Question 1

Of the $825 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,the largest tax cuts occurred in which category?

Accepted Answer

A)  business tax cuts 
B)  energy tax cuts 
C)  individual tax cuts 
D)  infrastructure tax cuts

Question 2

Expansionary fiscal policy will

Accepted Answer

A)  shift the aggregate demand curve to the left. 
B)  shift the aggregate demand curve to the right. 
C)  not shift the aggregate demand curve. 
D)  shift the short-run aggregate supply curve to the left.

Question 3

Long lags associated with the legislative process in implementing fiscal policy make it more difficult to use than monetary policy.

Accepted Answer

A) True 
 B)False

Question 4

Table 27-5
 
-Refer to Table 27-5.The economy is in the state described by the table above.Draw the dynamic aggregate demand and aggregate supply diagram to illustrate the state of the economy in year 1 and year 2,assuming that no policy is pursued.Then illustrate and explain the appropriate fiscal policy to use in this situation.Assume that the policy results in the economy producing potential GDP.

Accepted Answer

The answer of Table 27-5
 
-Refer to Table 27-5.The economy...

Question 5

The government purchases multiplier is defined as

Accepted Answer

A)   
B)   
C)   
D)

Question 6

An appropriate fiscal policy response when aggregate demand is growing at a faster rate than aggregate supply is to decrease the money supply.

Accepted Answer

A) True 
 B)False

Question 7

Give an example of an automatic stabilizer.Explain how automatic stabilizers work in the case of recession.

Accepted Answer

The answer of Give an example of an automatic stabilizer.Explain...

Question 8

Table 27-1
 
-Refer to Table 27-1.Consider the hypothetical information in the table above for potential real GDP,real GDP and the price level in 2013 and in 2014 if the Congress and the president do not use fiscal policy.If the Congress and the president want to keep real GDP at its potential level in 2014,they should

Accepted Answer

A)  decrease income taxes. 
B)  decrease government purchases. 
C)  decrease the money supply. 
D)  increase the level of interest rates.

Question 9

Consider a tax cut which affects not only consumer disposable income,but also after-tax earnings from labor supplied to labor markets and from financial assets acquired through saving.In the long run we would expect this tax cut to

Accepted Answer

A)  decrease both the price level and increase real GDP. 
B)  increase both the price level and the level of real GDP. 
C)  increase the level of real GDP. 
D)  increase the price level.

Question 10

When does the Treasury Department borrow? Why would the Treasury have to borrow more than it estimated? When would the Treasury repay what it borrowed,and who is it repaying?

Accepted Answer

The answer of When does the Treasury Department borrow? Why...

Question 11

Suppose that Congress allocates $1 billion to clean up after the hurricanes of 2005.It also raises taxes by $1 billion to keep the deficit from growing.If the marginal propensity to consume is 0.9,what is the effect on equilibrium GDP?

Accepted Answer

A)  GDP does not change. 
B)  GDP increases by $10 billion. 
C)  GDP increases by $900,000. 
D)  GDP increases by $1 billion.

Question 12

Explain why the timing of fiscal policy may be more difficult than the timing of monetary policy.

Accepted Answer

The answer of Explain why the timing of fiscal policy...

Question 13

if government spending and the price level increase,then

Accepted Answer

A)  the interest rate increases, consumption declines, and investment spending declines. 
B)  the interest rate decreases, consumption declines, and investment spending declines. 
C)  the interest rate increases, consumption increases, and investment spending increases. 
D)  the interest rate decreases, consumption increases, and investment spending increases.

Question 14

It is ________ difficult to effectively time fiscal policy than monetary policy because ________.

Accepted Answer

A)  more; fiscal policy can be quickly decided and changed 
B)  more; fiscal policy takes longer to implement 
C)  less; monetary policy takes longer to decide and change 
D)  less; monetary policy takes longer to implement

Question 15

Expansionary fiscal policy is used to increase aggregate demand in an attempt to fight rising inflation.

Accepted Answer

A) True 
 B)False

Question 16

As the tax wedge associated with a given economic activity gets smaller,we would expect

Accepted Answer

A)  more of that economic activity to occur. 
B)  the distortions caused by taxes on that activity to be greater. 
C)  people to engage in less of that particular activity. 
D)  no change in the practice of that activity until the tax wedge ultimately disappears.

Question 17

Accumulating debt poses a problem for the U.S.federal government because

Accepted Answer

A)  it is currently in danger of defaulting on on the debt. 
B)  a large debt-to-GDP ratio causes crowding out. 
C)  building roads and bridges do not yield enough benefits to justify their cost. 
D)  the debt has to ultimately be paid off.

Question 18

If Congress wanted to counteract the effects of a recession it could

Accepted Answer

A)  increase tax rates. 
B)  increase taxes by a fixed amount. 
C)  increase government purchases. 
D)  decrease defense spending.

Question 19

________ and ________ are the largest sources of revenue collected by the federal government.

Accepted Answer

A)  Individual income taxes; corporate income taxes 
B)  Individual income taxes; social insurance taxes 
C)  Corporate income taxes; excise and other taxes 
D)  Excise and other taxes; individual income taxes

Question 20

Figure 27-7
 
-Refer to Figure 27-7.In the graph above,suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B.Which of the following policies could the Congress and the president use to move the economy to point C?

Accepted Answer

A)  increase income taxes 
B)  increase government spending 
C)  buy Treasury bills 
D)  decrease the discount rate

Exam 16: Fiscal Policy

Of the $825 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,the largest tax cuts occurred in which category?

Expansionary fiscal policy will

Long lags associated with the legislative process in implementing fiscal policy make it more difficult to use than monetary policy.

The government purchases multiplier is defined as

An appropriate fiscal policy response when aggregate demand is growing at a faster rate than aggregate supply is to decrease the money supply.

Give an example of an automatic stabilizer.Explain how automatic stabilizers work in the case of recession.

Consider a tax cut which affects not only consumer disposable income,but also after-tax earnings from labor supplied to labor markets and from financial assets acquired through saving.In the long run we would expect this tax cut to

When does the Treasury Department borrow? Why would the Treasury have to borrow more than it estimated? When would the Treasury repay what it borrowed,and who is it repaying?

Suppose that Congress allocates $1 billion to clean up after the hurricanes of 2005.It also raises taxes by $1 billion to keep the deficit from growing.If the marginal propensity to consume is 0.9,what is the effect on equilibrium GDP?

Explain why the timing of fiscal policy may be more difficult than the timing of monetary policy.

if government spending and the price level increase,then

It is difficult to effectively time fiscal policy than monetary policy because .

Expansionary fiscal policy is used to increase aggregate demand in an attempt to fight rising inflation.

As the tax wedge associated with a given economic activity gets smaller,we would expect

Accumulating debt poses a problem for the U.S.federal government because

If Congress wanted to counteract the effects of a recession it could

and are the largest sources of revenue collected by the federal government.

Figure 27-7 -Refer to Figure 27-7.In the graph above,suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B.Which of the following policies could the Congress and the president use to move the economy to point C?