Question 1

An increase in the sensitivity of private spending (consumption,investment,and net exports)to changes in the interest rate ________ the government purchases multiplier.

Accepted Answer

A) will decrease 
B) will increase 
C) will not change 
D) may increase or may decrease 
A) will decrease 
B) will increase 
C) will not change 
D) may increase or may decrease

Question 2

Which of the following would increase the size of the government purchases multiplier?

Accepted Answer

A) an increase in the tax rate 
B) an increase in the quantity of imports purchased by households from an increase in income 
C) a decrease in the amount of consumption spending by households from an increase in income 
D) a decrease in the amount saved by households from an increase in income 
A) an increase in the tax rate 
B) an increase in the quantity of imports purchased by households from an increase in income 
C) a decrease in the amount of consumption spending by households from an increase in income 
D) a decrease in the amount saved by households from an increase in income

Question 3

The use of fiscal policy to stabilize the economy is limited because

Accepted Answer

A) changes in government spending and tax rates have a small effect on aggregate demand. 
B) changes in government spending and tax rates have a small effect on interest rates. 
C) the legislative process can be slow,which means that it is difficult to make fiscal policy actions in a timely way. 
D) the Internal Revenue Service (IRS)resists changes in tax rates because of all the changes they would have to make to the tax code. 
A) changes in government spending and tax rates have a small effect on aggregate demand. 
B) changes in government spending and tax rates have a small effect on interest rates. 
C) the legislative process can be slow,which means that it is difficult to make fiscal policy actions in a timely way. 
D) the Internal Revenue Service (IRS)resists changes in tax rates because of all the changes they would have to make to the tax code.

Question 4

Lowering the individual income tax rate will increase household disposable income and consumption spending.

Accepted Answer

A) True 
 B)False

Question 5

Social Security

Accepted Answer

A) has not been successful in reducing poverty among elderly Americans. 
B) is a system whereby current retirees are paid from taxes collected from current workers. 
C) has a greater number of workers per retiree today as compared to when it started. 
D) currently pays retirees benefits equal to what they paid into the system. 
A) has not been successful in reducing poverty among elderly Americans. 
B) is a system whereby current retirees are paid from taxes collected from current workers. 
C) has a greater number of workers per retiree today as compared to when it started. 
D) currently pays retirees benefits equal to what they paid into the system.

Question 6

Figure 27-3  
-Refer to Figure 27-3.In the graph above,suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by Congress and the president?

Accepted Answer

A) a decrease in income taxes 
B) a decrease in interest rates 
C) a decrease in government purchases 
D) an increase in the money supply 
A) a decrease in income taxes 
B) a decrease in interest rates 
C) a decrease in government purchases 
D) an increase in the money supply

Question 7

The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was

Accepted Answer

A) in a recession. 
B) in an expansion. 
C) at potential GDP. 
D) at potential tax revenue. 
A) in a recession. 
B) in an expansion. 
C) at potential GDP. 
D) at potential tax revenue.

Question 8

An increase in government purchases of $200 billion will shift the aggregate demand curve to the right by

Accepted Answer

A) $200 billion. 
B) less than $200 billion. 
C) more than $200 billion. 
D) None of the above are correct.This policy shifts the long-run aggregate supply curve. 
A) $200 billion. 
B) less than $200 billion. 
C) more than $200 billion. 
D) None of the above are correct.This policy shifts the long-run aggregate supply curve.

Question 9

In an open economy,the government purchases multiplier will be larger the

Accepted Answer

A) smaller the marginal propensity to import. 
B) smaller the marginal income tax rate. 
C) larger the marginal propensity to consume. 
D) All of the above are correct. 
A) smaller the marginal propensity to import. 
B) smaller the marginal income tax rate. 
C) larger the marginal propensity to consume. 
D) All of the above are correct.

Question 10

Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?

Accepted Answer

The tax rate affects how much of the add

Question 11

Before the Great Depression of the 1930s,the majority of government spending took place at the ________ and after the Great Depression the majority of government spending took place at the ________.

Accepted Answer

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

Question 12

An increase in government spending lowers interest rates and increases the rate of investment in new capital.

Accepted Answer

A) True 
 B)False

Question 13

Compare the effect on the price level and real GDP of a decrease in tax rates assuming a supply-side effect versus no supply-side effect.Compared to no supply-side effect,including a supply-side effect for the decrease in tax rates will cause the price level to increase ________ and real GDP to increase ________.

Accepted Answer

A) less;less 
B) less;more 
C) more;less 
D) more;more 
A) less;less 
B) less;more 
C) more;less 
D) more;more

Question 14

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

Accepted Answer

A) energy and the environment 
B) military,veterans,and homeland security 
C) health care,social services,and education 
D) transportation and housing 
A) energy and the environment 
B) military,veterans,and homeland security 
C) health care,social services,and education 
D) transportation and housing

Question 15

An increase in individual income taxes ________ disposable income,which ________ consumption spending.

Accepted Answer

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

Question 16

Identify each of the following as (i)part of an expansionary fiscal policy, (ii)part of a contractionary fiscal policy,or (iii)not part of fiscal policy.
a.The personal income tax rate is lowered.
b.Congress cuts spending on defense.
c.College students are allowed to deduct tuition costs from their federal income taxes.
d.The corporate income tax rate is lowered.
e.The state of Nevada builds a new tollway in an attempt to expand employment and ease traffic in Las Vegas.

Accepted Answer

a.This is expansionary fiscal policy.
b.

Question 17

Expansionary fiscal policy involves increasing government purchases or increasing taxes.

Accepted Answer

A) True 
 B)False

Question 18

During the Great Depression,what appeared to be ________ fiscal policy was actually not when the ________ budget deficit or surplus is examined.

Accepted Answer

A) expansionary;actual 
B) expansionary;cyclically adjusted 
C) contractionary;actual 
D) contractionary;cyclically adjusted 
A) expansionary;actual 
B) expansionary;cyclically adjusted 
C) contractionary;actual 
D) contractionary;cyclically adjusted

Question 19

If the absolute value of the tax multiplier equals 1.6,real GDP is $13 trillion,and potential real GDP is $13.4 trillion,then taxes would need to be cut by ________ to restore the economy to potential real GDP.

Accepted Answer

A) $250 billion 
B) $400 billion 
C) $640 billion 
D) None of the above are correct.Taxes should be increased in this case. 
A) $250 billion 
B) $400 billion 
C) $640 billion 
D) None of the above are correct.Taxes should be increased in this case.

Question 20

A decrease in the marginal income tax rate is a fiscal policy which will increase aggregate demand.

Accepted Answer

A) True 
 B)False

Exam 27: Fiscal Policy

An increase in the sensitivity of private spending (consumption,investment,and net exports)to changes in the interest rate ________ the government purchases multiplier.

Which of the following would increase the size of the government purchases multiplier?

The use of fiscal policy to stabilize the economy is limited because

Lowering the individual income tax rate will increase household disposable income and consumption spending.

Social Security

Figure 27-3 -Refer to Figure 27-3.In the graph above,suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by Congress and the president?

The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was

An increase in government purchases of $200 billion will shift the aggregate demand curve to the right by

In an open economy,the government purchases multiplier will be larger the

Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?

Before the Great Depression of the 1930s,the majority of government spending took place at the ________ and after the Great Depression the majority of government spending took place at the ________.

An increase in government spending lowers interest rates and increases the rate of investment in new capital.

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

An increase in individual income taxes ________ disposable income,which ________ consumption spending.

Expansionary fiscal policy involves increasing government purchases or increasing taxes.

During the Great Depression,what appeared to be ________ fiscal policy was actually not when the ________ budget deficit or surplus is examined.

If the absolute value of the tax multiplier equals 1.6,real GDP is $13 trillion,and potential real GDP is $13.4 trillion,then taxes would need to be cut by ________ to restore the economy to potential real GDP.

A decrease in the marginal income tax rate is a fiscal policy which will increase aggregate demand.

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

Before the Great Depression of the 1930s,the majority of government spending took place at the and after the Great Depression the majority of government spending took place at the .

An increase in individual income taxes disposable income,which consumption spending.

During the Great Depression,what appeared to be fiscal policy was actually not when the budget deficit or surplus is examined.