Question 1

Selling Treasury bonds to finance a federal deficit crowds out private investment by driving interest rates down.

Accepted Answer

A) True 
 B)False  False

Question 2

In the United States, most of the government's taxing and spending is

Accepted Answer

A)  to stabilize the economy and move it to its potential output. 
B)  to bring about greater income equality. 
C)  to keep inflation at a moderate level. 
D)  for purposes other than economic stabilization. 
A)  to stabilize the economy and move it to its potential output. 
B)  to bring about greater income equality. 
C)  to keep inflation at a moderate level. 
D)  for purposes other than economic stabilization. D

Question 3

The impact of fiscal policy is

Accepted Answer

A)  magnified because of crowding out and weakened because of crowding in. 
B)  magnified because of crowding in and weakened because of crowding out. 
C)  magnified because of crowding out and crowding in. 
D)  weakened because of crowding out and crowding in. 
A)  magnified because of crowding out and weakened because of crowding in. 
B)  magnified because of crowding in and weakened because of crowding out. 
C)  magnified because of crowding out and crowding in. 
D)  weakened because of crowding out and crowding in. D

Question 4

The national debt

Accepted Answer

A)  is the difference between total government revenues and government expenditures. 
B)  is the sum of all past federal deficits plus any surpluses. 
C)  is the sum of all past federal deficits less any surpluses. 
D)  grows when government spending increases. 
A)  is the difference between total government revenues and government expenditures. 
B)  is the sum of all past federal deficits plus any surpluses. 
C)  is the sum of all past federal deficits less any surpluses. 
D)  grows when government spending increases.

Question 5

According to Professor Baotai Wang who examined the crowding out phenomenon in Canada between 1961-2000, as discussed in the Case in Point, which of the following categories of government expenditures are most likely to lead to crowding out?

Accepted Answer

A)  expenditures for health and education 
B)  expenditures for infrastructure and capital 
C)  expenditures for the protection of persons and property, including defense spending 
D)  expenditures for government and social services 
A)  expenditures for health and education 
B)  expenditures for infrastructure and capital 
C)  expenditures for the protection of persons and property, including defense spending 
D)  expenditures for government and social services

Question 6

When government expenditures exceed revenues there is a government budget deficit.

Accepted Answer

A) True 
 B)False

Question 7

Use the following to answer questions .
Exhibit: Fiscal Policy 2  
-(Exhibit: Fiscal Policy 2) Assume that the economy is initially at Yr. A nonintervention policy
Would return the economy to its potential output by

Accepted Answer

A)  allowing the short-run aggregate supply to shift to the right. 
B)  allowing the short-run aggregate supply to shift to the left. 
C)  allowing the aggregate demand to shift to the left. 
D)  allowing the aggregate demand to shift to the right. 
A)  allowing the short-run aggregate supply to shift to the right. 
B)  allowing the short-run aggregate supply to shift to the left. 
C)  allowing the aggregate demand to shift to the left. 
D)  allowing the aggregate demand to shift to the right.

Question 8

Suppose a country's debt rises by 6% and its GDP rises by 8%. What happens to the debt-GDP ratio?

Accepted Answer

A)  It rises if there is a budget deficit that period. 
B)  It falls. 
C)  It rises. 
D)  There is insufficient information to answer the question. 
A)  It rises if there is a budget deficit that period. 
B)  It falls. 
C)  It rises. 
D)  There is insufficient information to answer the question.

Question 9

An increase in government transfer payments will shift the aggregate demand curve to the right

Accepted Answer

A)  by the initial change in consumption arising from the change in transfer payment × the spending multiplier. 
B)  by the initial change in income arising from the change in transfer payment × the spending multiplier. 
C)  by the change in transfer payments × times the spending multiplier. 
D)  by the change in transfer payments × times the marginal propensity to consume. 
A)  by the initial change in consumption arising from the change in transfer payment × the spending multiplier. 
B)  by the initial change in income arising from the change in transfer payment × the spending multiplier. 
C)  by the change in transfer payments × times the spending multiplier. 
D)  by the change in transfer payments × times the marginal propensity to consume.

Question 10

Personal income taxes and transfer payments

Accepted Answer

A)  acts as automatic stabilizers. 
B)  magnify fluctuations in GDP. 
C)  are discretionary fiscal policy tools only. 
D)  are influenced by monetary policy. 
A)  acts as automatic stabilizers. 
B)  magnify fluctuations in GDP. 
C)  are discretionary fiscal policy tools only. 
D)  are influenced by monetary policy.

Question 11

Automatic stabilizers tend to exaggerate the severity of business cycles.

Accepted Answer

A) True 
 B)False

Question 12

According to Professor Baotai Wang who examined the crowding out phenomenon in
Canada between 1961-2000, as discussed in the Case in Point, expenditures for protection of persons and property

Accepted Answer

A)  involve no crowding out. 
B)  may involve some crowding out, but they also stimulated private investment by firms winning government contracts for defense purchases. 
C)  stimulate aggregate demand and aggregate supply. 
D)  may involve some crowding out, which is offset by the strong supply-side effects they generate. 
A)  involve no crowding out. 
B)  may involve some crowding out, but they also stimulated private investment by firms winning government contracts for defense purchases. 
C)  stimulate aggregate demand and aggregate supply. 
D)  may involve some crowding out, which is offset by the strong supply-side effects they generate.

Question 13

Suppose that income taxes are increased by $600 billion. If the marginal propensity to consume is 0.75 and the spending multiplier is 4, by how much will the aggregate demand curve shift at a given price level?

Accepted Answer

A)  $2,400 billion 
B)  $1,800 billion 
C)  $600 billion 
D)  $450 billion 
A)  $2,400 billion 
B)  $1,800 billion 
C)  $600 billion 
D)  $450 billion

Question 14

Which of the following describes a discretionary fiscal policy action/program?

Accepted Answer

A)  the progressive income tax system 
B)  the unemployment compensation program 
C)  Congress authorizes a temporary increase in unemployment insurance benefits for an additional seven weeks. 
D)  the system of welfare programs 
A)  the progressive income tax system 
B)  the unemployment compensation program 
C)  Congress authorizes a temporary increase in unemployment insurance benefits for an additional seven weeks. 
D)  the system of welfare programs

Question 15

Explain the concept of supply-side economics. Could the reasoning behind this theory make it in any way more effective than demand-management policies? Could it be less effective? Why?

Accepted Answer

Supply-side economics is an economic the

Question 16

Suppose the economy experiences a recessionary gap. Policymakers who believe that the
Private sector has failed to provide adequately, a host of services that would benefit society would favor which of the following policies to close the gap?

Accepted Answer

A)  subsidies to private firms to spur production 
B)  decreases in income tax rates 
C)  increases in government purchases 
D)  decreases in interest rates 
A)  subsidies to private firms to spur production 
B)  decreases in income tax rates 
C)  increases in government purchases 
D)  decreases in interest rates

Question 17

Contractionary fiscal policy will lead to a(n)

Accepted Answer

A)  decrease in the supply of dollars in the foreign exchange market. 
B)  fall in interest rates. 
C)  increase in the demand for dollars in the foreign exchange market. 
D)  reduction in exports. 
A)  decrease in the supply of dollars in the foreign exchange market. 
B)  fall in interest rates. 
C)  increase in the demand for dollars in the foreign exchange market. 
D)  reduction in exports.

Question 18

Suppose the economy experiences an inflationary gap. Policymakers who believe that
Government is too big would favor which of the following policies to close the gap?

Accepted Answer

A)  reduction in government spending 
B)  increases in income tax rates 
C)  increases in corporate tax rates 
D)  increases in interest rates 
A)  reduction in government spending 
B)  increases in income tax rates 
C)  increases in corporate tax rates 
D)  increases in interest rates

Question 19

The government purchases component of aggregate demand includes
I. all purchases by government agencies of goods and services produced by firms.
II. direct production by government agencies themselves.
III. government expenditures on transfer payments.

Accepted Answer

A)  I only 
B)  I and II only 
C)  I and III only 
D)  I, II, and III 
A)  I only 
B)  I and II only 
C)  I and III only 
D)  I, II, and III

Question 20

Government tax and expenditure policies that affect real GDP are called

Accepted Answer

A)  automatic fiscal policy. 
B)  discretionary fiscal policy. 
C)  fiscal policy. 
D)  supply-side policy. 
A)  automatic fiscal policy. 
B)  discretionary fiscal policy. 
C)  fiscal policy. 
D)  supply-side policy.

Selling Treasury bonds to finance a federal deficit crowds out private investment by driving interest rates down.

In the United States, most of the government's taxing and spending is

The impact of fiscal policy is

The national debt

According to Professor Baotai Wang who examined the crowding out phenomenon in Canada between 1961-2000, as discussed in the Case in Point, which of the following categories of government expenditures are most likely to lead to crowding out?

When government expenditures exceed revenues there is a government budget deficit.

Use the following to answer questions . Exhibit: Fiscal Policy 2 -(Exhibit: Fiscal Policy 2) Assume that the economy is initially at Y_r. A nonintervention policy Would return the economy to its potential output by

Suppose a country's debt rises by 6% and its GDP rises by 8%. What happens to the debt-GDP ratio?

An increase in government transfer payments will shift the aggregate demand curve to the right

Personal income taxes and transfer payments

Automatic stabilizers tend to exaggerate the severity of business cycles.

According to Professor Baotai Wang who examined the crowding out phenomenon in Canada between 1961-2000, as discussed in the Case in Point, expenditures for protection of persons and property

Suppose that income taxes are increased by $600 billion. If the marginal propensity to consume is 0.75 and the spending multiplier is 4, by how much will the aggregate demand curve shift at a given price level?

Which of the following describes a discretionary fiscal policy action/program?

Explain the concept of supply-side economics. Could the reasoning behind this theory make it in any way more effective than demand-management policies? Could it be less effective? Why?

Suppose the economy experiences a recessionary gap. Policymakers who believe that the Private sector has failed to provide adequately, a host of services that would benefit society would favor which of the following policies to close the gap?

Contractionary fiscal policy will lead to a(n)

Suppose the economy experiences an inflationary gap. Policymakers who believe that Government is too big would favor which of the following policies to close the gap?

The government purchases component of aggregate demand includes I. all purchases by government agencies of goods and services produced by firms. II. direct production by government agencies themselves. III. government expenditures on transfer payments.

Government tax and expenditure policies that affect real GDP are called

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Filters

Exam 12: Government and Fiscal Policy

Selling Treasury bonds to finance a federal deficit crowds out private investment by driving interest rates down.

In the United States, most of the government's taxing and spending is

The impact of fiscal policy is

The national debt

According to Professor Baotai Wang who examined the crowding out phenomenon in Canada between 1961-2000, as discussed in the Case in Point, which of the following categories of government expenditures are most likely to lead to crowding out?

When government expenditures exceed revenues there is a government budget deficit.

Use the following to answer questions . Exhibit: Fiscal Policy 2 -(Exhibit: Fiscal Policy 2) Assume that the economy is initially at Yr. A nonintervention policy Would return the economy to its potential output by

Suppose a country's debt rises by 6% and its GDP rises by 8%. What happens to the debt-GDP ratio?

An increase in government transfer payments will shift the aggregate demand curve to the right

Personal income taxes and transfer payments

Automatic stabilizers tend to exaggerate the severity of business cycles.

According to Professor Baotai Wang who examined the crowding out phenomenon in Canada between 1961-2000, as discussed in the Case in Point, expenditures for protection of persons and property

Suppose that income taxes are increased by $600 billion. If the marginal propensity to consume is 0.75 and the spending multiplier is 4, by how much will the aggregate demand curve shift at a given price level?

Which of the following describes a discretionary fiscal policy action/program?

Explain the concept of supply-side economics. Could the reasoning behind this theory make it in any way more effective than demand-management policies? Could it be less effective? Why?

Suppose the economy experiences a recessionary gap. Policymakers who believe that the Private sector has failed to provide adequately, a host of services that would benefit society would favor which of the following policies to close the gap?

Contractionary fiscal policy will lead to a(n)

Suppose the economy experiences an inflationary gap. Policymakers who believe that Government is too big would favor which of the following policies to close the gap?

The government purchases component of aggregate demand includes I. all purchases by government agencies of goods and services produced by firms. II. direct production by government agencies themselves. III. government expenditures on transfer payments.

Government tax and expenditure policies that affect real GDP are called

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Filters

Use the following to answer questions . Exhibit: Fiscal Policy 2 -(Exhibit: Fiscal Policy 2) Assume that the economy is initially at Y_r. A nonintervention policy Would return the economy to its potential output by