Question 1

An expansionary fiscal policy shifts the aggregate demand curve

Accepted Answer

A)  to the right and is used to close an inflationary gap. 
B)  to the right and is used to close a recessionary gap. 
C)  to the left and is used to close an inflationary gap. 
D)  to the left and is used to close a recessionary gap.

Question 2

Suppose the government institutes a new investment tax credit. This is likely to

Accepted Answer

A)  shift the short-run aggregate supply curve to the right by an amount equal to the amount of tax credit times the spending multiplier. 
B)  shift the aggregate demand curve to the right by an amount equal to the amount of tax credit times the spending multiplier. 
C)  shift the short-run aggregate supply curve to the right by an amount equal to the initial change in investment times the spending multiplier. 
D)  shift the aggregate demand curve to the right by an amount equal to the initial change in investment times the spending multiplier.

Question 3

Suppose a country institutes an investment tax credit and that leads to an initial increase in investment spending of $100 billion. Suppose the multiplier is 1.5 and the economy's real GDP is $5,000 billion. This action is

Accepted Answer

A)  expansionary and will shift the aggregate demand curve to the right by $750 billion. 
B)  expansionary and will shift the aggregate demand curve to the right by $150 billion. 
C)  expansionary and will shift the aggregate demand curve to the left by $7500 billion. 
D)  expansionary and will shift the aggregate demand curve to the left by $150 billion.

Question 4

Which of the following is an advantage of automatic stabilizers?

Accepted Answer

A)  The lag for automatic stabilizers is relatively long. 
B)  It is much easier to measure the impact of automatic stabilizers compared to the impact of discretionary fiscal policy. 
C)  There is no administrative cost to implementing automatic stabilizers. 
D)  Because they affect disposable personal income directly, automatic stabilizers act swiftly to reduce the degree of changes in real GDP.

Question 5

An expansionary fiscal policy will result in higher interest rates and will reduce private investment.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements characterizes government transfer payment spending in the United States between 1960 and 2011?

Accepted Answer

A)  Transfer payment spending by the federal government and by state and local governments has decreased as a percentage of GDP. 
B)  Transfer payment spending by the federal government and by state and local governments has about tripled as a percentage of GDP. 
C)  Transfer payment spending by the federal government and by state and local governments has remained constant as a percentage of GDP. 
D)  Transfer payment spending by the federal government and by state and local governments has fluctuated widely over this period.

Question 7

When government expenditures exceed revenues there is a government budget deficit.

Accepted Answer

A) True 
 B)False

Question 8

Judged by international standards, the national debt of the United States, in terms of its national Jdebt as a percentage of GDP is

Accepted Answer

A)  the highest among the developed nations. 
B)  the lowest among the developed nations. 
C)  above average among the developed nations. 
D)  below average among the developed nations.

Question 9

What is an automatic stabilizer?

Accepted Answer

A)  It refers to a discretionary policy that is triggered when actual output is not equal to potential output to improve the economy's performance. 
B)  It refers to a stabilization program that keeps inflation in check automatically. 
C)  It refers to any government program that tends to reduce fluctuations in GDP automatically. 
D)  It refers to a government program that is automatically triggered when the economy enters a recession.

Question 10

Personal income taxes and transfer payments

Accepted Answer

A)  acts as automatic stabilizers. 
B)  magnify fluctuations in GDP. 
C)  are discretionary fiscal policy tools only. 
D)  are influenced by monetary policy.

Question 11

Which of the following statements is true?

Accepted Answer

A)  Unlike monetary policy, fiscal policy is not subject to lags. 
B)  Like monetary policy, fiscal policy is also subject to the same types of lags. 
C)  In general, fiscal policy lags are much shorter than monetary policy lags. 
D)  Although both monetary and fiscal policies are subject to lags, fiscal policy lags are easier to eliminate.

Question 12

As populations age, the burden of current fiscal policy in many countries is increasingly borne by

Accepted Answer

A)  younger people in the population. 
B)  older people in the population. 
C)  the government. 
D)  new immigrants into a country.

Question 13

Figure 12-2 
-Refer to Figure 12-2. At output level Yr,

Accepted Answer

A)  potential output is greater than actual output. 
B)  the expected price level equals actual price level. 
C)  the actual unemployment rate is less than the natural rate of unemployment. 
D)  aggregate demand will fall over time to restore equilibrium.

Question 14

Which of the following statements is true regarding the government budget?

Accepted Answer

A)  The government's budget has been in deficit since the 1960s. 
B)  The government's budget has been in deficit since World War II except for a brief period between 1998 and 2001. 
C)  The government's budget was generally in surplus until the 1980s, then mostly in deficit since except for a brief period between 1998 and 2001. 
D)  The government's budget was generally in surplus in the 1960s, then mostly in deficit since except for a brief period between 1998 and 2001.

Question 15

Automatic stabilizers are considered

Accepted Answer

A)  discretionary fiscal policies. 
B)  discretionary monetary policies. 
C)  non-discretionary fiscalpolicies. 
D)  non-discretionary monetarypolicies.

Question 16

An expansionary fiscal policy is likely to result in

Accepted Answer

A)  higher interest rates and lower private investment. 
B)  lower interest rates and higher private investment. 
C)  higher interest rates and higher private investment. 
D)  lower interest rates and lower private investment.

Question 17

Suppose a country repeals an investment tax credit and that leads to a decrease in investment spending of $100 billion. Suppose the multiplier is 1.2 and the economy's real GDP is $5,000 billion. This contractionary action

Accepted Answer

A)  will shift the aggregate demand curve to the left by $120 billion. 
B)  will shift the aggregate demand curve to the left by $6,000 billion. 
C)  will shift the aggregate supply curve to the left by $120 billion. 
D)  will shift the aggregate supply curve to the left by $6,000 billion.

Question 18

Figure 12-2 
-Refer to Figure 12-2. Assume that the economy is initially at Yr. A nonintervention policy Jwould return the economy to its potential output by

Accepted Answer

A)  allowing the short-run aggregate supply to shift to the right. 
B)  allowing the short-run aggregate supply to shift to the left. 
C)  allowing the aggregate demand to shift to the left. 
D)  allowing the aggregate demand to shift to the right.

Question 19

What is crowding out? How will crowding out dampen the effectiveness of expansionary fiscal policy?

Accepted Answer

The answer of What is crowding out? How will crowding...

Question 20

Figure 12-3 
-Refer to Figure 12-3. Suppose the aggregate demand curve is AD2. All of the following events Jwould more likely bring the economy back to the natural rate of unemployment except

Accepted Answer

A)  the government orders a one-time surcharge of 10% to be added to individual income tax liabilities. 
B)  the government raises business taxes. 
C)  the Federal Reserve sells bonds on the open market. 
D)  the government orders a cut in withholding rates designed to increase disposable income and boost consumption.

Exam 12: Government and Fiscal Policy

An expansionary fiscal policy shifts the aggregate demand curve

Suppose the government institutes a new investment tax credit. This is likely to

Suppose a country institutes an investment tax credit and that leads to an initial increase in investment spending of $100 billion. Suppose the multiplier is 1.5 and the economy's real GDP is $5,000 billion. This action is

Which of the following is an advantage of automatic stabilizers?

An expansionary fiscal policy will result in higher interest rates and will reduce private investment.

Which of the following statements characterizes government transfer payment spending in the United States between 1960 and 2011?

When government expenditures exceed revenues there is a government budget deficit.

Judged by international standards, the national debt of the United States, in terms of its national Jdebt as a percentage of GDP is

What is an automatic stabilizer?

Personal income taxes and transfer payments

Which of the following statements is true?

As populations age, the burden of current fiscal policy in many countries is increasingly borne by

Figure 12-2 -Refer to Figure 12-2. At output level Y_r,

Which of the following statements is true regarding the government budget?

Automatic stabilizers are considered

An expansionary fiscal policy is likely to result in

Suppose a country repeals an investment tax credit and that leads to a decrease in investment spending of $100 billion. Suppose the multiplier is 1.2 and the economy's real GDP is $5,000 billion. This contractionary action

Figure 12-2 -Refer to Figure 12-2. Assume that the economy is initially at Y_r. A nonintervention policy Jwould return the economy to its potential output by

What is crowding out? How will crowding out dampen the effectiveness of expansionary fiscal policy?

Figure 12-3 -Refer to Figure 12-3. Suppose the aggregate demand curve is AD₂.All of the following events Jwould more likely bring the economy back to the natural rate of unemployment except

Exam 12: Government and Fiscal Policy

An expansionary fiscal policy shifts the aggregate demand curve

Suppose the government institutes a new investment tax credit. This is likely to

Suppose a country institutes an investment tax credit and that leads to an initial increase in investment spending of $100 billion. Suppose the multiplier is 1.5 and the economy's real GDP is $5,000 billion. This action is

Which of the following is an advantage of automatic stabilizers?

An expansionary fiscal policy will result in higher interest rates and will reduce private investment.

Which of the following statements characterizes government transfer payment spending in the United States between 1960 and 2011?

When government expenditures exceed revenues there is a government budget deficit.

Judged by international standards, the national debt of the United States, in terms of its national Jdebt as a percentage of GDP is

What is an automatic stabilizer?

Personal income taxes and transfer payments

Which of the following statements is true?

As populations age, the burden of current fiscal policy in many countries is increasingly borne by

Figure 12-2 -Refer to Figure 12-2. At output level Yr,

Which of the following statements is true regarding the government budget?

Automatic stabilizers are considered

An expansionary fiscal policy is likely to result in

Suppose a country repeals an investment tax credit and that leads to a decrease in investment spending of $100 billion. Suppose the multiplier is 1.2 and the economy's real GDP is $5,000 billion. This contractionary action

Figure 12-2 -Refer to Figure 12-2. Assume that the economy is initially at Yr. A nonintervention policy Jwould return the economy to its potential output by

What is crowding out? How will crowding out dampen the effectiveness of expansionary fiscal policy?

Figure 12-3 -Refer to Figure 12-3. Suppose the aggregate demand curve is AD2. All of the following events Jwould more likely bring the economy back to the natural rate of unemployment except

Figure 12-2 -Refer to Figure 12-2. At output level Y_r,

Figure 12-2 -Refer to Figure 12-2. Assume that the economy is initially at Y_r. A nonintervention policy Jwould return the economy to its potential output by

Figure 12-3 -Refer to Figure 12-3. Suppose the aggregate demand curve is AD₂.All of the following events Jwould more likely bring the economy back to the natural rate of unemployment except