Question 1

The tax increases necessary to fund future Social Security and Medicare benefit payments would be

Accepted Answer

A) small,and have little effect on economic growth. 
B) small,but could discourage work effort,entrepreneurship and investment,thereby slowing economic growth. 
C) large,but would have little effect on economic growth. 
D) large,and could discourage work effort,entrepreneurship and investment,thereby slowing economic growth. 
A) small,and have little effect on economic growth. 
B) small,but could discourage work effort,entrepreneurship and investment,thereby slowing economic growth. 
C) large,but would have little effect on economic growth. 
D) large,and could discourage work effort,entrepreneurship and investment,thereby slowing economic growth.

Question 2

Figure 18-2  
-Refer to Figure 18-2.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 3

Part of the spending on the Caldecott Tunnel project in northern California came from the American Reinvestment and Recovery Act,which is an example of ________ aimed at increasing real GDP and employment.

Accepted Answer

A) discretionary fiscal policy 
B) an automatic stabilizer 
C) contractionary fiscal policy 
D) a transfer payment 
A) discretionary fiscal policy 
B) an automatic stabilizer 
C) contractionary fiscal policy 
D) a transfer payment

Question 4

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 5

Historically,the largest U.S.federal budget deficits as a percentage of GDP in the 20th century occurred during

Accepted Answer

A) World War I and World War II. 
B) the Great Depression. 
C) 1970-1997. 
D) the Vietnam war. 
E) 1998-1999. 
A) World War I and World War II. 
B) the Great Depression. 
C) 1970-1997. 
D) the Vietnam war. 
E) 1998-1999.

Question 6

A decrease in the tax rate will ________ the disposable income of households and ________ the size of the multiplier effect.

Accepted Answer

A) increase;increase 
B) decrease;increase 
C) increase;decrease 
D) decrease;decrease 
E) increase;not change 
A) increase;increase 
B) decrease;increase 
C) increase;decrease 
D) decrease;decrease 
E) increase;not change

Question 7

For the federal deficit to be lowered,

Accepted Answer

A) the federal government must decrease its spending and increase net exports. 
B) the federal government's expenditures must be lower than its tax revenue. 
C) the Federal Reserve must raise interest rates and lower the required reserve ratio. 
D) the Federal Reserve must reduce the money supply. 
A) the federal government must decrease its spending and increase net exports. 
B) the federal government's expenditures must be lower than its tax revenue. 
C) the Federal Reserve must raise interest rates and lower the required reserve ratio. 
D) the Federal Reserve must reduce the money supply.

Question 8

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 $1 billion increase in government purchases would increase equilibrium real GDP by

Accepted Answer

A) $1 billion. 
B) $1.57 billion. 
C) $15.7 billion. 
D) $157 billion. 
A) $1 billion. 
B) $1.57 billion. 
C) $15.7 billion. 
D) $157 billion.

Question 9

The federal government debt as a percentage of GDP fell during the period

Accepted Answer

A) 2002 - 2007. 
B) 1980-1992. 
C) during World War I and World War II. 
D) 1997-2001. 
E) the Great Depression. 
A) 2002 - 2007. 
B) 1980-1992. 
C) during World War I and World War II. 
D) 1997-2001. 
E) the Great Depression.

Question 10

If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2,does it follow that the federal government acted to raise taxes or cut government spending in Year 2?

Accepted Answer

No,the economy could have been in an exp

Question 11

Figure 18-3  
-Refer to Figure 18-3.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,Congress and the president would most likely pursue

Accepted Answer

A) expansionary fiscal policy. 
B) contractionary fiscal policy. 
C) expansionary monetary policy. 
D) contractionary monetary policy. 
E) expansionary automatic stabilizers. 
A) expansionary fiscal policy. 
B) contractionary fiscal policy. 
C) expansionary monetary policy. 
D) contractionary monetary policy. 
E) expansionary automatic stabilizers.

Question 12

The three categories of federal government expenditures,in addition to government purchases,are

Accepted Answer

A) interest on the national debt,grants to state and local governments,and transfer payments. 
B) interest on the national debt,defense spending,and transfer payments. 
C) defense spending,budgets of federal agencies,and transfer payments. 
D) defense spending,Social Security,and Medicare. 
A) interest on the national debt,grants to state and local governments,and transfer payments. 
B) interest on the national debt,defense spending,and transfer payments. 
C) defense spending,budgets of federal agencies,and transfer payments. 
D) defense spending,Social Security,and Medicare.

Question 13

The income tax system serves as an automatic stabilizer over the course of the business cycle.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following would be most likely to induce Congress and the president to conduct expansionary fiscal policy? A significant

Accepted Answer

A) decrease in investment spending. 
B) decrease in oil prices. 
C) increase in consumption spending. 
D) increase in net exports. 
A) decrease in investment spending. 
B) decrease in oil prices. 
C) increase in consumption spending. 
D) increase in net exports.

Question 15

What is the "tax wedge"?

Accepted Answer

The "tax wedge" is t

Question 16

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 17

Assume a country is required by law to balance the budget every year.Suppose aggregate demand falls,causing a recession and a budget deficit.To balance the budget,what would the government need to do with the level of government spending and taxes? How would these changes in government spending and taxes affect aggregate demand and the economy?

Accepted Answer

To balance the budget,the gove

Question 18

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 19

What is the difference between fiscal policy and monetary policy?

Accepted Answer

Fiscal policy involves changes in federa

Question 20

The tax wedge is the difference between the

Accepted Answer

A) amount of taxes needed to balance the federal budget and the actual amount of taxes. 
B) amount of taxes needed to pay off the national debt and the actual amount of taxes. 
C) pretax and posttax returns to an economic activity. 
D) nominal and real interest rates. 
A) amount of taxes needed to balance the federal budget and the actual amount of taxes. 
B) amount of taxes needed to pay off the national debt and the actual amount of taxes. 
C) pretax and posttax returns to an economic activity. 
D) nominal and real interest rates.

The tax increases necessary to fund future Social Security and Medicare benefit payments would be

Figure 18-2 -Refer to Figure 18-2.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

Part of the spending on the Caldecott Tunnel project in northern California came from the American Reinvestment and Recovery Act,which is an example of ________ aimed at increasing real GDP and employment.

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

Historically,the largest U.S.federal budget deficits as a percentage of GDP in the 20th century occurred during

A decrease in the tax rate will the disposable income of households and the size of the multiplier effect.

For the federal deficit to be lowered,

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 $1 billion increase in government purchases would increase equilibrium real GDP by

The federal government debt as a percentage of GDP fell during the period

If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2,does it follow that the federal government acted to raise taxes or cut government spending in Year 2?

Figure 18-3 -Refer to Figure 18-3.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,Congress and the president would most likely pursue

The three categories of federal government expenditures,in addition to government purchases,are

The income tax system serves as an automatic stabilizer over the course of the business cycle.

Which of the following would be most likely to induce Congress and the president to conduct expansionary fiscal policy? A significant

What is the "tax wedge"?

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

Expansionary fiscal policy involves

What is the difference between fiscal policy and monetary policy?

The tax wedge is the difference between the

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Comparative Advantage,international Trade,and Exchange Rates

Filters

Exam 18: Fiscal Policy

The tax increases necessary to fund future Social Security and Medicare benefit payments would be

Figure 18-2 -Refer to Figure 18-2.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

Part of the spending on the Caldecott Tunnel project in northern California came from the American Reinvestment and Recovery Act,which is an example of ________ aimed at increasing real GDP and employment.

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

Historically,the largest U.S.federal budget deficits as a percentage of GDP in the 20th century occurred during

A decrease in the tax rate will ________ the disposable income of households and ________ the size of the multiplier effect.

For the federal deficit to be lowered,

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 $1 billion increase in government purchases would increase equilibrium real GDP by

The federal government debt as a percentage of GDP fell during the period

If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2,does it follow that the federal government acted to raise taxes or cut government spending in Year 2?

Figure 18-3 -Refer to Figure 18-3.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,Congress and the president would most likely pursue

The three categories of federal government expenditures,in addition to government purchases,are

The income tax system serves as an automatic stabilizer over the course of the business cycle.

Which of the following would be most likely to induce Congress and the president to conduct expansionary fiscal policy? A significant

What is the "tax wedge"?

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

Expansionary fiscal policy involves

What is the difference between fiscal policy and monetary policy?

The tax wedge is the difference between the

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Comparative Advantage,international Trade,and Exchange Rates

Filters

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

A decrease in the tax rate will the disposable income of households and the size of the multiplier effect.