Question 1

Which one of the following is NOT a part of the U.S federal government's discretionary spending?

Accepted Answer

A)   military
B)   social security
C)   veterans' benefits
D)   transportation B

Question 2

_____ fiscal policy shifts the aggregate demand curve right and therefore can be used to close _____ gap.

Accepted Answer

A)   A contractionary; an inflationary
B)   A contractionary; a recessionary
C)   An expansionary; an inflationary
D)   An expansionary; a recessionary D

Question 3

If the full employment level of output for an economy is 1,000 units and it is currently producing 1,100 units, then there is _____ gap, and the government can _____ taxes to close this gap.

Accepted Answer

A)   an inflationary; decrease
B)   an inflationary; increase
C)   a recessionary; decrease
D)   a recessionary; increase B

Question 4

Suppose that an economy is producing an output greater than the full-employment level of output. Policymakers in the economy are worried that this may eventually lead to high rates of inflation and want to bring the economy back to its full employment level.
a. Suggest one policy to bring the economy back to its full employment level.
b. Show the impact of the policy graphically using the aggregate demand and aggregate supply graph, clearly marking the equilibrium points before and after the policy action.

Accepted Answer

The answer of Suppose that an economy is producing an...

Question 5

If the full employment level of output for an economy is 1,000 units and it is currently producing 900 units, then there is _____ gap, and the government can _____ spending to close the gap.

Accepted Answer

A)   an inflationary; decrease
B)   an inflationary; increase
C)   a recessionary; decrease
D)   a recessionary; increase

Question 6

If the full employment level of output for an economy is 1,000 units and it is currently producing 900 units, then there is _____ gap, and the government can _____ transfer payments to bring the output back to its full employment level.

Accepted Answer

A)   an inflationary; decrease
B)   an inflationary; increase
C)   a recessionary; decrease
D)   a recessionary; increase

Question 7

Which of the following taxes contributes the largest share to the federal government's tax revenue in the United States?

Accepted Answer

A)   excise tax
B)   corporate income tax
C)   individual income tax
D)   payroll tax

Question 8

A tax system in which everyone pays the same proportion of his or her income in taxes is called a _____ tax system.

Accepted Answer

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

Question 9

Most economists agree that an expansionary fiscal policy increases _____, thereby shifting the curve:

Accepted Answer

A)   aggregate demand; left.
B)   aggregate demand; right.
C)   aggregate supply; left.
D)   aggregate supply; right.

Question 10

If the short-run aggregate supply curve intersects the aggregate demand curve to the right of the long-run aggregate supply curve, then the economy has _____ gap, and the government can close the gap by _____ transfer payments.

Accepted Answer

A)   an inflationary; increasing
B)   an inflationary; decreasing
C)   a recessionary; increasing
D)   a recessionary; decreasing

Question 11

If the short-run aggregate supply curve intersects the aggregate demand curve to the right of the long-run aggregate supply curve, then the economy has _____ gap, and the government can close the gap using _____ fiscal policy.

Accepted Answer

A)   an inflationary; an expansionary
B)   a recessionary; an expansionary
C)   an inflationary; a contractionary
D)   a recessionary; a contractionary

Question 12

Because government spending has _____ effect on aggregate demand, changing government spending has a _____ impact on output compared to a change in taxes.

Accepted Answer

A)   an indirect; larger
B)   a direct; larger
C)   an indirect; smaller
D)   a direct; smaller

Question 13

Two economies are identical, and both are in a recessionary gap. In one economy, the government increases spending to close the gap, and in the other, the government decreases an equivalent amount of income taxes to close the gap. In which economy will the gap close by a greater amount? Justify your answer.

Accepted Answer

The answer of Two economies are identical, and both are...

Question 14

If there is a recessionary gap in the economy, then it is producing _____ than its full employment level of output, and the government can follow _____ fiscal policy to close the gap.

Accepted Answer

A)   less; an expansionary
B)   more; an expansionary
C)   less; a contractionary
D)   more; a contractionary

Question 15

If the government implements expansionary fiscal policy and there is _____ crowding out, then private investment will _____, and the aggregate demand will remain unchanged.

Accepted Answer

A)   partial; rise
B)   partial; fall
C)   complete; rise
D)   complete; fall

Question 16

It is usually observed that budget deficits rise during recessions and fall during economic expansions. Why is this the case? (Hint: Think about how automatic stabilizers work.)

Accepted Answer

The answer of It is usually observed that budget deficits...

Question 17

All else equal, lowering income taxes _____ the disposable income of workers, which in turn incentivizes workers to work _____ hours.

Accepted Answer

A)   increases; fewer
B)   increases; more
C)   decreases; fewer
D)   decreases; more

Question 18

If there is an inflationary gap in the economy, then it is producing _____ than its full employment level of output, and the government can _____ transfer payments to close the gap.

Accepted Answer

A)   more; decrease
B)   more; increase
C)   less; decrease
D)   less; increase

Question 19

Use Figure: Fiscal Policy II. If the economy is operating at point A, then there is _____ gap, and the government can _____ taxes to close this gap.
​
Fiscal Policy II

Accepted Answer

A)   an inflationary; increase
B)   a recessionary; increase
C)   an inflationary; decrease
D)   a recessionary; decrease

Question 20

The decrease in private investment caused by increased government spending using borrowed funds is known as:

Accepted Answer

A)   crowding-out.
B)   interest rate effect.
C)   substitution effect.
D)   supply-side policy.

Exam 15: Fiscal Policy

Which one of the following is NOT a part of the U.S federal government's discretionary spending?

_ fiscal policy shifts the aggregate demand curve right and therefore can be used to close _ gap.

If the full employment level of output for an economy is 1,000 units and it is currently producing 1,100 units, then there is _ gap, and the government can _ taxes to close this gap.

If the full employment level of output for an economy is 1,000 units and it is currently producing 900 units, then there is _ gap, and the government can _ spending to close the gap.

If the full employment level of output for an economy is 1,000 units and it is currently producing 900 units, then there is _ gap, and the government can _ transfer payments to bring the output back to its full employment level.

Which of the following taxes contributes the largest share to the federal government's tax revenue in the United States?

A tax system in which everyone pays the same proportion of his or her income in taxes is called a _____ tax system.

Most economists agree that an expansionary fiscal policy increases _____, thereby shifting the curve:

If the short-run aggregate supply curve intersects the aggregate demand curve to the right of the long-run aggregate supply curve, then the economy has _ gap, and the government can close the gap by _ transfer payments.

If the short-run aggregate supply curve intersects the aggregate demand curve to the right of the long-run aggregate supply curve, then the economy has _ gap, and the government can close the gap using _ fiscal policy.

Because government spending has _ effect on aggregate demand, changing government spending has a _ impact on output compared to a change in taxes.

If there is a recessionary gap in the economy, then it is producing _ than its full employment level of output, and the government can follow _ fiscal policy to close the gap.

If the government implements expansionary fiscal policy and there is _ crowding out, then private investment will _, and the aggregate demand will remain unchanged.

It is usually observed that budget deficits rise during recessions and fall during economic expansions. Why is this the case? (Hint: Think about how automatic stabilizers work.)

All else equal, lowering income taxes _ the disposable income of workers, which in turn incentivizes workers to work _ hours.

If there is an inflationary gap in the economy, then it is producing _ than its full employment level of output, and the government can _ transfer payments to close the gap.

Use Figure: Fiscal Policy II. If the economy is operating at point A, then there is _ gap, and the government can _ taxes to close this gap. Fiscal Policy II

The decrease in private investment caused by increased government spending using borrowed funds is known as:

Exam 15: Fiscal Policy

Which one of the following is NOT a part of the U.S federal government's discretionary spending?

_____ fiscal policy shifts the aggregate demand curve right and therefore can be used to close _____ gap.

If the full employment level of output for an economy is 1,000 units and it is currently producing 1,100 units, then there is _____ gap, and the government can _____ taxes to close this gap.

If the full employment level of output for an economy is 1,000 units and it is currently producing 900 units, then there is _____ gap, and the government can _____ spending to close the gap.

If the full employment level of output for an economy is 1,000 units and it is currently producing 900 units, then there is _____ gap, and the government can _____ transfer payments to bring the output back to its full employment level.

Which of the following taxes contributes the largest share to the federal government's tax revenue in the United States?

A tax system in which everyone pays the same proportion of his or her income in taxes is called a _____ tax system.

Most economists agree that an expansionary fiscal policy increases _____, thereby shifting the curve:

If the short-run aggregate supply curve intersects the aggregate demand curve to the right of the long-run aggregate supply curve, then the economy has _____ gap, and the government can close the gap by _____ transfer payments.

If the short-run aggregate supply curve intersects the aggregate demand curve to the right of the long-run aggregate supply curve, then the economy has _____ gap, and the government can close the gap using _____ fiscal policy.

Because government spending has _____ effect on aggregate demand, changing government spending has a _____ impact on output compared to a change in taxes.

If there is a recessionary gap in the economy, then it is producing _____ than its full employment level of output, and the government can follow _____ fiscal policy to close the gap.

If the government implements expansionary fiscal policy and there is _____ crowding out, then private investment will _____, and the aggregate demand will remain unchanged.

It is usually observed that budget deficits rise during recessions and fall during economic expansions. Why is this the case? (Hint: Think about how automatic stabilizers work.)

All else equal, lowering income taxes _____ the disposable income of workers, which in turn incentivizes workers to work _____ hours.

If there is an inflationary gap in the economy, then it is producing _____ than its full employment level of output, and the government can _____ transfer payments to close the gap.

Use Figure: Fiscal Policy II. If the economy is operating at point A, then there is _____ gap, and the government can _____ taxes to close this gap. ​ Fiscal Policy II

The decrease in private investment caused by increased government spending using borrowed funds is known as:

_ fiscal policy shifts the aggregate demand curve right and therefore can be used to close _ gap.

If the full employment level of output for an economy is 1,000 units and it is currently producing 1,100 units, then there is _ gap, and the government can _ taxes to close this gap.

If the full employment level of output for an economy is 1,000 units and it is currently producing 900 units, then there is _ gap, and the government can _ spending to close the gap.

If the full employment level of output for an economy is 1,000 units and it is currently producing 900 units, then there is _ gap, and the government can _ transfer payments to bring the output back to its full employment level.

If the short-run aggregate supply curve intersects the aggregate demand curve to the right of the long-run aggregate supply curve, then the economy has _ gap, and the government can close the gap by _ transfer payments.

If the short-run aggregate supply curve intersects the aggregate demand curve to the right of the long-run aggregate supply curve, then the economy has _ gap, and the government can close the gap using _ fiscal policy.

Because government spending has _ effect on aggregate demand, changing government spending has a _ impact on output compared to a change in taxes.

If there is a recessionary gap in the economy, then it is producing _ than its full employment level of output, and the government can follow _ fiscal policy to close the gap.

If the government implements expansionary fiscal policy and there is _ crowding out, then private investment will _, and the aggregate demand will remain unchanged.

All else equal, lowering income taxes _ the disposable income of workers, which in turn incentivizes workers to work _ hours.

If there is an inflationary gap in the economy, then it is producing _ than its full employment level of output, and the government can _ transfer payments to close the gap.

Use Figure: Fiscal Policy II. If the economy is operating at point A, then there is _ gap, and the government can _ taxes to close this gap. Fiscal Policy II