Question 1

In the short run, expansionary fiscal policy usually will

Accepted Answer

A)   increase the price level and increase real GDP.
B)   increase the price level and decrease real GDP.
C)   decrease the price level and increase real GDP.
D)   decrease the price level and decrease real GDP.E) A) and B)
F) A) and C)

Question 2

A direct expenditure offset occurs when an increase in government spending

Accepted Answer

A)   results in an increase in household saving for retirement.
B)   is followed by an increase in consumer spending
C)   results in a decrease in private spending.
D)   is followed by an increase in taxes.E) A) and B)
F) A) and C)

Question 3

To the extent that the political process of moving legislation through Congress is slow,

Accepted Answer

A)   the effect time lag will be long.
B)   the recognition time lag will be long.
C)   the action time lag will be long.
D)   automatic stabilizers will not be effective.E) B) and D)
F) None of the above

Question 4

In the extreme case of a complete crowding-out effect,

Accepted Answer

A)   an increase in interest rates will stimulate investment spending.
B)   an increase in tax rates will stimulate work effort.
C)   an increase in government spending will not increase aggregate demand.
D)   an increase in government spending will stimulate investment spending.E) None of the above
F) C) and D)

Question 5

The theory that government borrowing may function like an increase in taxes, that is, reducing current consumption and business expenditures, was formulated by

Accepted Answer

A)   John Maynard Keynes
B)   Jean Baptiste Say.
C)   David Ricardo.
D)   Adam Smith.E) A) and C)
F) None of the above

Question 6

When television commentators refer to "tax and spend" policy, they are referring to

Accepted Answer

A)   fiscal policy.
B)   monetary policy.
C)   the Federal Reserve policy.
D)   automatic stabilizers.E) B) and C)
F) C) and D)

Question 7

In January 2009, the President submitted a bill to Congress that was designed to stimulate the economy and increase employment. The legislation was passed in March 2009, and the spending occurred from June 2009 to September 2010. Consequently,

Accepted Answer

A)   the economy should have been at full employment by December 2009.
B)   the full impact of the bill would be felt by March 2009 because people anticipated the effects of the increased spending.
C)   the full impact of the bill would be felt by the end of September 2010.
D)   the full effect of the spending would be felt some time after September 2010 because the full multiplier effects could not be felt until all the increase in spending took place.E) A) and B)
F) B) and C)

Question 8

-Consider the above figure. This curve suggests that as the government raises the tax rate, a point will eventually be reached at which the revenues that are collected will

Accepted Answer

A)   increase.
B)   decline.
C)   approach infinity.
D)   become negative.E) All of the above
F) None of the above

Question 9

A problem with using fiscal policy to fine-tune the economy is that

Accepted Answer

A)   agreeing on the appropriate fiscal policy is time consuming.
B)   fiscal policy impacts the economy too fast.
C)   fiscal policy impacts only urban areas of the nation.
D)   fiscal policy impacts only the largest states in the nation.E) C) and D)
F) A) and B)

Question 10

Suppose the economy has a high level of unemployment. This would imply

Accepted Answer

A)   that the government should engage in expansionary fiscal policy and increase the tax rate.
B)   that the economy is operating to the left of the LRAS curve and that government spending could be increased to reduce unemployment.
C)   that fiscal policy has been ineffective and should be abandoned.
D)   that the economy is operating on the SRAS curve and that government spending could be decreased to reduce unemployment.E) B) and C)
F) A) and B)

Question 11

In Country Z, the government simultaneously increases its expenditures by $25 billion and increases taxes by $25 billion. If the MPS is equal to 0.2, the government's action ________ real GDP by ________.

Accepted Answer

A)   increases; $125 billion
B)   increases; $25 billion
C)   increases; $100 billion
D)   has no effect on; $0E) B) and C)
F) A) and D)

Question 12

The notion that a decline in tax rates and other incentives will spur individuals and firms to increase productivity is typically referred to as

Accepted Answer

A)   demand-side economics.
B)   Ricardian equivalence.
C)   supply-side economics.
D)   Keynesian economics.E) All of the above
F) None of the above

Question 13

-Refer to the above figure. Suppose the relevant aggregate demand curve is  . If the government wants to use discretionary fiscal policy to close the existing gap, it should

Accepted Answer

A)   decrease taxes.
B)   increase taxes.
C)   increase the money supply.
D)   decrease government spending.E) A) and B)
F) C) and D)

Question 14

The proposition that decreases in taxes that raise the government budget deficit has no effect on aggregate demand is called the

Accepted Answer

A)   open-economy effect.
B)   federalism effect.
C)   Ricardian equivalence theorem.
D)   interest-rate effect.E) B) and D)
F) All of the above

Question 15

In the traditional Keynesian model, a tax cut

Accepted Answer

A)   causes the C + I + G + X line to shift upward.
B)   causes the C + I + G + X line to shift downward.
C)   causes a movement along the C + I + G + X line.
D)   does not affect the C + I + G + X line.E) B) and C)
F) All of the above

Question 16

"Expansionary fiscal policy is always 100 percent effective when the short-run aggregate supply curve is horizontal." Is this statement true?

Accepted Answer

A)   Yes, because theoretically nothing else can offset the effects of fiscal policy.
B)   Yes, when the long-run aggregate supply curve is horizontal too.
C)   No, because crowding out could take place.
D)   No, because the increased spending may cause the price level to increase.E) B) and D)
F) A) and C)

Question 17

Which of the following is NOT a fiscal policy action?

Accepted Answer

A)   increasing government expenditures on military hardware
B)   decreasing government spending on the arts
C)   raising the quantity of money in circulation
D)   lowering income tax ratesE) A) and D)
F) C) and D)

Question 18

In the traditional Keynesian model, an increase in taxes leads to all of the following EXCEPT

Accepted Answer

A)   a decrease in aggregate demand.
B)   a lower price level.
C)   a decrease in consumption.
D)   lower real GDP.E) All of the above
F) C) and D)

Question 19

In 2009, Congress passed a bill that involved government spending increases and tax cuts with the purpose of stimulating the U.S. economy. This policy is an example of

Accepted Answer

A)   an automatic stabilizer.
B)   contractionary fiscal policy.
C)   expansionary fiscal policy.
D)   expansionary monetary policy.E) A) and B)
F) A) and C)

Question 20

If there is a deliberate change in taxes and spending, it is called

Accepted Answer

A)   a recessionary gap.
B)   an inflationary gap.
C)   discretionary fiscal policy.
D)   discretionary monetary policy.E) B) and C)
F) A) and D)

Exam 13: Fiscal Policy

When television commentators refer to "tax and spend" policy, they are referring to

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The theory that government borrowing may function like an increase in taxes, that is, reducing current consumption and business expenditures, was formulated by

Correct AnswerverifiedShow Answer

-Refer to the above figure. Suppose the relevant aggregate demand curve is . If the government wants to use discretionary fiscal policy to close the existing gap, it should

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In the short run, expansionary fiscal policy usually will

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The proposition that decreases in taxes that raise the government budget deficit has no effect on aggregate demand is called the

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Which of the following is NOT a fiscal policy action?

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The notion that a decline in tax rates and other incentives will spur individuals and firms to increase productivity is typically referred to as

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If there is a deliberate change in taxes and spending, it is called

Correct AnswerverifiedShow Answer

To the extent that the political process of moving legislation through Congress is slow,

Correct AnswerverifiedShow Answer

In Country Z, the government simultaneously increases its expenditures by $25 billion and increases taxes by $25 billion. If the MPS is equal to 0.2, the government's action ________ real GDP by ________.

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"Expansionary fiscal policy is always 100 percent effective when the short-run aggregate supply curve is horizontal." Is this statement true?

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-Consider the above figure. This curve suggests that as the government raises the tax rate, a point will eventually be reached at which the revenues that are collected will

Correct AnswerverifiedShow Answer

A direct expenditure offset occurs when an increase in government spending

Correct AnswerverifiedShow Answer

In January 2009, the President submitted a bill to Congress that was designed to stimulate the economy and increase employment. The legislation was passed in March 2009, and the spending occurred from June 2009 to September 2010. Consequently,

Correct AnswerverifiedShow Answer

In the traditional Keynesian model, an increase in taxes leads to all of the following EXCEPT

Correct AnswerverifiedShow Answer

In 2009, Congress passed a bill that involved government spending increases and tax cuts with the purpose of stimulating the U.S. economy. This policy is an example of

Correct AnswerverifiedShow Answer

In the extreme case of a complete crowding-out effect,

Correct AnswerverifiedShow Answer

In the traditional Keynesian model, a tax cut

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Suppose the economy has a high level of unemployment. This would imply

Correct AnswerverifiedShow Answer

A problem with using fiscal policy to fine-tune the economy is that

Correct AnswerverifiedShow Answer

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In Country Z, the government simultaneously increases its expenditures by $25 billion and increases taxes by $25 billion. If the MPS is equal to 0.2, the government's action real GDP by .

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