Question 1

If the unemployment rate falls below the natural rate of unemployment u*),

Accepted Answer

A)  the government will want to conduct expansionary fiscal policy. 
B)  the Federal Reserve will want to conduct expansionary monetary policy. 
C)  the economy is in a recession. 
D)  there will be no worries about inflation. 
E)  the government will want to conduct contractionary fiscal policy. 
A)  the government will want to conduct expansionary fiscal policy. 
B)  the Federal Reserve will want to conduct expansionary monetary policy. 
C)  the economy is in a recession. 
D)  there will be no worries about inflation. 
E)  the government will want to conduct contractionary fiscal policy. E

Question 2

Crowding-out occurs when

Accepted Answer

A)  supply-side fiscal policy does not increase total output. 
B)  consumption increases when government spending increases. 
C)  private spending falls in response to increases in government spending. 
D)  time lags crowd out the effects of fiscal policy. 
E)  increases in government spending and decreases in taxes are offset by increases in savings. 
A)  supply-side fiscal policy does not increase total output. 
B)  consumption increases when government spending increases. 
C)  private spending falls in response to increases in government spending. 
D)  time lags crowd out the effects of fiscal policy. 
E)  increases in government spending and decreases in taxes are offset by increases in savings. C

Question 3

During which of the following situations would the government most likely have an expansionary fiscal policy?

Accepted Answer

A)  when current output is above full-employment output 
B)  when the economy is expanding at a rapid pace 
C)  when inflation is at 10 percent per year 
D)  when the current unemployment rate is below the natural rate of unemployment 
E)  when the current unemployment rate is above the natural rate of unemployment 
A)  when current output is above full-employment output 
B)  when the economy is expanding at a rapid pace 
C)  when inflation is at 10 percent per year 
D)  when the current unemployment rate is below the natural rate of unemployment 
E)  when the current unemployment rate is above the natural rate of unemployment E

Question 4

Complete crowding-out is when every dollar of

Accepted Answer

A)  government spending crowds out one dollar of tax revenue. 
B)  government spending crowds out one dollar of private spending. 
C)  private spending crowds out one dollar of government spending. 
D)  private spending crowds out one dollar of tax revenue. 
E)  tax revenue crowds out one dollar of government spending. 
A)  government spending crowds out one dollar of tax revenue. 
B)  government spending crowds out one dollar of private spending. 
C)  private spending crowds out one dollar of government spending. 
D)  private spending crowds out one dollar of tax revenue. 
E)  tax revenue crowds out one dollar of government spending.

Question 5

The Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009 are both examples of ________ policy.

Accepted Answer

A)  contractionary fiscal 
B)  expansionary monetary 
C)  contractionary monetary 
D)  expansionary fiscal 
E)  countercyclical monetary 
A)  contractionary fiscal 
B)  expansionary monetary 
C)  contractionary monetary 
D)  expansionary fiscal 
E)  countercyclical monetary

Question 6

At ________ tax rates, ________ in those tax rates lead to ________ in total tax revenue.

Accepted Answer

A)  low; increases; increases 
B)  low; increases; decreases 
C)  low; decreases; increases 
D)  high; increases; increases 
E)  high; decreases; decreases 
A)  low; increases; increases 
B)  low; increases; decreases 
C)  low; decreases; increases 
D)  high; increases; increases 
E)  high; decreases; decreases

Question 7

If the marginal propensity to consume MPC) equals 0.75 and the government increases spending by
$200 billion, what is the total impact on spending?

Accepted Answer

The total impact on spending would be $8

Question 8

When aggregate demand is low enough to drive unemployment above the natural rate,

Accepted Answer

A)  there is downward pressure on the price level, and the government may want to conduct contractionary fiscal policy. 
B)  the economy is entering into an expansion, and the government may want to conduct contractionary fiscal policy. 
C)  there is upward pressure on the price level, and the government may want to conduct contractionary fiscal policy. 
D)  there is upward pressure on the price level, and the government may want to conduct expansionary fiscal policy. 
E)  there is downward pressure on the price level, and the government may want to conduct expansionary fiscal policy. 
A)  there is downward pressure on the price level, and the government may want to conduct contractionary fiscal policy. 
B)  the economy is entering into an expansion, and the government may want to conduct contractionary fiscal policy. 
C)  there is upward pressure on the price level, and the government may want to conduct contractionary fiscal policy. 
D)  there is upward pressure on the price level, and the government may want to conduct expansionary fiscal policy. 
E)  there is downward pressure on the price level, and the government may want to conduct expansionary fiscal policy.

Question 9

The three time lags that accompany policy decisions are

Accepted Answer

A)  recognition lag, implementation lag, and impact lag. 
B)  crowding-out lag, implementation lag, and impact lag. 
C)  recognition lag, implementation lag, and countercyclical lag. 
D)  crowding-out lag, implementation lag, and countercyclical lag. 
E)  crowding-out lag, stabilizing lag, and countercyclical lag. 
A)  recognition lag, implementation lag, and impact lag. 
B)  crowding-out lag, implementation lag, and impact lag. 
C)  recognition lag, implementation lag, and countercyclical lag. 
D)  crowding-out lag, implementation lag, and countercyclical lag. 
E)  crowding-out lag, stabilizing lag, and countercyclical lag.

Question 10

Where marginal propensity to consume is denoted as MPC, consider the following:
   
a. Assuming no crowding-out and MPC = 0.75, calculate the amount of government spending needed to bring this economy back to full-employment output.
b. Assuming no crowding-out and that $10 billion would be needed to bring this economy back to full-employment output, calculate the MPC in this economy.

Accepted Answer

a. When the MPC = 0.75, the spending mul

Question 11

If an initial increase in government spending of $100 billion leads to a total increase of $400 billion in income, the marginal propensity to consume in the economy is

Accepted Answer

A)  0.4. 
B)  -0.8. 
C)  0.5. 
D)  0.75. 
E)  0.8. 
A)  0.4. 
B)  -0.8. 
C)  0.5. 
D)  0.75. 
E)  0.8.

Question 12

Supply-side fiscal policy

Accepted Answer

A)  has been proven not to work. 
B)  takes time to affect aggregate supply. 
C)  has immediate effects on aggregate supply. 
D)  includes increases in government employees' pay and individual tax breaks. 
E)  is emphasized as a short-run solution to growth problems. 
A)  has been proven not to work. 
B)  takes time to affect aggregate supply. 
C)  has immediate effects on aggregate supply. 
D)  includes increases in government employees' pay and individual tax breaks. 
E)  is emphasized as a short-run solution to growth problems.

Question 13

When the economy falters, people often look to the government to help push the economy forward again. In fact, the government uses many different tools to try to affect the economy. Economists classify these tools on the basis of ________ policy and ________ policy.

Accepted Answer

A)  tax; spending 
B)  monetary; fiscal 
C)  expansionary; countercyclical 
D)  tax; fiscal 
E)  monetary; spending 
A)  tax; spending 
B)  monetary; fiscal 
C)  expansionary; countercyclical 
D)  tax; fiscal 
E)  monetary; spending

Question 14

The spending multiplier is

Accepted Answer

A)  a formula to determine the total impact on savings from an initial change of a given amount. 
B)  a formula to determine the total impact on consumption from an initial change of a given amount. 
C)  only used when government spending increases. 
D)  a formula to determine the total impact on spending from an initial change of a given amount. 
E)  only used when government spending decreases. 
A)  a formula to determine the total impact on savings from an initial change of a given amount. 
B)  a formula to determine the total impact on consumption from an initial change of a given amount. 
C)  only used when government spending increases. 
D)  a formula to determine the total impact on spending from an initial change of a given amount. 
E)  only used when government spending decreases.

Question 15

Monetary policy is conducted by the Federal Reserve. Fiscal policy is

Accepted Answer

A)  also conducted by the Federal Reserve. 
B)  conducted by Congress and the president. 
C)  conducted by the Supreme Court. 
D)  conducted by the Department of Defense. 
E)  conducted only at the state level. 
A)  also conducted by the Federal Reserve. 
B)  conducted by Congress and the president. 
C)  conducted by the Supreme Court. 
D)  conducted by the Department of Defense. 
E)  conducted only at the state level.

Question 16

If the spending multiplier is 5, what is the marginal propensity to consume in the economy?

Accepted Answer

A)  0.4 
B)  -0.8 
C)  0.5 
D)  0.75 
E)  0.8 
A)  0.4 
B)  -0.8 
C)  0.5 
D)  0.75 
E)  0.8

Question 17

Refer to the following figure to answer the next questions.
  
-According to the figure, the amount of private savings after government borrowing is

Accepted Answer

A)  $50 billion. 
B)  $25 billion. 
C)  $100 billion. 
D)  $150 billion. 
E)  $275 billion. 
A)  $50 billion. 
B)  $25 billion. 
C)  $100 billion. 
D)  $150 billion. 
E)  $275 billion.

Question 18

If people decide to save a greater percentage of their incomes, then the value of the spending multiplier will ________ and changes in government spending will have ________ impact on gross domestic product (GDP).

Accepted Answer

A)  decrease; a larger 
B)  decrease; a smaller 
C)  increase; a larger 
D)  increase; a larger. 
E)  not change; the same 
A)  decrease; a larger 
B)  decrease; a smaller 
C)  increase; a larger 
D)  increase; a larger. 
E)  not change; the same

Question 19

Countercyclical fiscal policy involves changing government spending in order to shift the ________
curve, while supply-side fiscal policy involves changing government spending in order to shift the ________ curve.

Accepted Answer

A)  aggregate demand A
D) ; short-run aggregate supply SRAS) 
B)  long-run aggregate supply LRAS); aggregate demand A
D)  
C)  aggregate demand A
D)  ; aggregate demand A
D)  
D)  aggregate demand A
D) ; long-run aggregate supply LRAS) 
E)  long-run aggregate supply LRAS); long-run aggregate supply LRAS) 
A)  aggregate demand A
D) ; short-run aggregate supply SRAS) 
B)  long-run aggregate supply LRAS); aggregate demand A
D)  
C)  aggregate demand A
D)  ; aggregate demand A
D)  
D)  aggregate demand A
D) ; long-run aggregate supply LRAS) 
E)  long-run aggregate supply LRAS); long-run aggregate supply LRAS)

Question 20

Supply-side fiscal policy involves the use of

Accepted Answer

A)  government spending and taxes to affect the consumption side of the economy. 
B)  government spending and taxes to affect the production side of the economy. 
C)  government spending and taxes to affect the net exports side of the economy. 
D)  monetary policy to supplement traditional fiscal policy. 
E)  government spending and taxes to affect the aggregate demand curve. 
A)  government spending and taxes to affect the consumption side of the economy. 
B)  government spending and taxes to affect the production side of the economy. 
C)  government spending and taxes to affect the net exports side of the economy. 
D)  monetary policy to supplement traditional fiscal policy. 
E)  government spending and taxes to affect the aggregate demand curve.

If the unemployment rate falls below the natural rate of unemployment u*),

Crowding-out occurs when

During which of the following situations would the government most likely have an expansionary fiscal policy?

Complete crowding-out is when every dollar of

The Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009 are both examples of ________ policy.

At tax rates, in those tax rates lead to in total tax revenue.

If the marginal propensity to consume MPC) equals 0.75 and the government increases spending by $200 billion, what is the total impact on spending?

When aggregate demand is low enough to drive unemployment above the natural rate,

The three time lags that accompany policy decisions are

If an initial increase in government spending of $100 billion leads to a total increase of $400 billion in income, the marginal propensity to consume in the economy is

Supply-side fiscal policy

When the economy falters, people often look to the government to help push the economy forward again. In fact, the government uses many different tools to try to affect the economy. Economists classify these tools on the basis of policy and policy.

The spending multiplier is

Monetary policy is conducted by the Federal Reserve. Fiscal policy is

If the spending multiplier is 5, what is the marginal propensity to consume in the economy?

Refer to the following figure to answer the next questions. -According to the figure, the amount of private savings after government borrowing is

If people decide to save a greater percentage of their incomes, then the value of the spending multiplier will and changes in government spending will have impact on gross domestic product (GDP).

Countercyclical fiscal policy involves changing government spending in order to shift the curve, while supply-side fiscal policy involves changing government spending in order to shift the curve.

Supply-side fiscal policy involves the use of

Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Market Outcomes and Tax Incidence

Price Controls

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

The Price Level and Inflation

Savings, Interest Rates, and the Market for Loanable Funds

Financial Markets and Securities

Economic Growth and the Wealth of Nations

Growth Theory

The Aggregate Demandaggregate Supply Model

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Money and the Federal Reserve

Monetary Policy Learning Objectives

International Trade

International Finance

Filters

Exam 16: Fiscal Policy

If the unemployment rate falls below the natural rate of unemployment u*),

Crowding-out occurs when

During which of the following situations would the government most likely have an expansionary fiscal policy?

Complete crowding-out is when every dollar of

The Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009 are both examples of ________ policy.

At ________ tax rates, ________ in those tax rates lead to ________ in total tax revenue.

If the marginal propensity to consume MPC) equals 0.75 and the government increases spending by $200 billion, what is the total impact on spending?

When aggregate demand is low enough to drive unemployment above the natural rate,

The three time lags that accompany policy decisions are

If an initial increase in government spending of $100 billion leads to a total increase of $400 billion in income, the marginal propensity to consume in the economy is

Supply-side fiscal policy

When the economy falters, people often look to the government to help push the economy forward again. In fact, the government uses many different tools to try to affect the economy. Economists classify these tools on the basis of ________ policy and ________ policy.

The spending multiplier is

Monetary policy is conducted by the Federal Reserve. Fiscal policy is

If the spending multiplier is 5, what is the marginal propensity to consume in the economy?

Refer to the following figure to answer the next questions. -According to the figure, the amount of private savings after government borrowing is

If people decide to save a greater percentage of their incomes, then the value of the spending multiplier will ________ and changes in government spending will have ________ impact on gross domestic product (GDP).

Countercyclical fiscal policy involves changing government spending in order to shift the ________ curve, while supply-side fiscal policy involves changing government spending in order to shift the ________ curve.

Supply-side fiscal policy involves the use of

Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Market Outcomes and Tax Incidence

Price Controls

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

The Price Level and Inflation

Savings, Interest Rates, and the Market for Loanable Funds

Financial Markets and Securities

Economic Growth and the Wealth of Nations

Growth Theory

The Aggregate Demandaggregate Supply Model

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Money and the Federal Reserve

Monetary Policy Learning Objectives

International Trade

International Finance

Filters

At tax rates, in those tax rates lead to in total tax revenue.

When the economy falters, people often look to the government to help push the economy forward again. In fact, the government uses many different tools to try to affect the economy. Economists classify these tools on the basis of policy and policy.

If people decide to save a greater percentage of their incomes, then the value of the spending multiplier will and changes in government spending will have impact on gross domestic product (GDP).

Countercyclical fiscal policy involves changing government spending in order to shift the curve, while supply-side fiscal policy involves changing government spending in order to shift the curve.