Question 1

The emphasis on the greater incentives to produce created by lower taxes has come to be known as:

Accepted Answer

A) trickle-down economics. 
B) supply-side economics. 
C) the paradox of thrift. 
D) the permanent income hypothesis. 
E) monetarist economics. 
A) trickle-down economics. 
B) supply-side economics. 
C) the paradox of thrift. 
D) the permanent income hypothesis. 
E) monetarist economics.

Question 2

In general, developed countries depend more heavily on indirect taxes on goods and services than do developing countries.

Accepted Answer

A) True 
 B)False

Question 3

Assume that European interest rates fall as a result of decreased deficit spending by the governments of the European Union.We would expect all of the following, except:

Accepted Answer

A) a depreciation of the euro with respect to the U.S.dollar. 
B) increased European demand for American government securities. 
C) a higher level of U.S.imports from Europe. 
D) higher U.S.net exports to Europe. 
E) higher French exports to the United States. 
A) a depreciation of the euro with respect to the U.S.dollar. 
B) increased European demand for American government securities. 
C) a higher level of U.S.imports from Europe. 
D) higher U.S.net exports to Europe. 
E) higher French exports to the United States.

Question 4

Calculate the government spending multiplier if, an increase in government spending by $5 million increases real GDP by $25 million.

Accepted Answer

A) 0.2 
B) 0.5 
C) 2 
D) 5 
E) 6 
A) 0.2 
B) 0.5 
C) 2 
D) 5 
E) 6

Question 5

Starting with a situation where there is a substantial budget deficit, when tax revenues grow faster than federal expenditures, the government will experience:

Accepted Answer

A) a balanced budget. 
B) an increasing national debt. 
C) a declining budget surplus. 
D) a declining budget deficit. 
E) an increasing budget deficit. 
A) a balanced budget. 
B) an increasing national debt. 
C) a declining budget surplus. 
D) a declining budget deficit. 
E) an increasing budget deficit.

Question 6

Which of the following is not a means of financing government spending?

Accepted Answer

A) Government subsidies 
B) Personal income taxes 
C) Printing new money 
D) Issuing government bonds 
E) Capital gains taxes 
A) Government subsidies 
B) Personal income taxes 
C) Printing new money 
D) Issuing government bonds 
E) Capital gains taxes

Question 7

The effect of an increase in government spending on real GDP will be lesser:

Accepted Answer

A) the smaller the crowding-out effect. 
B) the smaller the percentage of government spending financed by tax increases. 
C) the larger the government budget surplus. 
D) the more rapidly money is converted into goods. 
E) the steeper the aggregate supply curve. 
A) the smaller the crowding-out effect. 
B) the smaller the percentage of government spending financed by tax increases. 
C) the larger the government budget surplus. 
D) the more rapidly money is converted into goods. 
E) the steeper the aggregate supply curve.

Question 8

Which of the following can be considered as an automatic stabilizer in the economy?

Accepted Answer

A) Real exchange rate 
B) Real interest rate 
C) Unemployment insurance 
D) Money supply 
E) Disposable income 
A) Real exchange rate 
B) Real interest rate 
C) Unemployment insurance 
D) Money supply 
E) Disposable income

Question 9

If aggregate demand intersects aggregate supply in the horizontal range of the aggregate supply curve, then, other things equal, an increase in government spending will:

Accepted Answer

A) raise real GDP by the amount indicated by the government spending multiplier and leave the price level unchanged. 
B) lower real GDP by an amount equal to the increased spending and reduce inflation. 
C) raise the price level and leave real GDP unchanged. 
D) raise both real GDP and the price level by a multiple of the initial spending increase. 
E) have no effect on real GDP or the price level, because all private investment will be crowded out. 
A) raise real GDP by the amount indicated by the government spending multiplier and leave the price level unchanged. 
B) lower real GDP by an amount equal to the increased spending and reduce inflation. 
C) raise the price level and leave real GDP unchanged. 
D) raise both real GDP and the price level by a multiple of the initial spending increase. 
E) have no effect on real GDP or the price level, because all private investment will be crowded out.

Question 10

Discretionary fiscal policy is bestdefined as:

Accepted Answer

A) the deliberate change in tax laws and government spending to change equilibrium income. 
B) the deliberate manipulation of the money supply to expand the economy. 
C) the arbitrary fluctuation in tax laws and budget requirements. 
D) the automatic change in certain fiscal instruments when real GDP changes. 
E) the policy action taken by the Congress to reduce the federal budget deficit. 
A) the deliberate change in tax laws and government spending to change equilibrium income. 
B) the deliberate manipulation of the money supply to expand the economy. 
C) the arbitrary fluctuation in tax laws and budget requirements. 
D) the automatic change in certain fiscal instruments when real GDP changes. 
E) the policy action taken by the Congress to reduce the federal budget deficit.

Question 11

If the government wants to close a GDP gap, it should:

Accepted Answer

A) borrow funds from the public by issuing bonds. 
B) lower taxes and raise government spending. 
C) lower government spending on social security. 
D) raise both direct and indirect tax rates. 
E) adopt contractionary fiscal policies to control inflation. 
A) borrow funds from the public by issuing bonds. 
B) lower taxes and raise government spending. 
C) lower government spending on social security. 
D) raise both direct and indirect tax rates. 
E) adopt contractionary fiscal policies to control inflation.

Question 12

If crowding out exists, the expansionary effect of government spending will be:

Accepted Answer

A) smaller than intended. 
B) negative. 
C) infinite. 
D) larger than intended. 
E) zero. 
A) smaller than intended. 
B) negative. 
C) infinite. 
D) larger than intended. 
E) zero.

Question 13

When the price level increases, the effect of a change in government spending on real GDP will be understated.

Accepted Answer

A) True 
 B)False

Question 14

Ricardian equivalencecan be said to hold if:

Accepted Answer

A) taxation has greater effect on private spending than government borrowing. 
B) taxation has a lesser effect on private spending than government borrowing. 
C) government borrowing does not affect private consumption while taxation has a negative impact on private consumption. 
D) government spending activities financed by taxation and those financed by borrowing have the same effect on private spending. 
E) government spending activities financed by taxation and those financed by borrowing have no effect on private spending. 
A) taxation has greater effect on private spending than government borrowing. 
B) taxation has a lesser effect on private spending than government borrowing. 
C) government borrowing does not affect private consumption while taxation has a negative impact on private consumption. 
D) government spending activities financed by taxation and those financed by borrowing have the same effect on private spending. 
E) government spending activities financed by taxation and those financed by borrowing have no effect on private spending.

Question 15

A higher U.S.federal budget deficit may act to raise future U.S.interest payments to foreigners.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements about taxation is incorrect?

Accepted Answer

A) A tax cut affects aggregate demand indirectly. 
B) A tax cut raises income and expenditures. 
C) Cutting taxes by $20 is not the same as increasing government spending by $20. 
D) A change in taxes does not affect consumption. 
E) An increase in taxes decreases income and expenditures. 
A) A tax cut affects aggregate demand indirectly. 
B) A tax cut raises income and expenditures. 
C) Cutting taxes by $20 is not the same as increasing government spending by $20. 
D) A change in taxes does not affect consumption. 
E) An increase in taxes decreases income and expenditures.

Question 17

Suppose the marginal tax rate is 37 percent for an income level of $50, 000 and 39 percent for an $80, 000 income.This implies that the underlying tax structure is _____ in nature.

Accepted Answer

A) fixed 
B) progressive 
C) regressive 
D) lump-sum 
E) proportional 
A) fixed 
B) progressive 
C) regressive 
D) lump-sum 
E) proportional

Question 18

A balanced budget would not affect income because an increase in government spending is exactly matched by an increase in taxes.

Accepted Answer

A) True 
 B)False

Question 19

Fiscal policy is most effective in controlling inflation when the economy operates in the _____ region of the aggregate supply curve.

Accepted Answer

A) horizontal 
B) vertical 
C) upward rising 
D) downward sloping 
E) backward bending 
A) horizontal 
B) vertical 
C) upward rising 
D) downward sloping 
E) backward bending

Question 20

Government expenditures on goods and services have an indirect impact on the aggregate demand, while taxes have a direct impact.

Accepted Answer

A) True 
 B)False

Exam 17: Fiscal Policy

The emphasis on the greater incentives to produce created by lower taxes has come to be known as:

In general, developed countries depend more heavily on indirect taxes on goods and services than do developing countries.

Assume that European interest rates fall as a result of decreased deficit spending by the governments of the European Union.We would expect all of the following, except:

Calculate the government spending multiplier if, an increase in government spending by $5 million increases real GDP by $25 million.

Starting with a situation where there is a substantial budget deficit, when tax revenues grow faster than federal expenditures, the government will experience:

Which of the following is not a means of financing government spending?

The effect of an increase in government spending on real GDP will be lesser:

Which of the following can be considered as an automatic stabilizer in the economy?

If aggregate demand intersects aggregate supply in the horizontal range of the aggregate supply curve, then, other things equal, an increase in government spending will:

Discretionary fiscal policy is bestdefined as:

If the government wants to close a GDP gap, it should:

If crowding out exists, the expansionary effect of government spending will be:

When the price level increases, the effect of a change in government spending on real GDP will be understated.

Ricardian equivalencecan be said to hold if:

A higher U.S.federal budget deficit may act to raise future U.S.interest payments to foreigners.

Which of the following statements about taxation is incorrect?

Suppose the marginal tax rate is 37 percent for an income level of $50, 000 and 39 percent for an $80, 000 income.This implies that the underlying tax structure is _____ in nature.

A balanced budget would not affect income because an increase in government spending is exactly matched by an increase in taxes.

Fiscal policy is most effective in controlling inflation when the economy operates in the _____ region of the aggregate supply curve.

Government expenditures on goods and services have an indirect impact on the aggregate demand, while taxes have a direct impact.

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters