Question 1

Fiscal policies that help an economy in a recession without deliberate actions by policymakers are called:

Accepted Answer

A)  consumption smoothers. 
B)  Ricardian equalizers. 
C)  automatic stabilizers. 
D)  multiplier effects.

Question 2

Fiscal policy is MOST effective when:

Accepted Answer

A)  interest rates are high. 
B)  bond prices are low. 
C)  the money supply is falling. 
D)  there are many unemployed resources.

Question 3

In 2011,most of the 2009 federal stimulus package had been spent,but the unemployment rate remained exceptionally high at nearly 10%.This is an example of the:

Accepted Answer

A)  recognition lag. 
B)  legislative lag. 
C)  implementation lag. 
D)  effectiveness lag.

Question 4

The time necessary for Congress to propose and pass a fiscal policy plan is called the:

Accepted Answer

A)  legislative lag. 
B)  recognition lag. 
C)  implementation lag. 
D)  effectiveness lag.

Question 5

Which statement pertains to the condition of crowding out?

Accepted Answer

A)  Government cuts spending by $300 million,resulting in a decrease in consumption by $500 million. 
B)  Government cuts taxes,resulting in an increase in investment spending by $270 million. 
C)  Government increases spending by $300 million on new highway construction,resulting in an increase in consumption by $500 million. 
D)  Government raises taxes by $300 million to finance new spending on highway construction,resulting in a decrease in investment spending by $270 million.

Question 6

The worst case for fiscal policy is when a recession is caused by a real shock.

Accepted Answer

A) True 
 B)False

Question 7

An increase in government spending growth will cause the LRAS curve to:

Accepted Answer

A)  shift inward. 
B)  shift outward. 
C)  remain unchanged. 
D)  first shift outward and then shift inward.

Question 8

The tools of fiscal policy are government expenditure and taxation.

Accepted Answer

A) True 
 B)False

Question 9

When the U.S.government sells bonds,bond prices:

Accepted Answer

A)  increase and the bond interest rates increase. 
B)  increase and bond interest rates decrease. 
C)  decrease and bond interest rates increase. 
D)  decrease and bond interest rates decrease.

Question 10

The decrease in private spending that occurs when the government increases spending is called:

Accepted Answer

A)  crowding out. 
B)  a drop in the bucket. 
C)  a matter of timing. 
D)  a real shock.

Question 11

Government spending is a more effective policy tool when:

Accepted Answer

A)  the economy is above the LRAS curve. 
B)  the government raises taxes to finance spending. 
C)  consumers are pessimistic and not spending. 
D)  interest rates in the economy are rising simultaneously.

Question 12

Explain the dilemma policymakers face with respect to fiscal policy when government deficits and the national debt reach burdensome levels.

Accepted Answer

The answer of Explain the dilemma policymakers face with respect...

Question 13

According to the AD-AS model,the economy always returns to its long-run potential growth rate in the long run.Why then should government intervene and do anything when the economy suffers a negative aggregate demand shock and falls into a recession?

Accepted Answer

The answer of According to the AD-AS model,the economy always...

Question 14

Fiscal policy will be most effective when people are keen to spend their money.

Accepted Answer

A) True 
 B)False

Question 15

President Bush favored increases in government spending as a way to stimulate the economy,while President Obama favors tax cuts.

Accepted Answer

A) True 
 B)False

Question 16

Other things equal,will a temporary individual tax rebate or a permanent individual tax rebate provide the largest increase in aggregate demand?

Accepted Answer

A)  a temporary tax rebate 
B)  a permanent tax rebate 
C)  They will both produce the same amount of stimulus. 
D)  Neither will provide any stimulus.

Question 17

The multiplier concept is important because it shows:

Accepted Answer

A)  why fiscal policy is always effective. 
B)  how small changes in government spending may have large impacts on overall output. 
C)  how changes in taxes are multiplied into larger government revenues. 
D)  why decreases in the tax rate may actually increase tax revenues overall.

Question 18

Regarding fiscal stimulus,Republicans tend to favor _____;Democrats tend to favor _____.

Accepted Answer

A)  increased government spending;tax cuts 
B)  tax cuts;increased government spending 
C)  tax cuts;tax cuts 
D)  increased government spending;increased government spending

Question 19

If Ricardian equivalence holds,then a $100 million tax cut financed by issuing government bonds means that:

Accepted Answer

A)  private saving will increase by $100 million. 
B)  consumption will increase by $100 million. 
C)  government spending will increase by $100 million. 
D)  aggregate demand will increase by $100 million.

Question 20

Which does NOT explain when fiscal policy is most likely to matter?

Accepted Answer

A)  when the economy needs a short-run boost even at the expense of the long run 
B)  when the problem is a deficiency in aggregate demand rather than a real shock 
C)  when the monetary policy lags behind fiscal policy 
D)  when many resources are unemployed

Exam 18: Fiscal Policy

Fiscal policies that help an economy in a recession without deliberate actions by policymakers are called:

Fiscal policy is MOST effective when:

In 2011,most of the 2009 federal stimulus package had been spent,but the unemployment rate remained exceptionally high at nearly 10%.This is an example of the:

The time necessary for Congress to propose and pass a fiscal policy plan is called the:

Which statement pertains to the condition of crowding out?

The worst case for fiscal policy is when a recession is caused by a real shock.

An increase in government spending growth will cause the LRAS curve to:

The tools of fiscal policy are government expenditure and taxation.

When the U.S.government sells bonds,bond prices:

The decrease in private spending that occurs when the government increases spending is called:

Government spending is a more effective policy tool when:

Explain the dilemma policymakers face with respect to fiscal policy when government deficits and the national debt reach burdensome levels.

According to the AD-AS model,the economy always returns to its long-run potential growth rate in the long run.Why then should government intervene and do anything when the economy suffers a negative aggregate demand shock and falls into a recession?

Fiscal policy will be most effective when people are keen to spend their money.

President Bush favored increases in government spending as a way to stimulate the economy,while President Obama favors tax cuts.

Other things equal,will a temporary individual tax rebate or a permanent individual tax rebate provide the largest increase in aggregate demand?

The multiplier concept is important because it shows:

Regarding fiscal stimulus,Republicans tend to favor _;Democrats tend to favor _.

If Ricardian equivalence holds,then a $100 million tax cut financed by issuing government bonds means that:

Which does NOT explain when fiscal policy is most likely to matter?