Question 1

The tax multiplier is smaller in absolute value than the government purchases multiplier because some portion of the

Accepted Answer

A) decrease in taxes will be saved by households and not spent,and some portion will be spent on imported goods. 
B) decrease in taxes will be saved by households and not spent,and some portion will be spent on consumer durable goods. 
C) increase in government purchases will be saved by households and not spent,and some portion will be spent on imported goods. 
D) increase in government purchases will be saved by households and not spent,and some portion will be spent on consumer durable goods. 
A) decrease in taxes will be saved by households and not spent,and some portion will be spent on imported goods. 
B) decrease in taxes will be saved by households and not spent,and some portion will be spent on consumer durable goods. 
C) increase in government purchases will be saved by households and not spent,and some portion will be spent on imported goods. 
D) increase in government purchases will be saved by households and not spent,and some portion will be spent on consumer durable goods.

Question 2

Suppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion.If the president and the Congress increased government purchases by $500 billion,what would be the result on the economy?

Accepted Answer

The economy would go from a short-run eq

Question 3

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,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 at below capacity. 
C) the economy is below full employment. 
D) income and profits are falling. 
E) there is pressure on wages and prices to fall. 
A) the unemployment rate is very low. 
B) firms are operating at below capacity. 
C) the economy is below full employment. 
D) income and profits are falling. 
E) there is pressure on wages and prices to fall.

Question 4

If Congress passed a one-time tax cut in order to stimulate the economy in 2010,and tax rate levels returned to their pre-2010 level in 2011,how should this tax cut affect the economy?

Accepted Answer

A) Households on average would save an amount equal to the tax cut. 
B) The tax cut would stimulate spending by households. 
C) The tax cut would shift the aggregate demand curve to the right. 
D) The tax cut would raise the price level in 2010. 
A) Households on average would save an amount equal to the tax cut. 
B) The tax cut would stimulate spending by households. 
C) The tax cut would shift the aggregate demand curve to the right. 
D) The tax cut would raise the price level in 2010.

Question 5

Fiscal policy refers to changes in

Accepted Answer

A) state and local taxes and purchases that are intended to achieve macroeconomic policy objectives. 
B) federal taxes and purchases that are intended to achieve macroeconomic policy objectives. 
C) federal taxes and purchases that are intended to fund the war on terrorism. 
D) the money supply and interest rates that are intended to achieve macroeconomic policy objectives. 
A) state and local taxes and purchases that are intended to achieve macroeconomic policy objectives. 
B) federal taxes and purchases that are intended to achieve macroeconomic policy objectives. 
C) federal taxes and purchases that are intended to fund the war on terrorism. 
D) the money supply and interest rates that are intended to achieve macroeconomic policy objectives.

Question 6

How can tax simplification be beneficial to the economy?

Accepted Answer

Tax simplification would free up resourc

Question 7

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

Accepted Answer

A) decrease the required reserve ratio. 
B) decrease government spending. 
C) decrease oil prices. 
D) decrease tax rates. 
A) decrease the required reserve ratio. 
B) decrease government spending. 
C) decrease oil prices. 
D) decrease tax rates.

Question 8

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 jobless 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 jobless 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 9

Which of the following is an objective of fiscal policy?

Accepted Answer

A) energy independence from Middle East oil 
B) health care coverage for all Americans 
C) discovering a cure for AIDs 
D) high rates of economic growth 
E) homeland security 
A) energy independence from Middle East oil 
B) health care coverage for all Americans 
C) discovering a cure for AIDs 
D) high rates of economic growth 
E) homeland security

Question 10

Fiscal policy is determined by

Accepted Answer

A) the Federal Reserve. 
B) the president and the Federal Reserve. 
C) Congress and the Federal Reserve. 
D) Congress and the president. 
A) the Federal Reserve. 
B) the president and the Federal Reserve. 
C) Congress and the Federal Reserve. 
D) Congress and the president.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

When President Obama took office in January 2009,he pledged to pursue an expansionary fiscal policy to try to pull the economy out of the recession.The next month,Congress passed the American Recovery and Reinvestment Act of 2009,a $787 billion package of spending increases and tax cuts that was

Accepted Answer

A) the largest fiscal policy action in U.S.history. 
B) second in size only to the fiscal policy action taken during the Great Depression. 
C) small in comparison to the actions taken during the recession of 1974-1975 
D) roughly equal to the spending increases and tax cuts implemented during the recession of 1980-1982. 
A) the largest fiscal policy action in U.S.history. 
B) second in size only to the fiscal policy action taken during the Great Depression. 
C) small in comparison to the actions taken during the recession of 1974-1975 
D) roughly equal to the spending increases and tax cuts implemented during the recession of 1980-1982.

Question 13

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 14

The crowding out of private spending by government spending will be greater the

Accepted Answer

A) less sensitive consumption,investment,and net exports are to changes in interest rates. 
B) more sensitive consumption,investment,and net exports are to changes in interest rates. 
C) less sensitive consumption,investment,and net exports are to changes in the price level. 
D) more sensitive consumption,investment,and net exports are to changes in the price level. 
A) less sensitive consumption,investment,and net exports are to changes in interest rates. 
B) more sensitive consumption,investment,and net exports are to changes in interest rates. 
C) less sensitive consumption,investment,and net exports are to changes in the price level. 
D) more sensitive consumption,investment,and net exports are to changes in the price level.

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

Which of the following is a reason why we should consider the federal national debt a problem?

Accepted Answer

A) The federal government is in danger of defaulting on its debt. 
B) If the debt drives up interest rates,crowding out will occur. 
C) If the debt was incurred to finance improvements in infrastructure,crowding out will occur. 
D) If the debt was incurred to finance research and development,crowding out will occur. 
A) The federal government is in danger of defaulting on its debt. 
B) If the debt drives up interest rates,crowding out will occur. 
C) If the debt was incurred to finance improvements in infrastructure,crowding out will occur. 
D) If the debt was incurred to finance research and development,crowding out will occur.

Question 17

The Congressional Budget Office estimates of the effects of the 2009 stimulus package indicate that the stimulus package caused real GDP to equal potential GDP in 2011.

Accepted Answer

A) True 
 B)False

Question 18

The aggregate demand curve will shift to the right ________ the initial decrease in taxes.

Accepted Answer

A) by less than 
B) by more than 
C) by the same amount 
D) sometimes by more than and other times by less than 
A) by less than 
B) by more than 
C) by the same amount 
D) sometimes by more than and other times by less than

Question 19

Proponents of spending on infrastructure as a means to stimulate the economy note that the multiplier effect for ________ is estimated to be larger than the multiplier effect for ________,and would therefore have a greater impact on expanding GDP.

Accepted Answer

A) increases in government spending;tax cuts 
B) tax increases;increases in government spending 
C) decreases in government spending;a balanced budget 
D) a balanced budget;tax increases 
A) increases in government spending;tax cuts 
B) tax increases;increases in government spending 
C) decreases in government spending;a balanced budget 
D) a balanced budget;tax increases

Question 20

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

Accepted Answer

A) decrease in oil prices. 
B) decrease in real GDP. 
C) increase in inflation. 
D) increase in labor productivity. 
A) decrease in oil prices. 
B) decrease in real GDP. 
C) increase in inflation. 
D) increase in labor productivity.

The tax multiplier is smaller in absolute value than the government purchases multiplier because some portion of the

Suppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion.If the president and the Congress increased government purchases by $500 billion,what would be the result on the economy?

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,and no fiscal or monetary policy is pursued,then at point B

If Congress passed a one-time tax cut in order to stimulate the economy in 2010,and tax rate levels returned to their pre-2010 level in 2011,how should this tax cut affect the economy?

Fiscal policy refers to changes in

How can tax simplification be beneficial to the economy?

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

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

Which of the following is an objective of fiscal policy?

Fiscal policy is determined by

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

When President Obama took office in January 2009,he pledged to pursue an expansionary fiscal policy to try to pull the economy out of the recession.The next month,Congress passed the American Recovery and Reinvestment Act of 2009,a $787 billion package of spending increases and tax cuts that was

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

The crowding out of private spending by government spending will be greater the

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

Which of the following is a reason why we should consider the federal national debt a problem?

The Congressional Budget Office estimates of the effects of the 2009 stimulus package indicate that the stimulus package caused real GDP to equal potential GDP in 2011.

The aggregate demand curve will shift to the right ________ the initial decrease in taxes.

Proponents of spending on infrastructure as a means to stimulate the economy note that the multiplier effect for is estimated to be larger than the multiplier effect for ,and would therefore have a greater impact on expanding GDP.

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

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 multiplier is smaller in absolute value than the government purchases multiplier because some portion of the

Suppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion.If the president and the Congress increased government purchases by $500 billion,what would be the result on the economy?

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,and no fiscal or monetary policy is pursued,then at point B

If Congress passed a one-time tax cut in order to stimulate the economy in 2010,and tax rate levels returned to their pre-2010 level in 2011,how should this tax cut affect the economy?

Fiscal policy refers to changes in

How can tax simplification be beneficial to the economy?

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

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

Which of the following is an objective of fiscal policy?

Fiscal policy is determined by

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

When President Obama took office in January 2009,he pledged to pursue an expansionary fiscal policy to try to pull the economy out of the recession.The next month,Congress passed the American Recovery and Reinvestment Act of 2009,a $787 billion package of spending increases and tax cuts that was

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

The crowding out of private spending by government spending will be greater the

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

Which of the following is a reason why we should consider the federal national debt a problem?

The Congressional Budget Office estimates of the effects of the 2009 stimulus package indicate that the stimulus package caused real GDP to equal potential GDP in 2011.

The aggregate demand curve will shift to the right ________ the initial decrease in taxes.

Proponents of spending on infrastructure as a means to stimulate the economy note that the multiplier effect for ________ is estimated to be larger than the multiplier effect for ________,and would therefore have a greater impact on expanding GDP.

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

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

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

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

Proponents of spending on infrastructure as a means to stimulate the economy note that the multiplier effect for is estimated to be larger than the multiplier effect for ,and would therefore have a greater impact on expanding GDP.