Question 1

A one-time tax rebate,which is not expected to be extended in future years,will

Accepted Answer

A) have a moderately positive effect on consumption and aggregate demand. 
B) have no effect on consumption and aggregate demand. 
C) have a significant positive effect on consumption and aggregate demand,with aggregate demand growing by a multiple of the tax rebate. 
D) increase aggregate supply and aggregate demand. 
A) have a moderately positive effect on consumption and aggregate demand. 
B) have no effect on consumption and aggregate demand. 
C) have a significant positive effect on consumption and aggregate demand,with aggregate demand growing by a multiple of the tax rebate. 
D) increase aggregate supply and aggregate demand.

Question 2

If real GDP exceeded potential real GDP and inflation was increasing,which of the following would be an appropriate fiscal policy?

Accepted Answer

A) a decrease in the money supply and an increase in the interest rate 
B) an increase in government spending 
C) an increase in taxes 
D) an increase in oil prices 
A) a decrease in the money supply and an increase in the interest rate 
B) an increase in government spending 
C) an increase in taxes 
D) an increase in oil prices

Question 3

Expansionary fiscal policy involves

Accepted Answer

A) increasing government purchases or decreasing taxes. 
B) increasing taxes or decreasing government purchases. 
C) increasing the money supply and decreasing interest rates. 
D) decreasing the money supply and increasing interest rates. 
A) increasing government purchases or decreasing taxes. 
B) increasing taxes or decreasing government purchases. 
C) increasing the money supply and decreasing interest rates. 
D) decreasing the money supply and increasing interest rates.

Question 4

Expansionary fiscal policy is used to increase aggregate demand in an attempt to fight rising inflation.

Accepted Answer

A) True 
 B)False

Question 5

Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in a long-run macroeconomic equilibrium.For Year 2,graph aggregate demand,long-run aggregate supply,and short-run aggregate supply such that the condition of the economy will induce the president and Congress to conduct contractionary fiscal policy.Briefly explain the condition of the economy and what the president and Congress are attempting to do.

Accepted Answer

The president and Congress conduct contr

Question 6

The government purchases multiplier equals the change in ________ divided by the change in ________.

Accepted Answer

A) government purchases;equilibrium real GDP 
B) equilibrium real GDP;government purchases 
C) government purchases;consumption spending 
D) consumption spending;government purchases 
A) government purchases;equilibrium real GDP 
B) equilibrium real GDP;government purchases 
C) government purchases;consumption spending 
D) consumption spending;government purchases

Question 7

A law requiring the government to balance its budget in each year would serve as an automatic destabilizer.

Accepted Answer

A) True 
 B)False

Question 8

Suppose real GDP is $14 trillion and potential real GDP is $14.4 trillion.An increase in government purchases of $400 billion would cause real GDP to ________ potential real GDP (assuming a constant price level).

Accepted Answer

A) equal 
B) be less than 
C) be more than 
D) There is insufficient information given here to draw a conclusion. 
A) equal 
B) be less than 
C) be more than 
D) There is insufficient information given here to draw a conclusion.

Question 9

Table 27-5
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 1 & \$ 10.2 \text { trillion } & \$ 10.2 \text { trillion } & 100 \
\hline 2 & 10.8 \text { trillion } & 10.6 \text { trillion } & 103 \
\hline
\end{array}$$
-Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in a long-run macroeconomic equilibrium.For Year 2,graph aggregate demand,long-run aggregate supply,and short-run aggregate supply such that the condition of the economy will induce the president and Congress to conduct expansionary fiscal policy.Briefly explain the condition of the economy and what the president and Congress are attempting to do.

Accepted Answer

The president and Congress conduct expan

Question 10

Raising taxes on interest and dividend income will increase the level of investment and economic growth.

Accepted Answer

A) True 
 B)False

Question 11

If the federal budget has an actual budget deficit of $100 billion and a cyclically adjusted budget deficit of $75 billion,then the economy

Accepted Answer

A) must be at potential real GDP. 
B) must be below potential real GDP. 
C) must be above potential real GDP. 
D) could be below or above potential real GDP. 
A) must be at potential real GDP. 
B) must be below potential real GDP. 
C) must be above potential real GDP. 
D) could be below or above potential real GDP.

Question 12

Figure 27-12  
-Refer to Figure 27-12.An increase in government purchases of $200 billion causes aggregate demand to shift ultimately from AD1 to AD2.Assuming a constant price level,the difference in real GDP between point A and point B will be ________ $200 billion.

Accepted Answer

A) equal to 
B) less than 
C) greater than 
D) There is insufficient information given here to draw a conclusion. 
A) equal to 
B) less than 
C) greater than 
D) There is insufficient information given here to draw a conclusion.

Question 13

If the federal budget has an actual budget surplus of $75 billion,but a cyclically adjusted budget surplus of $50 billion,then the economy must be above potential real GDP.

Accepted Answer

A) True 
 B)False

Question 14

Suppose the government wants to maintain a balanced budget.To achieve this goal,when the economy falls into recession government would need to ________ taxes,which would cause aggregate demand 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 15

Suppose the president is successful in passing a $10 billion tax increase.Assume that taxes are fixed,the economy is closed,and the marginal propensity to consume is 0.8.What happens to equilibrium GDP?

Accepted Answer

A) There is a $50 billion increase in equilibrium GDP. 
B) There is a $50 billion decrease in equilibrium GDP. 
C) There is a $40 billion increase in equilibrium GDP. 
D) There is a $40 billion decrease in equilibrium GDP. 
A) There is a $50 billion increase in equilibrium GDP. 
B) There is a $50 billion decrease in equilibrium GDP. 
C) There is a $40 billion increase in equilibrium GDP. 
D) There is a $40 billion decrease in equilibrium GDP.

Question 16

An increase in government purchases will increase aggregate demand because

Accepted Answer

A) government expenditures are a component of aggregate demand. 
B) consumption expenditures are a component of aggregate demand. 
C) the decline in the price level will increase demand. 
D) the decline in the interest rate will increase demand. 
A) government expenditures are a component of aggregate demand. 
B) consumption expenditures are a component of aggregate demand. 
C) the decline in the price level will increase demand. 
D) the decline in the interest rate will increase demand.

Question 17

Suppose Political Party A proposes a tax cut on business income to stimulate the economy.Political Party B opposes the tax cut on business income asserting that it would only help businesses,not the average working man and woman.If you were hired as an economist for Political Party A,explain how the tax cut on business income would help the average working man and woman.

Accepted Answer

The multiplier effect would spread the e

Question 18

Suppose real GDP is $13 trillion,potential real GDP is $13.5 trillion,and Congress and the president plan to use fiscal policy to restore the economy to potential real GDP.Assuming a constant price level,Congress and the president would need to increase government purchases by

Accepted Answer

A) $500 billion. 
B) less than $500 billion. 
C) more than $500 billion. 
D) None of the above are correct.Congress must act to decrease government purchases in this case. 
A) $500 billion. 
B) less than $500 billion. 
C) more than $500 billion. 
D) None of the above are correct.Congress must act to decrease government purchases in this case.

Question 19

Suppose that Congress allocates $1 billion to clean up after hurricanes in 2016.It also raises taxes by $1 billion to keep the deficit from growing.If the marginal propensity to consume is 0.9,what is the effect on equilibrium GDP?

Accepted Answer

A) GDP does not change. 
B) GDP increases by $10 billion. 
C) GDP increases by $900,000. 
D) GDP increases by $1 billion. 
A) GDP does not change. 
B) GDP increases by $10 billion. 
C) GDP increases by $900,000. 
D) GDP increases by $1 billion.

Question 20

The federal government debt ________ when the federal government runs a deficit and ________ when the federal government runs a surplus.

Accepted Answer

A) increases;increases 
B) decreases;increases 
C) increases;decreases 
D) decreases;decreases 
A) increases;increases 
B) decreases;increases 
C) increases;decreases 
D) decreases;decreases

Exam 27: Fiscal Policy

A one-time tax rebate,which is not expected to be extended in future years,will

If real GDP exceeded potential real GDP and inflation was increasing,which of the following would be an appropriate fiscal policy?

Expansionary fiscal policy involves

Expansionary fiscal policy is used to increase aggregate demand in an attempt to fight rising inflation.

The government purchases multiplier equals the change in ________ divided by the change in ________.

A law requiring the government to balance its budget in each year would serve as an automatic destabilizer.

Suppose real GDP is $14 trillion and potential real GDP is $14.4 trillion.An increase in government purchases of $400 billion would cause real GDP to ________ potential real GDP (assuming a constant price level).

Raising taxes on interest and dividend income will increase the level of investment and economic growth.

If the federal budget has an actual budget deficit of $100 billion and a cyclically adjusted budget deficit of $75 billion,then the economy

Figure 27-12 -Refer to Figure 27-12.An increase in government purchases of $200 billion causes aggregate demand to shift ultimately from AD1 to AD2.Assuming a constant price level,the difference in real GDP between point A and point B will be ________ $200 billion.

If the federal budget has an actual budget surplus of $75 billion,but a cyclically adjusted budget surplus of $50 billion,then the economy must be above potential real GDP.

Suppose the government wants to maintain a balanced budget.To achieve this goal,when the economy falls into recession government would need to ________ taxes,which would cause aggregate demand to ________.

Suppose the president is successful in passing a $10 billion tax increase.Assume that taxes are fixed,the economy is closed,and the marginal propensity to consume is 0.8.What happens to equilibrium GDP?

An increase in government purchases will increase aggregate demand because

Suppose real GDP is $13 trillion,potential real GDP is $13.5 trillion,and Congress and the president plan to use fiscal policy to restore the economy to potential real GDP.Assuming a constant price level,Congress and the president would need to increase government purchases by

Suppose that Congress allocates $1 billion to clean up after hurricanes in 2016.It also raises taxes by $1 billion to keep the deficit from growing.If the marginal propensity to consume is 0.9,what is the effect on equilibrium GDP?

The federal government debt ________ when the federal government runs a deficit and ________ when the federal government runs a surplus.

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 government purchases multiplier equals the change in divided by the change in .

Suppose the government wants to maintain a balanced budget.To achieve this goal,when the economy falls into recession government would need to taxes,which would cause aggregate demand to .

The federal government debt when the federal government runs a deficit and when the federal government runs a surplus.