Question 1

If federal taxes are cut by $10 billion, aggregate demand

Accepted Answer

A)  increases by $10 billion. 
B)  increases by $10 billion multiplied by the government expenditure multiplier. 
C)  increases by $10 billion multiplied by the tax multiplier. 
D)  decreases by $10 billion 
E)  decreases by $10 billion multiplied by the tax multiplier.

Question 2

"Discretionary fiscal policy is a fiscal action initiated by an act of the Federal Reserve, while automatic fiscal policy is a fiscal action induced by the state of the economy." Is the previous statement correct or incorrect?
 Explain your answer.

Accepted Answer

The answer of "Discretionary fiscal policy is a fiscal action...

Question 3

If government expenditure increases by $200 billion and taxes simultaneously increase by $200 billion, then aggregate demand

Accepted Answer

A)  remains the same. 
B)  decreases no matter what happens to aggregate supply. 
C)  increases no matter what happens to aggregate supply. 
D)  increases only if aggregate supply increases. 
E)  increases only if aggregate supply decreases.

Question 4

President Reagan often stated he preferred supply side policies.Which of the following federal government policies would be considered supply side?
i. decrease the quantity of money
ii. lower taxes
iii. lower the interest rate.

Accepted Answer

A)  i only 
B)  ii only 
C)  iii only 
D)  i and iii 
E)  i, ii, and iii

Question 5

In the labor market, the income tax creates a tax wedge which raises the ________ wage rate, reduces the ________ wage rate, and ________ employment.

Accepted Answer

A)  before-tax; after-tax; does not affect 
B)  before-tax; after-tax; increases 
C)  after-tax; before-tax; does not affect. 
D)  before-tax; after-tax; decreases 
E)  after-tax; before-tax; decreases

Question 6

An income tax hike

Accepted Answer

A)  increases potential GDP. 
B)  increases employment. 
C)  decreases potential GDP. 
D)  Both answers A and B are correct. 
E)  Both answers B and C are correct.

Question 7

If an economy is in an equilibrium with an inflationary gap, policy-makers can use

Accepted Answer

A)  discretionary fiscal policy and increase government expenditure. 
B)  automatic fiscal policy and increase government expenditure. 
C)  automatic fiscal policy and cut taxes. 
D)  discretionary fiscal policy and decrease government expenditure. 
E)  discretionary fiscal policy and cut taxes.

Question 8

"As the saying goes, the only sure things in life are death and taxes.This saying points out the result that everything having to do with taxes is an automatic fiscal policy." Is the preceding analysis correct or incorrect?
 Explain your answer.

Accepted Answer

The answer of "As the saying goes, the only sure...

Question 9

If the economy has been producing at a point where real GDP is less than potential GDP, what fiscal policy can the federal government use to restore real GDP to potential GDP?

Accepted Answer

A)  cut government expenditure on goods and services 
B)  increase taxes 
C)  cut taxes 
D)  raise the interest rate 
E)  decrease the quantity of money

Question 10

If a tax cut increases people's labor supply, then

Accepted Answer

A)  tax cuts increase potential GDP. 
B)  tax cuts decrease aggregate demand. 
C)  tax cuts decrease potential GDP because the real wage rate falls. 
D)  tax cuts cannot affect aggregate demand. 
E)  Both answers B and C are correct.

Question 11

When the government's expenditures exceed its tax revenue, the budget

Accepted Answer

A)  has a deficit and the national debt is increasing. 
B)  is balanced and the national debt is increasing. 
C)  has a surplus and the national debt is increasing. 
D)  has a deficit and the national debt is decreasing. 
E)  None of the above because by law the government's expenditures cannot exceed its tax revenue.

Question 12

When an economy faces an inflationary gap, an appropriate fiscal policy is to

Accepted Answer

A)  decrease government expenditure. 
B)  decrease taxes. 
C)  increase aggregate demand. 
D)  increase the quantity of money. 
E)  decrease the quantity of money.

Question 13

The figure above shows an economy's aggregate demand curve, aggregate supply curve, and potential GDP.
-In the figure above, the ________ gap is one trillion dollars. To close the gap, the government can change expenditure by ________ one trillion dollars.

Accepted Answer

A)  inflationary; less than 
B)  inflationary; exactly 
C)  inflationary; more than 
D)  recessionary; more than 
E)  recessionary; exactly

Question 14

An economy is experiencing a recession and policy makers are considering using discretionary fiscal policy to eliminate the recessionary gap.What are the four limitations that policymakers face when using discretionary fiscal policy?
 Briefly discuss each.

Accepted Answer

The answer of An economy is experiencing a recession and...

Question 15

The supply-side effects of an income tax cut ________ potential GDP and ________ aggregate supply.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease 
E)  increases; do not change

Question 16

Which of the following is an example of a discretionary fiscal policy action?

Accepted Answer

A)  increased unemployment payments resulting from higher unemployment 
B)  an increase in spending on defense goods resulting from increased world tensions 
C)  an increase in tax revenue resulting from an increase in GDP 
D)  a decrease in the tax rate resulting from an effort to increase aggregate demand to combat a recession 
E)  None of the above answers are correct.

Question 17

The magnitude of the tax multiplier is ________ the magnitude of the government expenditure multiplier.

Accepted Answer

A)  equal to 
B)  greater than 
C)  smaller than 
D)  the inverse of 
E)  exactly one half

Question 18

Explain four reasons why it is difficult to use discretionary fiscal policy to eliminate a deflationary or inflationary gap.

Accepted Answer

The answer of Explain four reasons why it is difficult...

Question 19

An increase in government expenditure can ________ potential GDP and an increase in taxes can ________ potential GDP.

Accepted Answer

A)  increase; increase 
B)  increase; never change 
C)  decrease; decrease 
D)  never change; never change 
E)  increase; decrease

Question 20

Discuss the federal budget history of the United States since 1970.Make sure to note specifically the budget position of the United States during the last of the 1990s and compare it to the situation in 2010.

Accepted Answer

The answer of Discuss the federal budget history of the...

Exam 16: Fiscal Policy

If federal taxes are cut by $10 billion, aggregate demand

"Discretionary fiscal policy is a fiscal action initiated by an act of the Federal Reserve, while automatic fiscal policy is a fiscal action induced by the state of the economy." Is the previous statement correct or incorrect? Explain your answer.

If government expenditure increases by $200 billion and taxes simultaneously increase by $200 billion, then aggregate demand

President Reagan often stated he preferred supply side policies.Which of the following federal government policies would be considered supply side? i. decrease the quantity of money ii. lower taxes iii. lower the interest rate.

In the labor market, the income tax creates a tax wedge which raises the wage rate, reduces the wage rate, and employment.

An income tax hike

If an economy is in an equilibrium with an inflationary gap, policy-makers can use

"As the saying goes, the only sure things in life are death and taxes.This saying points out the result that everything having to do with taxes is an automatic fiscal policy." Is the preceding analysis correct or incorrect? Explain your answer.

If the economy has been producing at a point where real GDP is less than potential GDP, what fiscal policy can the federal government use to restore real GDP to potential GDP?

If a tax cut increases people's labor supply, then

When the government's expenditures exceed its tax revenue, the budget

When an economy faces an inflationary gap, an appropriate fiscal policy is to

The figure above shows an economy's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, the gap is one trillion dollars. To close the gap, the government can change expenditure by one trillion dollars.

An economy is experiencing a recession and policy makers are considering using discretionary fiscal policy to eliminate the recessionary gap.What are the four limitations that policymakers face when using discretionary fiscal policy? Briefly discuss each.

The supply-side effects of an income tax cut potential GDP and aggregate supply.

Which of the following is an example of a discretionary fiscal policy action?

The magnitude of the tax multiplier is ________ the magnitude of the government expenditure multiplier.

Explain four reasons why it is difficult to use discretionary fiscal policy to eliminate a deflationary or inflationary gap.

An increase in government expenditure can potential GDP and an increase in taxes can potential GDP.

Discuss the federal budget history of the United States since 1970.Make sure to note specifically the budget position of the United States during the last of the 1990s and compare it to the situation in 2010.

Exam 16: Fiscal Policy

If federal taxes are cut by $10 billion, aggregate demand

"Discretionary fiscal policy is a fiscal action initiated by an act of the Federal Reserve, while automatic fiscal policy is a fiscal action induced by the state of the economy." Is the previous statement correct or incorrect? Explain your answer.

If government expenditure increases by $200 billion and taxes simultaneously increase by $200 billion, then aggregate demand

President Reagan often stated he preferred supply side policies.Which of the following federal government policies would be considered supply side? i. decrease the quantity of money ii. lower taxes iii. lower the interest rate.

In the labor market, the income tax creates a tax wedge which raises the ________ wage rate, reduces the ________ wage rate, and ________ employment.

An income tax hike

If an economy is in an equilibrium with an inflationary gap, policy-makers can use

"As the saying goes, the only sure things in life are death and taxes.This saying points out the result that everything having to do with taxes is an automatic fiscal policy." Is the preceding analysis correct or incorrect? Explain your answer.

If the economy has been producing at a point where real GDP is less than potential GDP, what fiscal policy can the federal government use to restore real GDP to potential GDP?

If a tax cut increases people's labor supply, then

When the government's expenditures exceed its tax revenue, the budget

When an economy faces an inflationary gap, an appropriate fiscal policy is to

The figure above shows an economy's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, the ________ gap is one trillion dollars. To close the gap, the government can change expenditure by ________ one trillion dollars.

An economy is experiencing a recession and policy makers are considering using discretionary fiscal policy to eliminate the recessionary gap.What are the four limitations that policymakers face when using discretionary fiscal policy? Briefly discuss each.

The supply-side effects of an income tax cut ________ potential GDP and ________ aggregate supply.

Which of the following is an example of a discretionary fiscal policy action?

The magnitude of the tax multiplier is ________ the magnitude of the government expenditure multiplier.

Explain four reasons why it is difficult to use discretionary fiscal policy to eliminate a deflationary or inflationary gap.

An increase in government expenditure can ________ potential GDP and an increase in taxes can ________ potential GDP.

Discuss the federal budget history of the United States since 1970.Make sure to note specifically the budget position of the United States during the last of the 1990s and compare it to the situation in 2010.

In the labor market, the income tax creates a tax wedge which raises the wage rate, reduces the wage rate, and employment.

The figure above shows an economy's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, the gap is one trillion dollars. To close the gap, the government can change expenditure by one trillion dollars.

The supply-side effects of an income tax cut potential GDP and aggregate supply.

An increase in government expenditure can potential GDP and an increase in taxes can potential GDP.