Question 1

If the federal budget is initially balanced and government expenditures remain constant, then a
Decrease in GDP will

Accepted Answer

A) decrease tax revenues and create a budget surplus. 
B) increase tax revenues and create a budget surplus. 
C) decrease tax revenues and create a budget deficit. 
D) increase tax revenues and create a budget deficit. 
A) decrease tax revenues and create a budget surplus. 
B) increase tax revenues and create a budget surplus. 
C) decrease tax revenues and create a budget deficit. 
D) increase tax revenues and create a budget deficit. C

Question 2

Expansionary fiscal policy leads to

Accepted Answer

A) lower interest rates which reduce the demand for a nation's currency, and causes its exchange rate to fall. 
B) higher interest rates which increase the demand for a nation's currency, and causes its exchange rate to rise. 
C) higher interest rates which reduce the demand for a nation's currency, and causes its exchange rate to rise. 
D) lower interest rates which increase the demand for a nation's currency, and causes its exchange rate to rise. 
A) lower interest rates which reduce the demand for a nation's currency, and causes its exchange rate to fall. 
B) higher interest rates which increase the demand for a nation's currency, and causes its exchange rate to rise. 
C) higher interest rates which reduce the demand for a nation's currency, and causes its exchange rate to rise. 
D) lower interest rates which increase the demand for a nation's currency, and causes its exchange rate to rise. B

Question 3

An expansionary fiscal policy increases a government budget deficit or reduces a government budget surplus, increases borrowing by the Treasury, which will sell more bonds.

Accepted Answer

A) True 
 B)False  True

Question 4

Suppose a country repeals an investment tax credit and that leads to a decrease in investment spending of $100 billion.Suppose the multiplier is 1.2 and the economy's real GDP is $5,000 billion.This contractionary action

Accepted Answer

A) will shift the aggregate demand curve to the left by $120 billion. 
B) will shift the aggregate demand curve to the left by $6,000 billion. 
C) will shift the aggregate supply curve to the left by $120 billion. 
D) will shift the aggregate supply curve to the left by $6,000 billion. 
A) will shift the aggregate demand curve to the left by $120 billion. 
B) will shift the aggregate demand curve to the left by $6,000 billion. 
C) will shift the aggregate supply curve to the left by $120 billion. 
D) will shift the aggregate supply curve to the left by $6,000 billion.

Question 5

Which of the following best explains why a $10 billion increase in transfer payments has a smaller impact on aggregate demand than a $10 billion increase in government purchases?

Accepted Answer

A) An increase in government purchases can be paid for with a bond issue while transfer payments must be funded by taxes. 
B) An increase in transfer payments can be paid for by borrowing, but an increase in government purchases must ultimately be funded by tax increases. 
C) Households save part of an increase in income while the entire increase in government purchases represents additional spending. 
D) An increase in transfer payments does not create a multiplier effect, but an increase in government purchases does. 
A) An increase in government purchases can be paid for with a bond issue while transfer payments must be funded by taxes. 
B) An increase in transfer payments can be paid for by borrowing, but an increase in government purchases must ultimately be funded by tax increases. 
C) Households save part of an increase in income while the entire increase in government purchases represents additional spending. 
D) An increase in transfer payments does not create a multiplier effect, but an increase in government purchases does.

Question 6

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 7

Supply-side economics is the school of thought that advocates the use of

Accepted Answer

A) monetary policy to stimulate long-run aggregate supply. 
B) fiscal policy to stimulate long-run aggregate demand. 
C) monetary policy to stimulate short-run aggregate demand. 
D) fiscal policy to stimulate long-run aggregate supply. 
A) monetary policy to stimulate long-run aggregate supply. 
B) fiscal policy to stimulate long-run aggregate demand. 
C) monetary policy to stimulate short-run aggregate demand. 
D) fiscal policy to stimulate long-run aggregate supply.

Question 8

All of the following are examples of automatic stabilizers except

Accepted Answer

A) personal income taxes. 
B) means-tested federal transfer payments. 
C) welfare benefits. 
D) government emergency spending. 
A) personal income taxes. 
B) means-tested federal transfer payments. 
C) welfare benefits. 
D) government emergency spending.

Question 9

Which of the following statements characterizes government purchases in the United States between 2001 and 2011?

Accepted Answer

A) Government purchases as a share of GDP have declined. 
B) Government purchases as a share of GDP have increased. 
C) Government purchases as a share of GDP have remained constant. 
D) Government purchases have fluctuated widely over this period. 
A) Government purchases as a share of GDP have declined. 
B) Government purchases as a share of GDP have increased. 
C) Government purchases as a share of GDP have remained constant. 
D) Government purchases have fluctuated widely over this period.

Question 10

The impact of instituting investment tax credits is

Accepted Answer

A) to stimulate private sector investments and increase aggregate demand. 
B) to stimulate private production and increase aggregate supply. 
C) to encourage individuals to save in an effort to increase funds available for investment. 
D) to curtail in excessive lending by financial institutions. 
A) to stimulate private sector investments and increase aggregate demand. 
B) to stimulate private production and increase aggregate supply. 
C) to encourage individuals to save in an effort to increase funds available for investment. 
D) to curtail in excessive lending by financial institutions.

Question 11

Discretionary fiscal policy refers to

Accepted Answer

A) deliberate government efforts to stabilize the economy through government spending and taxes. 
B) the use of automatic stabilizers and intervention policies to stabilize the economy. 
C) any government policy that requires a lag period of at least three months. 
D) the deliberate use of government spending and taxes to complement the effects of monetary policy in an effort to stabilize the economy. 
A) deliberate government efforts to stabilize the economy through government spending and taxes. 
B) the use of automatic stabilizers and intervention policies to stabilize the economy. 
C) any government policy that requires a lag period of at least three months. 
D) the deliberate use of government spending and taxes to complement the effects of monetary policy in an effort to stabilize the economy.

Question 12

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.

Question 13

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 14

Suppose that income taxes are reduced by $400 billion and households increase consumption by
80% of the resulting change in disposable income.Suppose also that the multiplier is 2.
What is the marginal propensity to consume?

Accepted Answer

A) 0.2 
B) 0.4 
C) 0.8 
D) 1.6 
A) 0.2 
B) 0.4 
C) 0.8 
D) 1.6

Question 15

Use the following to answer questions 
Exhibit: Supply-Side Economics  
-(Exhibit: Supply-Side Economics)
Assume that the economy is initially at Y1.If economists advocate
Policies to promote economic growth, such as those which encourage investment and work effort, which of the following would occur?

Accepted Answer

A) a shift to the left in the long-run aggregate supply (LRAS)and the short-run aggregate supply (SRAS)curves 
B) a decrease in aggregate demand 
C) a shift to the right in both SRAS and LRAS 
D) a shift to the right of SRAS and to the left of LRAS 
A) a shift to the left in the long-run aggregate supply (LRAS)and the short-run aggregate supply (SRAS)curves 
B) a decrease in aggregate demand 
C) a shift to the right in both SRAS and LRAS 
D) a shift to the right of SRAS and to the left of LRAS

Question 16

A transfer payment that rises automatically during a recession is

Accepted Answer

A) interest payments on the national debt. 
B) unemployment compensation. 
C) Social Security payments to retired persons. 
D) government payments to war veterans. 
A) interest payments on the national debt. 
B) unemployment compensation. 
C) Social Security payments to retired persons. 
D) government payments to war veterans.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

An inflationary gap may be eliminated using contractionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is an automatic stabilizer?
I.inheritance taxes
II.government payments to war veterans
III.aid to families with dependent children
IV.sales taxes

Accepted Answer

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

Question 20

An expansionary fiscal policy is likely to result in the Treasury

Accepted Answer

A) selling more bonds, the prices of bonds falling, and interest rates falling. 
B) buying more bonds, the prices of bonds rising, and interest rates falling. 
C) selling more bonds, the prices of bonds rising, and interest rates rising. 
D) selling more bonds, the prices of bonds falling, and interest rates rising. 
A) selling more bonds, the prices of bonds falling, and interest rates falling. 
B) buying more bonds, the prices of bonds rising, and interest rates falling. 
C) selling more bonds, the prices of bonds rising, and interest rates rising. 
D) selling more bonds, the prices of bonds falling, and interest rates rising.

If the federal budget is initially balanced and government expenditures remain constant, then a Decrease in GDP will

Expansionary fiscal policy leads to

An expansionary fiscal policy increases a government budget deficit or reduces a government budget surplus, increases borrowing by the Treasury, which will sell more bonds.

Suppose a country repeals an investment tax credit and that leads to a decrease in investment spending of $100 billion.Suppose the multiplier is 1.2 and the economy's real GDP is $5,000 billion.This contractionary action

Which of the following best explains why a $10 billion increase in transfer payments has a smaller impact on aggregate demand than a $10 billion increase in government purchases?

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?

Supply-side economics is the school of thought that advocates the use of

All of the following are examples of automatic stabilizers except

Which of the following statements characterizes government purchases in the United States between 2001 and 2011?

The impact of instituting investment tax credits is

Discretionary fiscal policy refers to

The impact of fiscal policy is

The national debt

Suppose that income taxes are reduced by $400 billion and households increase consumption by 80% of the resulting change in disposable income.Suppose also that the multiplier is 2. What is the marginal propensity to consume?

A transfer payment that rises automatically during a recession is

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

An inflationary gap may be eliminated using contractionary fiscal policy.

Which of the following is an automatic stabilizer? I.inheritance taxes II.government payments to war veterans III.aid to families with dependent children IV.sales taxes

An expansionary fiscal policy is likely to result in the Treasury

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

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

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Exam 12: Government and Fiscal Policy

If the federal budget is initially balanced and government expenditures remain constant, then a Decrease in GDP will

Expansionary fiscal policy leads to

An expansionary fiscal policy increases a government budget deficit or reduces a government budget surplus, increases borrowing by the Treasury, which will sell more bonds.

Suppose a country repeals an investment tax credit and that leads to a decrease in investment spending of $100 billion.Suppose the multiplier is 1.2 and the economy's real GDP is $5,000 billion.This contractionary action

Which of the following best explains why a $10 billion increase in transfer payments has a smaller impact on aggregate demand than a $10 billion increase in government purchases?

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?

Supply-side economics is the school of thought that advocates the use of

All of the following are examples of automatic stabilizers except

Which of the following statements characterizes government purchases in the United States between 2001 and 2011?

The impact of instituting investment tax credits is

Discretionary fiscal policy refers to

The impact of fiscal policy is

The national debt

Suppose that income taxes are reduced by $400 billion and households increase consumption by 80% of the resulting change in disposable income.Suppose also that the multiplier is 2. What is the marginal propensity to consume?

Use the following to answer questions Exhibit: Supply-Side Economics -(Exhibit: Supply-Side Economics) Assume that the economy is initially at Y1.If economists advocate Policies to promote economic growth, such as those which encourage investment and work effort, which of the following would occur?

A transfer payment that rises automatically during a recession is

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

An inflationary gap may be eliminated using contractionary fiscal policy.

Which of the following is an automatic stabilizer? I.inheritance taxes II.government payments to war veterans III.aid to families with dependent children IV.sales taxes

An expansionary fiscal policy is likely to result in the Treasury

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

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