Question 1

If policymakers implement an expansionary fiscal policy but do not take into account the potential for crowding out,the new equilibrium level of GDP is likely to

Accepted Answer

A) be at potential GDP. 
B) be above potential GDP. 
C) be below potential GDP. 
D) There is insufficient information given here to draw a conclusion. 
A) be at potential GDP. 
B) be above potential GDP. 
C) be below potential GDP. 
D) There is insufficient information given here to draw a conclusion.

Question 2

From an initial long-run equilibrium,if aggregate demand grows more slowly than long-run and short-run aggregate supply,then Congress and the president would most likely

Accepted Answer

A) increase the required reserve ratio and decrease government spending. 
B) decrease government spending. 
C) decrease oil prices. 
D) decrease taxes. 
E) lower interest rates. 
A) increase the required reserve ratio and decrease government spending. 
B) decrease government spending. 
C) decrease oil prices. 
D) decrease taxes. 
E) lower interest rates.

Question 3

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

Accepted Answer

A) automatic stabilizers. 
B) discretionary fiscal policy. 
C) discretionary monetary policy. 
D) automatic monetary policy. 
A) automatic stabilizers. 
B) discretionary fiscal policy. 
C) discretionary monetary policy. 
D) automatic monetary policy.

Question 4

Federal government expenditures,as a percentage of GDP

Accepted Answer

A) have risen since the early 1950s to the present. 
B) have fallen since the early 1950s to the present. 
C) rose from 1950 to 1991,fell from 1992 to 2001,and have risen from 2001 to the present. 
D) rose from 1950 to 2001 and then fell from 2001 to the present. 
E) rose from 1950 to 1980,fell from 1981 to 2001,and have risen from 2001 to the present. 
A) have risen since the early 1950s to the present. 
B) have fallen since the early 1950s to the present. 
C) rose from 1950 to 1991,fell from 1992 to 2001,and have risen from 2001 to the present. 
D) rose from 1950 to 2001 and then fell from 2001 to the present. 
E) rose from 1950 to 1980,fell from 1981 to 2001,and have risen from 2001 to the present.

Question 5

Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?

Accepted Answer

A) an increase in government purchases 
B) an increase in the supply of money 
C) an increase in individual income taxes 
D) a decrease in transfer payments 
A) an increase in government purchases 
B) an increase in the supply of money 
C) an increase in individual income taxes 
D) a decrease in transfer payments

Question 6

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.75,the tax rate is 0.2,and the marginal propensity to import equals 0.3.

Accepted Answer

A) 1.43 
B) 1.6 
C) 3.33 
D) 4 
A) 1.43 
B) 1.6 
C) 3.33 
D) 4

Question 7

Suppose that the current equilibrium GDP is $14.5 trillion and that potential GDP is $14.3 trillion.Will decreasing government purchases by $200 billion,or raising taxes by $200 billion,restore the economy to potential GDP? Explain.

Accepted Answer

Neither policy is appropriate because th

Question 8

Give an example of an automatic stabilizer.Explain how automatic stabilizers work in the case of recession.

Accepted Answer

Examples of automatic stabilizers are un

Question 9

Government transfer payments include which of the following?

Accepted Answer

A) interest on the national debt 
B) grants to state and local governments 
C) Social Security and Medicare programs 
D) national defense 
A) interest on the national debt 
B) grants to state and local governments 
C) Social Security and Medicare programs 
D) national defense

Question 10

Tax increases on business income decrease aggregate demand by decreasing

Accepted Answer

A) business investment spending. 
B) consumption spending. 
C) government spending. 
D) wage rates. 
A) business investment spending. 
B) consumption spending. 
C) government spending. 
D) wage rates.

Question 11

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

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 12

The federal government debt equals

Accepted Answer

A) tax revenues minus government spending. 
B) government spending minus tax revenues. 
C) the accumulation of past budget deficits. 
D) the total value of U.S.Treasury bonds outstanding. 
A) tax revenues minus government spending. 
B) government spending minus tax revenues. 
C) the accumulation of past budget deficits. 
D) the total value of U.S.Treasury bonds outstanding.

Question 13

Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion.To move the economy back to potential GDP,Congress should

Accepted Answer

A) lower taxes by an amount less than $500 billion. 
B) raise government purchases by $500 billion. 
C) raise government purchases by more than $500 billion. 
D) lower taxes by $500 billion. 
E) lower government purchases by $500 billion. 
A) lower taxes by an amount less than $500 billion. 
B) raise government purchases by $500 billion. 
C) raise government purchases by more than $500 billion. 
D) lower taxes by $500 billion. 
E) lower government purchases by $500 billion.

Question 14

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 ________ increase in government purchases would increase equilibrium real GDP by $157 billion

Accepted Answer

A) $1 billion 
B) $10 billion 
C) $100 billion 
D) $157 billion 
A) $1 billion 
B) $10 billion 
C) $100 billion 
D) $157 billion

Question 15

The multiplier effect following an increase in expenditure is generated by induced increases in consumption expenditure as income rises.

Accepted Answer

A) True 
 B)False

Question 16

An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

Accepted Answer

A) increase;rise;falls 
B) increase;fall;rises 
C) decrease;rise;falls 
D) decrease;fall;rises 
A) increase;rise;falls 
B) increase;fall;rises 
C) decrease;rise;falls 
D) decrease;fall;rises

Question 17

During the twentieth century,the largest budget deficits as a percentage of GDP occurred

Accepted Answer

A) during the 1990s. 
B) during the 1980s. 
C) during the Vietnam war. 
D) during World Wars I and II. 
A) during the 1990s. 
B) during the 1980s. 
C) during the Vietnam war. 
D) during World Wars I and II.

Question 18

Which of the following would not be considered an automatic stabilizer?

Accepted Answer

A) legislation increasing funding for job retraining passed during a recession 
B) decreasing unemployment insurance payments due to decreased joblessness during an expansion 
C) rising income tax collections due to rising incomes during an expansion 
D) declining food stamp payments due to more persons finding jobs during an expansion 
A) legislation increasing funding for job retraining passed during a recession 
B) decreasing unemployment insurance payments due to decreased joblessness during an expansion 
C) rising income tax collections due to rising incomes during an expansion 
D) declining food stamp payments due to more persons finding jobs during an expansion

Question 19

Crowding out will be greater

Accepted Answer

A) the less sensitive consumption spending is to changes in the interest rate. 
B) the further equilibrium GDP is below potential GDP. 
C) the more sensitive investment spending is to changes in the interest rate. 
D) if the economy is in recession,rather than at full employment. 
A) the less sensitive consumption spending is to changes in the interest rate. 
B) the further equilibrium GDP is below potential GDP. 
C) the more sensitive investment spending is to changes in the interest rate. 
D) if the economy is in recession,rather than at full employment.

Question 20

Reducing the marginal tax rate on income will

Accepted Answer

A) reduce the tax wedge faced by workers and increase labor supplied. 
B) raise the return to entrepreneurship and encourage the opening of new businesses. 
C) increase the after-tax return on saving,and encourage saving. 
D) All of the above are correct. 
A) reduce the tax wedge faced by workers and increase labor supplied. 
B) raise the return to entrepreneurship and encourage the opening of new businesses. 
C) increase the after-tax return on saving,and encourage saving. 
D) All of the above are correct.

Exam 27: Fiscal Policy

If policymakers implement an expansionary fiscal policy but do not take into account the potential for crowding out,the new equilibrium level of GDP is likely to

From an initial long-run equilibrium,if aggregate demand grows more slowly than long-run and short-run aggregate supply,then Congress and the president would most likely

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

Federal government expenditures,as a percentage of GDP

Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.75,the tax rate is 0.2,and the marginal propensity to import equals 0.3.

Suppose that the current equilibrium GDP is $14.5 trillion and that potential GDP is $14.3 trillion.Will decreasing government purchases by $200 billion,or raising taxes by $200 billion,restore the economy to potential GDP? Explain.

Give an example of an automatic stabilizer.Explain how automatic stabilizers work in the case of recession.

Government transfer payments include which of the following?

Tax increases on business income decrease aggregate demand by decreasing

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

The federal government debt equals

Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion.To move the economy back to potential GDP,Congress should

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 ________ increase in government purchases would increase equilibrium real GDP by $157 billion

The multiplier effect following an increase in expenditure is generated by induced increases in consumption expenditure as income rises.

An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

During the twentieth century,the largest budget deficits as a percentage of GDP occurred

Which of the following would not be considered an automatic stabilizer?

Crowding out will be greater

Reducing the marginal tax rate on income will

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

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be and real GDP to be .

An economic expansion tends to cause the federal budget deficit to because tax revenues and government spending on transfer payments .