Question 1

Personal income taxes:

Accepted Answer

A) make recessions and inflationary episodes more severe. 
B) make recessions and inflationary episodes less severe. 
C) make recessions more severe and inflationary episodes less severe. 
D) make recessions less severe and inflationary episodes more severe. 
E) have no effect on the severity of recessions and inflationary episodes.

Question 2

The tax multiplier is greater than the spending multiplier regardless of the value of the marginal propensity to consume (MPC).

Accepted Answer

A) True 
 B)False

Question 3

Suppose the economy is on the classical range of the aggregate supply curve and has a problem with inflation. According to Keynesian theory, which of the following is an appropriate discretionary fiscal policy to use in this situation?

Accepted Answer

A) A reduction in the money supply. 
B) Less government regulation. 
C) Increase federal spending. 
D) Higher taxes.

Question 4

Assume the marginal propensity to consume (MPC)is 0.80 and the government cuts taxes by $100 billion. The aggregate demand curve will shift to the:

Accepted Answer

A) right by $80 billion. 
B) left by $200 billion. 
C) right by $400 billion. 
D) left by $400 billion. 
E) None of these.

Question 5

A balanced budget is present when:

Accepted Answer

A) the economy is at full employment. 
B) the actual level of aggregate spending equals the planned level of spending. 
C) public sector spending equals private sector spending. 
D) government revenues equal government expenditures.

Question 6

Keynesian analysis stresses that a tax cut that increases the government's budget deficit or reduces its budget surplus:

Accepted Answer

A) is appropriate during a period of inflation. 
B) will increase the money supply. 
C) will stimulate aggregate supply and, thereby, promote employment. 
D) will stimulate aggregate demand and, thereby, promote employment.

Question 7

If the marginal propensity to save (MPS)is 0.10, the value of the spending multiplier is:

Accepted Answer

A) 1. 
B) 9. 
C) 10. 
D) 90.

Question 8

An advantage of automatic stabilizers is that this type of fiscal policy is not subject to:

Accepted Answer

A) imprecise knowledge of full-employment real GDP. 
B) special interest groups. 
C) lag time problems. 
D) All of these are true.

Question 9

Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC)is 0.90, and the government follows Keynesian economics by using expansionary fiscal policy to increase aggregate demand (total spending). If an increase of $1,000 billion aggregate demand can restore full employment, the government should:

Accepted Answer

A) increase spending by $100 billion. 
B) decrease spending by $790 billion. 
C) increase spending by $1,000 billion. 
D) increase spending by $250 billion.

Question 10

If your income increases from $33,000 to $41,000 and your consumption increases from $8,000 to $12,000, your marginal propensity to consume (MPC)is:

Accepted Answer

A) 0.2. 
B) 0.4. 
C) 0.5. 
D) 0.8. 
E) 1.0.

Question 11

Assume the marginal propensity to consume (MPC)is 0.75 and the government increases taxes by $250 billion. The aggregate demand curve will shift to the:

Accepted Answer

A) left by $1,000 billion. 
B) right by $1,000 billion. 
C) left by $750 billion. 
D) right by $750 billion.

Question 12

Fiscal policy is government action to influence aggregate demand and in turn to influence the level of real GDP and the price level, through:

Accepted Answer

A) expanding and contracting the money supply. 
B) regulation of net exports. 
C) changes in government spending and\or tax revenues. 
D) encouraging businesses to invest.

Question 13

An increase in the marginal propensity to consume (MPC)leads to a increase in the spending multiplier.

Accepted Answer

A) True 
 B)False

Question 14

Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC)is 0.75, and the government follows Keynesian economics by using expansionary fiscal policy to increase aggregate demand (total spending). If an increase of $1,000 billion aggregate demand can restore full employment, the government should:

Accepted Answer

A) increase spending by $250 billion. 
B) decrease spending by $750 billion. 
C) increase spending by $1,000 billion. 
D) increase spending by $750 billion.

Question 15

The marginal propensity to consume (MPC)is computed as the change in:

Accepted Answer

A) consumption divided by the change in savings. 
B) consumption divided by the change in income. 
C) consumption divided by the change in GDP. 
D) None of these.

Question 16

According to Keynesian economics, what impact would a balanced budget amendment to our constitution have on our national economy?

Accepted Answer

The answer of According to Keynesian economics, what impact would...

Question 17

Which of the following policies is a supply-side policy?

Accepted Answer

A) Reduction in taxes. 
B) Reduction in regulation. 
C) Reduction in resource prices. 
D) Subsidies to produce technological advances. 
E) All of these.

Question 18

The equation for the spending multiplier is:

Accepted Answer

A) 1 \ (1 - MP
C) . 
B) 1 - MPC. 
C) 1 - (MPC - MPS). 
D) MPC \ MPS. 
E) none of these.

Question 19

An advocate of supply-side fiscal policy would advocate which of the following?

Accepted Answer

A) Subsidies to produce technological advances. 
B) Reduction in regulation. 
C) Reduction in resource prices. 
D) Reduction in taxes. 
E) All of these.

Question 20

Discuss the differences between Keynesian and supply-side fiscal policies.

Accepted Answer

The answer of Discuss the differences between Keynesian and supply-side...

Exam 11: Fiscal Policy