Question 1

The tax multiplier is calculated as "one minus the government purchases multiplier."

Accepted Answer

A) True 
 B)False

Question 2

Table 27-3
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2016 & \$ 18.0 \text { trillion } & \$ 18.0 \text { trillion } & 150 \
\hline 2017 & 18.5 \text { trillion } & 18.2 \text { trillion } & 152 \
\hline
\end{array}$$
-Refer to Table 27-3.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2016 and in 2017 if Congress and the president do not use fiscal policy.If Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2017,which of the following will be higher than if Congress and the president had taken no action?

Accepted Answer

A) real GDP and the unemployment rate 
B) real GDP and the inflation rate 
C) real GDP and potential GDP 
D) potential GDP and the inflation rate 
A) real GDP and the unemployment rate 
B) real GDP and the inflation rate 
C) real GDP and potential GDP 
D) potential GDP and the inflation rate

Question 3

During 1970-1997,the U.S.federal government was

Accepted Answer

A) in surplus every year. 
B) balanced every year. 
C) in deficit every year. 
D) in deficit most of those years. 
A) in surplus every year. 
B) balanced every year. 
C) in deficit every year. 
D) in deficit most of those years.

Question 4

Long lags associated with the legislative process in implementing fiscal policy make it more difficult to use than monetary policy.

Accepted Answer

A) True 
 B)False

Question 5

Economists refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the ________ effect.

Accepted Answer

A) multiplier 
B) expenditure 
C) consumption 
D) aggregate demand 
A) multiplier 
B) expenditure 
C) consumption 
D) aggregate demand

Question 6

Increases in government spending result in ________ in the short run,and permanent increases in government spending result in ________ in the long run.

Accepted Answer

A) partial crowding out;partial crowding out 
B) partial crowding out;complete crowding out 
C) complete crowding out;complete crowding out 
D) complete crowding out;partial crowding out 
A) partial crowding out;partial crowding out 
B) partial crowding out;complete crowding out 
C) complete crowding out;complete crowding out 
D) complete crowding out;partial crowding out

Question 7

In preparing their estimates of the stimulus package's effect on GDP,Obama administration economists estimated a government purchases multiplier of 1.57.This indicates that a $1 billion increase in government purchases would increase equilibrium real GDP by

Accepted Answer

A) $1 billion. 
B) $1.57 billion. 
C) $15.7 billion. 
D) $157 billion. 
A) $1 billion. 
B) $1.57 billion. 
C) $15.7 billion. 
D) $157 billion.

Question 8

The nation of Hyperbole is in a recession,and the government decides to increase taxes and reduce government spending to reduce the growing deficit.This will ________ aggregate demand and will likely ________ real GDP and employment.

Accepted Answer

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

Question 9

Which of the following statements about the Social Security,Medicare,and Medicaid programs is true?

Accepted Answer

A) Spending on these three programs will rise from 9.7% of GDP currently to 10.2% of GDP by 2050. 
B) Costs are being driven up by the fact that Americans are living longer and medical costs are rising substantially. 
C) Some economists have argued for decreasing taxes to help with these programs' funding problems. 
D) Some economists have argued for increasing benefits to help with these programs' funding problems. 
A) Spending on these three programs will rise from 9.7% of GDP currently to 10.2% of GDP by 2050. 
B) Costs are being driven up by the fact that Americans are living longer and medical costs are rising substantially. 
C) Some economists have argued for decreasing taxes to help with these programs' funding problems. 
D) Some economists have argued for increasing benefits to help with these programs' funding problems.

Question 10

Part of the spending on the Doyle Drive project in northern California came from the American Reinvestment and Recovery Act,which is an example of discretionary fiscal policy aimed at increasing

Accepted Answer

A) real GDP and employment. 
B) tax revenues and the federal budget surplus. 
C) disposable income and interest rates. 
D) the money supply and money demand. 
A) real GDP and employment. 
B) tax revenues and the federal budget surplus. 
C) disposable income and interest rates. 
D) the money supply and money demand.

Question 11

Government deficits tend to increase during

Accepted Answer

A) recessions and booms. 
B) periods of war and recession. 
C) periods of below- or above-average growth. 
D) periods of increased financial uncertainty. 
A) recessions and booms. 
B) periods of war and recession. 
C) periods of below- or above-average growth. 
D) periods of increased financial uncertainty.

Question 12

The largest source of federal government revenue in 2014 was

Accepted Answer

A) sales taxes. 
B) corporate income taxes. 
C) individual income taxes. 
D) payroll taxes to fund Social Security and Medicare programs. 
A) sales taxes. 
B) corporate income taxes. 
C) individual income taxes. 
D) payroll taxes to fund Social Security and Medicare programs.

Question 13

Figure 27-11  
-Refer to Figure 27-11.In the graph above,the shift from AD1 to AD2 represents the total change in aggregate demand.If government purchases increased by $50 billion,then the distance from point A to point B ________ $50 billion.

Accepted Answer

A) would be equal to 
B) would be greater than 
C) would be less than 
D) may be greater than or less than 
A) would be equal to 
B) would be greater than 
C) would be less than 
D) may be greater than or less than

Question 14

Forecasts by the Congressional Budget Office show spending on Social Security,Medicare,and Medicaid rising from 10.1 percent of GDP in 2015 to ________ percent of GDP in 2090,and by 2090 the federal government will be spending,as a fraction of GDP,________ on these three programs as it currently spends on all programs combined.

Accepted Answer

A) 16.2 percent;nearly as much 
B) 16.2 percent;half as much 
C) 19.8 percent;nearly as much 
D) 19.8 percent;half as much 
A) 16.2 percent;nearly as much 
B) 16.2 percent;half as much 
C) 19.8 percent;nearly as much 
D) 19.8 percent;half as much

Question 15

The double taxation problem occurs because households pay taxes on dividends and capital gains from stock and corporations pay taxes on corporate profits.

Accepted Answer

A) True 
 B)False

Question 16

If tax reduction and simplification are effective,then

Accepted Answer

A) real wages will rise as labor supply and demand increase. 
B) saving and investment in new capital will increase. 
C) interest rates will rise in financial markets and demand for financial assets falls. 
D) fewer new firms will be established,since existing firms will make more profit. 
A) real wages will rise as labor supply and demand increase. 
B) saving and investment in new capital will increase. 
C) interest rates will rise in financial markets and demand for financial assets falls. 
D) fewer new firms will be established,since existing firms will make more profit.

Question 17

Table 27-2
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2016 & \$ 18.0 \text { trillion } & \$ 18.0 \text { trillion } & 150 \
\hline 2017 & 18.5 \text { trillion } & 18.8 \text { trillion } & 154 \
\hline
\end{array}$$
-Refer to Table 27-2.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2016 and in 2017 if Congress and the president do not use fiscal policy.If Congress and the president want to keep real GDP at its potential level in 2017,they should

Accepted Answer

A) buy Treasury securities. 
B) conduct expansionary fiscal policy. 
C) decrease government purchases. 
D) decrease the discount rate. 
A) buy Treasury securities. 
B) conduct expansionary fiscal policy. 
C) decrease government purchases. 
D) decrease the discount rate.

Question 18

Which of the following provides health-care coverage to people age 65 and over?

Accepted Answer

A) Medicaid 
B) Medicare 
C) Social Security 
D) Health-Aid 
A) Medicaid 
B) Medicare 
C) Social Security 
D) Health-Aid

Question 19

The tax multiplier

Accepted Answer

A) is negative. 
B) is larger in absolute value as compared to the government spending multiplier. 
C) is a measure of how much taxes will fall when income is falling. 
D) is always less than one. 
A) is negative. 
B) is larger in absolute value as compared to the government spending multiplier. 
C) is a measure of how much taxes will fall when income is falling. 
D) is always less than one.

Question 20

Suppose the federal budget deficit for the year was $100 billion and the economy was in a recession.If the economy had been at potential GDP,it is estimated that tax revenues would have been $60 billion higher and government spending on transfer payments $50 billion lower.Using these estimates,the cyclically adjusted budget

Accepted Answer

A) deficit was $210 billion. 
B) deficit was $110 billion. 
C) surplus was $10 billion. 
D) surplus was $110 billion. 
A) deficit was $210 billion. 
B) deficit was $110 billion. 
C) surplus was $10 billion. 
D) surplus was $110 billion.

Exam 27: Fiscal Policy

The tax multiplier is calculated as "one minus the government purchases multiplier."

During 1970-1997,the U.S.federal government was

Long lags associated with the legislative process in implementing fiscal policy make it more difficult to use than monetary policy.

Economists refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the ________ effect.

Increases in government spending result in ________ in the short run,and permanent increases in government spending result in ________ in the long run.

In preparing their estimates of the stimulus package's effect on GDP,Obama administration economists estimated a government purchases multiplier of 1.57.This indicates that a $1 billion increase in government purchases would increase equilibrium real GDP by

The nation of Hyperbole is in a recession,and the government decides to increase taxes and reduce government spending to reduce the growing deficit.This will ________ aggregate demand and will likely ________ real GDP and employment.

Which of the following statements about the Social Security,Medicare,and Medicaid programs is true?

Part of the spending on the Doyle Drive project in northern California came from the American Reinvestment and Recovery Act,which is an example of discretionary fiscal policy aimed at increasing

Government deficits tend to increase during

The largest source of federal government revenue in 2014 was

Figure 27-11 -Refer to Figure 27-11.In the graph above,the shift from AD1 to AD2 represents the total change in aggregate demand.If government purchases increased by $50 billion,then the distance from point A to point B ________ $50 billion.

The double taxation problem occurs because households pay taxes on dividends and capital gains from stock and corporations pay taxes on corporate profits.

If tax reduction and simplification are effective,then

Which of the following provides health-care coverage to people age 65 and over?

The tax multiplier

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

Increases in government spending result in in the short run,and permanent increases in government spending result in in the long run.

The nation of Hyperbole is in a recession,and the government decides to increase taxes and reduce government spending to reduce the growing deficit.This will aggregate demand and will likely real GDP and employment.