2002-2007. 
B) from 1980-1992. 
C) during World War I and World War II. 
D) from 1998-2001. 
E) during the Great Depression.

Question 4

For the federal deficit to be lowered

Accepted Answer

A) the federal government must decrease its spending and increase net exports. 
B) the federal government's expenditures must be lower than its tax revenue. 
C) the Federal Reserve must raise interest rates and lower the required reserve ratio. 
D) the Federal Reserve must reduce the money supply. 
A) the federal government must decrease its spending and increase net exports. 
B) the federal government's expenditures must be lower than its tax revenue. 
C) the Federal Reserve must raise interest rates and lower the required reserve ratio. 
D) the Federal Reserve must reduce the money supply.

Question 5

If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2,does it follow that the federal government acted to raise taxes or cut government spending in Year 2?

Accepted Answer

No,the economy could have been in an exp

Question 6

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,the largest tax cuts occurred in which category?

Accepted Answer

A) business tax cuts 
B) energy tax cuts 
C) individual tax cuts 
D) infrastructure tax cuts 
A) business tax cuts 
B) energy tax cuts 
C) individual tax cuts 
D) infrastructure tax cuts

Question 7

In the case of an upward-sloping aggregate supply curve,the change in real GDP brought about by a change in government spending will be less than that predicted by the simple government purchases multiplier.

Accepted Answer

A) True 
 B)False

Question 8

The majority of dollars spent by government prior to the Great Depression was spending at the ________.In the post World War II period,two-thirds to three quarters of all dollars spent by government in the United States are spent at the ________.

Accepted Answer

A) federal level;state and local levels 
B) state and local levels;federal level 
C) state and local levels;state level 
D) local level;state level 
A) federal level;state and local levels 
B) state and local levels;federal level 
C) state and local levels;state level 
D) local level;state level

Question 9

How does expansionary monetary policy increase spending in the economy compared to how expansionary fiscal policy increases spending in the economy?

Accepted Answer

Expansionary monetary policy increases s

Question 10

Assume a closed economy with fixed taxes and the marginal propensity to consume is equal to 0.9.What is the government spending multiplier?

Accepted Answer

A) 10 
B) 9 
C) 5 
D) 1 
A) 10 
B) 9 
C) 5 
D) 1

Question 11

Figure 27-1  
-Refer to Figure 27-1.Suppose the economy is in short-run equilibrium above potential GDP and wages and prices are rising.If contractionary policy is used to move the economy back to long run equilibrium,this would be depicted as a movement from ________ using the static AD-AS model in the figure above.

Accepted Answer

A) D to C 
B) C to B 
C) A to E 
D) B to A 
E) E to A 
A) D to C 
B) C to B 
C) A to E 
D) B to A 
E) E to A

Question 12

Following a decrease in government spending,as the price level falls we would expect the level of interest rates to ________ and investment to ________.

Accepted Answer

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

Question 13

How could the existence of an unemployment insurance system or other transfer programs have reduced the severity of the Great Depression?

Accepted Answer

If these programs existed during the Gre

Question 14

Figure 27-6  
-Refer to Figure 27-6.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,and no fiscal or monetary policy is pursued,then at point B

Accepted Answer

A) the unemployment rate is very low. 
B) firms are operating at below capacity. 
C) the economy is below full employment. 
D) income and profits are falling. 
E) there is pressure on wages and prices to fall. 
A) the unemployment rate is very low. 
B) firms are operating at below capacity. 
C) the economy is below full employment. 
D) income and profits are falling. 
E) there is pressure on wages and prices to fall.

Question 15

Assume a closed economy,that taxes are fixed,and the marginal propensity to consume is equal to 0.8.What is the government spending multiplier?

Accepted Answer

A) 10 
B) 5 
C) 4 
D) 3 
A) 10 
B) 5 
C) 4 
D) 3

Question 16

Does expansionary fiscal policy directly increase the money supply? Isn't it true that the president and Congress fight recessions by spending more money?

Accepted Answer

No,expansionary fiscal policy does not d

Question 17

In the long run,most economists agree that a permanent increase in government spending leads to

Accepted Answer

A) no decrease in private spending. 
B) a decrease in private spending by less than the amount that government spending increased. 
C) a decrease in private spending by the same amount that government spending increased. 
D) a decrease in private spending by more than the amount that government spending increased. 
A) no decrease in private spending. 
B) a decrease in private spending by less than the amount that government spending increased. 
C) a decrease in private spending by the same amount that government spending increased. 
D) a decrease in private spending by more than the amount that government spending increased.

Question 18

The multiplier effect is the series of ________ increases in ________ expenditures that result from an initial increase in ________ expenditures.

Accepted Answer

A) induced;investment;autonomous 
B) induced;consumption;autonomous 
C) autonomous;consumption;induced 
D) autonomous;investment;induced 
A) induced;investment;autonomous 
B) induced;consumption;autonomous 
C) autonomous;consumption;induced 
D) autonomous;investment;induced

Question 19

The Federal Reserve plays a larger role than Congress and the president in stabilizing the economy because

Accepted Answer

A) the Federal Reserve can more quickly change monetary policy than the president and the Congress can change fiscal policy. 
B) the Federal Reserve can immediately recognize when real GDP is below or above potential GDP. 
C) changes in interest rates have a considerably larger effect on the economy than changes in government purchases or taxes. 
D) changes in interest rates have their full effect on the economy in a short period of time,whereas changes in government spending and taxes have their full effect over a long period of time. 
A) the Federal Reserve can more quickly change monetary policy than the president and the Congress can change fiscal policy. 
B) the Federal Reserve can immediately recognize when real GDP is below or above potential GDP. 
C) changes in interest rates have a considerably larger effect on the economy than changes in government purchases or taxes. 
D) changes in interest rates have their full effect on the economy in a short period of time,whereas changes in government spending and taxes have their full effect over a long period of time.

Question 20

Accumulating debt poses a problem for the U.S.federal government because

Accepted Answer

A) it is currently in danger of defaulting on the debt. 
B) a large debt-to-GDP ratio causes crowding out. 
C) building roads and bridges do not yield enough benefits to justify their cost. 
D) the debt has to ultimately be paid off. 
A) it is currently in danger of defaulting on the debt. 
B) a large debt-to-GDP ratio causes crowding out. 
C) building roads and bridges do not yield enough benefits to justify their cost. 
D) the debt has to ultimately be paid off.

Exam 27: Fiscal Policy

The government purchases multiplier is defined as

Which of the following is an objective of fiscal policy?

The federal government debt as a percentage of GDP fell

For the federal deficit to be lowered

If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2,does it follow that the federal government acted to raise taxes or cut government spending in Year 2?

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,the largest tax cuts occurred in which category?

In the case of an upward-sloping aggregate supply curve,the change in real GDP brought about by a change in government spending will be less than that predicted by the simple government purchases multiplier.

The majority of dollars spent by government prior to the Great Depression was spending at the ________.In the post World War II period,two-thirds to three quarters of all dollars spent by government in the United States are spent at the ________.

How does expansionary monetary policy increase spending in the economy compared to how expansionary fiscal policy increases spending in the economy?

Assume a closed economy with fixed taxes and the marginal propensity to consume is equal to 0.9.What is the government spending multiplier?

Following a decrease in government spending,as the price level falls we would expect the level of interest rates to ________ and investment to ________.

How could the existence of an unemployment insurance system or other transfer programs have reduced the severity of the Great Depression?

Figure 27-6 -Refer to Figure 27-6.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,and no fiscal or monetary policy is pursued,then at point B

Assume a closed economy,that taxes are fixed,and the marginal propensity to consume is equal to 0.8.What is the government spending multiplier?

Does expansionary fiscal policy directly increase the money supply? Isn't it true that the president and Congress fight recessions by spending more money?

In the long run,most economists agree that a permanent increase in government spending leads to

The multiplier effect is the series of ________ increases in ________ expenditures that result from an initial increase in ________ expenditures.

The Federal Reserve plays a larger role than Congress and the president in stabilizing the economy because

Accumulating debt poses a problem for the U.S.federal government because

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms,the Stock Market,and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology,production,and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,banks,and the Federal Reserve System

Monetary Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

The majority of dollars spent by government prior to the Great Depression was spending at the .In the post World War II period,two-thirds to three quarters of all dollars spent by government in the United States are spent at the .

Following a decrease in government spending,as the price level falls we would expect the level of interest rates to and investment to .

The multiplier effect is the series of increases in expenditures that result from an initial increase in expenditures.