Question 1

Since the Social Security system began in 1935,the number of workers per retiree has

Accepted Answer

A) stayed roughly the same. 
B) continually risen. 
C) continually declined. 
D) risen and declined with different generations. 
A) stayed roughly the same. 
B) continually risen. 
C) continually declined. 
D) risen and declined with different generations.

Question 2

Which of the following is a reason why we should consider the federal national debt a problem?

Accepted Answer

A) The federal government is in danger of defaulting on its debt. 
B) If the debt drives up interest rates,crowding out will occur. 
C) If the debt was incurred to finance improvements in infrastructure,crowding out will occur. 
D) If the debt was incurred to finance research and development,crowding out will occur. 
A) The federal government is in danger of defaulting on its debt. 
B) If the debt drives up interest rates,crowding out will occur. 
C) If the debt was incurred to finance improvements in infrastructure,crowding out will occur. 
D) If the debt was incurred to finance research and development,crowding out will occur.

Question 3

The government purchases multiplier will be larger if the marginal income tax rate decreases.

Accepted Answer

A) True 
 B)False

Question 4

Expansionary fiscal policy will

Accepted Answer

A) shift the aggregate demand curve to the left. 
B) shift the aggregate demand curve to the right. 
C) not shift the aggregate demand curve. 
D) shift the short-run aggregate supply curve to the left. 
A) shift the aggregate demand curve to the left. 
B) shift the aggregate demand curve to the right. 
C) not shift the aggregate demand curve. 
D) shift the short-run aggregate supply curve to the left.

Question 5

As a percentage of GDP,federal expenditures ________ from 1950 to the early 1990s,________ from 1992 to 2001,and have ________ since 2001.

Accepted Answer

A) rose;fell;risen 
B) fell;fell;risen 
C) rose;rose;fallen 
D) fell;rose;fallen 
A) rose;fell;risen 
B) fell;fell;risen 
C) rose;rose;fallen 
D) fell;rose;fallen

Question 6

A change in tax rates

Accepted Answer

A) has a less complicated effect on GDP than does a tax cut of a fixed amount. 
B) has a larger multiplier effect the smaller the tax rate. 
C) will not affect disposable income. 
D) will not affect the size of the multiplier. 
A) has a less complicated effect on GDP than does a tax cut of a fixed amount. 
B) has a larger multiplier effect the smaller the tax rate. 
C) will not affect disposable income. 
D) will not affect the size of the multiplier.

Question 7

Figure 27-5  
-Refer to Figure 27-5.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 below capacity. 
C) the economy is above full employment. 
D) income and profits are rising. 
E) there is pressure on wages and prices to rise. 
A) the unemployment rate is very low. 
B) firms are operating below capacity. 
C) the economy is above full employment. 
D) income and profits are rising. 
E) there is pressure on wages and prices to rise.

Question 8

The tax multiplier equals the change in ________ divided by the change in ________.

Accepted Answer

A) taxes;equilibrium real GDP 
B) equilibrium real GDP;taxes 
C) taxes;consumption spending 
D) consumption spending;taxes 
A) taxes;equilibrium real GDP 
B) equilibrium real GDP;taxes 
C) taxes;consumption spending 
D) consumption spending;taxes

Question 9

The automatic budget surpluses and budget deficits that occur in the federal budget over the business cycle

Accepted Answer

A) destabilize the economy. 
B) stabilize the economy. 
C) decrease potential GDP. 
D) increase potential GDP. 
A) destabilize the economy. 
B) stabilize the economy. 
C) decrease potential GDP. 
D) increase potential GDP.

Question 10

To combat a recession with discretionary fiscal policy,Congress and the president should

Accepted Answer

A) decrease government spending to balance the budget. 
B) decrease taxes to increase consumer disposable income. 
C) lower interest rates and increase investment by increasing the money supply. 
D) raise taxes on interest and dividends,but not on personal income. 
A) decrease government spending to balance the budget. 
B) decrease taxes to increase consumer disposable income. 
C) lower interest rates and increase investment by increasing the money supply. 
D) raise taxes on interest and dividends,but not on personal income.

Question 11

What is the difference between federal purchases and federal expenditures?

Accepted Answer

Federal purchases refer to federal spend

Question 12

Consider a tax cut which affects not only consumer disposable income,but also after-tax earnings from labor supplied to labor markets and from financial assets acquired through saving.In the long run we would expect this tax cut to

Accepted Answer

A) decrease both the price level and increase real GDP. 
B) increase both the price level and the level of real GDP. 
C) increase the level of real GDP. 
D) increase the price level. 
A) decrease both the price level and increase real GDP. 
B) increase both the price level and the level of real GDP. 
C) increase the level of real GDP. 
D) increase the price level.

Question 13

President Bush lowered taxes on capital gains and dividends in 2003.Explain how this might increase aggregate supply.

Accepted Answer

A lender earns a capital gain if she pur

Question 14

An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.

Accepted Answer

A) True 
 B)False

Question 15

Suppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion.If the president and Congress increased government purchases by $500 billion,what would be the result on the economy?

Accepted Answer

The economy would go from a short-run eq

Question 16

What is the "tax wedge"?

Accepted Answer

The "tax wedge" is t

Question 17

Figure 27-1  
-Refer to Figure 27-1.Suppose the economy is in a recession and expansionary fiscal policy is pursued.Using the static AD-AS model in the figure above,this would be depicted as a movement from

Accepted Answer

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

Question 18

The level of crowding out associated with a tax cut will be smaller if the tax change has a supply-side effect than it will be if it only has a demand-side effect.

Accepted Answer

A) True 
 B)False

Question 19

The aggregate demand curve will shift to the right ________ the initial increase in government purchases.

Accepted Answer

A) by less than 
B) by more than 
C) by the same amount as 
D) sometimes by more than and other times by less than 
A) by less than 
B) by more than 
C) by the same amount as 
D) sometimes by more than and other times by less than

Question 20

The gap between potential GDP and real GDP had been as large as 7 percent during the worst of the 2007-2009 recession.By 2015,the gap

Accepted Answer

A) had been eliminated. 
B) was still nearly 3 percent. 
C) remained at 7 percent. 
D) was positive,with real GDP exceeding potential GDP. 
A) had been eliminated. 
B) was still nearly 3 percent. 
C) remained at 7 percent. 
D) was positive,with real GDP exceeding potential GDP.

Exam 27: Fiscal Policy

Since the Social Security system began in 1935,the number of workers per retiree has

Which of the following is a reason why we should consider the federal national debt a problem?

The government purchases multiplier will be larger if the marginal income tax rate decreases.

Expansionary fiscal policy will

As a percentage of GDP,federal expenditures ________ from 1950 to the early 1990s,________ from 1992 to 2001,and have ________ since 2001.

A change in tax rates

Figure 27-5 -Refer to Figure 27-5.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

The tax multiplier equals the change in ________ divided by the change in ________.

The automatic budget surpluses and budget deficits that occur in the federal budget over the business cycle

To combat a recession with discretionary fiscal policy,Congress and the president should

What is the difference between federal purchases and federal expenditures?

Consider a tax cut which affects not only consumer disposable income,but also after-tax earnings from labor supplied to labor markets and from financial assets acquired through saving.In the long run we would expect this tax cut to

President Bush lowered taxes on capital gains and dividends in 2003.Explain how this might increase aggregate supply.

An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.

Suppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion.If the president and Congress increased government purchases by $500 billion,what would be the result on the economy?

What is the "tax wedge"?

Figure 27-1 -Refer to Figure 27-1.Suppose the economy is in a recession and expansionary fiscal policy is pursued.Using the static AD-AS model in the figure above,this would be depicted as a movement from

The level of crowding out associated with a tax cut will be smaller if the tax change has a supply-side effect than it will be if it only has a demand-side effect.

The aggregate demand curve will shift to the right ________ the initial increase in government purchases.

The gap between potential GDP and real GDP had been as large as 7 percent during the worst of the 2007-2009 recession.By 2015,the gap

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

As a percentage of GDP,federal expenditures from 1950 to the early 1990s, from 1992 to 2001,and have since 2001.

The tax multiplier equals the change in divided by the change in .