Question 1

A decrease in net taxes _____

Accepted Answer

A)  raises aggregate expenditure by raising disposable income, thereby increasing consumption. 
B)  raises aggregate expenditure by raising disposable income, thereby decreasing consumption. 
C)  lowers aggregate expenditure by lowering disposable income, thereby decreasing consumption. 
D)  lowers aggregate expenditure by lowering disposable income, consumption remaining constant. 
E)  has no effect on aggregate expenditure. 
A)  raises aggregate expenditure by raising disposable income, thereby increasing consumption. 
B)  raises aggregate expenditure by raising disposable income, thereby decreasing consumption. 
C)  lowers aggregate expenditure by lowering disposable income, thereby decreasing consumption. 
D)  lowers aggregate expenditure by lowering disposable income, consumption remaining constant. 
E)  has no effect on aggregate expenditure. A

Question 2

Which of the following is true of the Golden Age of fiscal policy of the 1960s?

Accepted Answer

A)  Fiscal policy was used to prevent output from expanding in 1964. 
B)  Lyndon B. Johnson cut income tax rates to reduce inflationary pressures in the economy. 
C)  A tax cut was introduced to increase savings and unemployment. 
D)  A tax cut increased disposable income and consumption. 
E)  The unemployment rate rose by 5 percent for the first time in seven years. 
A)  Fiscal policy was used to prevent output from expanding in 1964. 
B)  Lyndon B. Johnson cut income tax rates to reduce inflationary pressures in the economy. 
C)  A tax cut was introduced to increase savings and unemployment. 
D)  A tax cut increased disposable income and consumption. 
E)  The unemployment rate rose by 5 percent for the first time in seven years. D

Question 3

The effect of automatic stabilizers on the business cycle is to _____

Accepted Answer

A)  make upswings larger and downswings smaller. 
B)  make upswings smaller and downswings larger. 
C)  make both upswings and downswings smaller. 
D)  eliminate fiscal drag. 
E)  make both upswings and downswings larger. 
A)  make upswings larger and downswings smaller. 
B)  make upswings smaller and downswings larger. 
C)  make both upswings and downswings smaller. 
D)  eliminate fiscal drag. 
E)  make both upswings and downswings larger. C

Question 4

The natural rate of unemployment is _____

Accepted Answer

A)  equal to seasonal unemployment. 
B)  usually equal to 3 percent. 
C)  the unemployment rate when none of the work force is unemployed for more than six weeks. 
D)  the unemployment rate at which the economy is producing its potential GDP. 
E)  defined by the government. 
A)  equal to seasonal unemployment. 
B)  usually equal to 3 percent. 
C)  the unemployment rate when none of the work force is unemployed for more than six weeks. 
D)  the unemployment rate at which the economy is producing its potential GDP. 
E)  defined by the government.

Question 5

During an election year, the federal government would most likely increase _____

Accepted Answer

A)  tax rates. 
B)  interest rates. 
C)  the discount rate charged to commercial banks. 
D)  the minimum reserve requirement of commercial banks. 
E)  government purchases of goods and services. 
A)  tax rates. 
B)  interest rates. 
C)  the discount rate charged to commercial banks. 
D)  the minimum reserve requirement of commercial banks. 
E)  government purchases of goods and services.

Question 6

Economists believe that the fiscal stimulus of 2009 was _____

Accepted Answer

A)  very effective because the large deficits and growing debt created an uncertain business climate. 
B)  very effective because the small deficits and shrinking debt created a positive business climate. 
C)  not very effective because the large deficits and growing debt created an uncertain business climate. 
D)  not very effective because the small deficits and shrinking debt created a positive business climate. 
E)  unrelated to federal debt or the business climate. 
A)  very effective because the large deficits and growing debt created an uncertain business climate. 
B)  very effective because the small deficits and shrinking debt created a positive business climate. 
C)  not very effective because the large deficits and growing debt created an uncertain business climate. 
D)  not very effective because the small deficits and shrinking debt created a positive business climate. 
E)  unrelated to federal debt or the business climate.

Question 7

The only way the government can affect aggregate demand is through changes in its own purchasing.

Accepted Answer

A) True 
 B)False

Question 8

What impact do tax rebates have?

Accepted Answer

A)  increased consumption 
B)  decreased consumption 
C)  increased investment 
D)  decreased investment 
E)  They have little impact on consumption. 
A)  increased consumption 
B)  decreased consumption 
C)  increased investment 
D)  decreased investment 
E)  They have little impact on consumption.

Question 9

Revenue and spending programs in the federal budget that automatically adjust with the ups and downs of the economy are known as _____

Accepted Answer

A)  discretionary fiscal policy. 
B)  automatic stabilizers. 
C)  expansionary fiscal policy. 
D)  contractionary fiscal policy. 
E)  monetary policy. 
A)  discretionary fiscal policy. 
B)  automatic stabilizers. 
C)  expansionary fiscal policy. 
D)  contractionary fiscal policy. 
E)  monetary policy.

Question 10

Which of the following statements best explains the effects of transfer payments and taxes on aggregate spending?

Accepted Answer

A)  Transfer payments and taxes affect aggregate spending directly, just as consumption does. 
B)  Transfer payments and taxes affect aggregate spending indirectly by first changing disposable income and thereby changing consumption. 
C)  Changes in the amount of transfer payments and taxes cancel each other and therefore have no influence on any economic variable. 
D)  Transfer payments and taxes affect disposable income but have no effect on consumption. 
E)  Transfer payments affect disposable income, but taxes do not. 
A)  Transfer payments and taxes affect aggregate spending directly, just as consumption does. 
B)  Transfer payments and taxes affect aggregate spending indirectly by first changing disposable income and thereby changing consumption. 
C)  Changes in the amount of transfer payments and taxes cancel each other and therefore have no influence on any economic variable. 
D)  Transfer payments and taxes affect disposable income but have no effect on consumption. 
E)  Transfer payments affect disposable income, but taxes do not.

Question 11

-Refer to Exhibit 11.2, which shows the relationship between the price level and real GDP. Which of the following would be the result of an increase in government purchases?

Accepted Answer

A)  a movement from Q₃ to Q₂ 
B)  a movement from e' to e* 
C)  a movement from e'' to e* 
D)  a movement from Q₂ to Q₃ 
E)  a movement from Q₁ to Q₃ 
A)  a movement from Q₃ to Q₂ 
B)  a movement from e' to e* 
C)  a movement from e'' to e* 
D)  a movement from Q₂ to Q₃ 
E)  a movement from Q₁ to Q₃

Question 12

Which of the following is not a weakness of fiscal policy?

Accepted Answer

A)  The implementation of fiscal policy is difficult. 
B)  Time lags in fiscal policy are long and variable. 
C)  Fiscal policy works only during periods of stagflation. 
D)  Fiscal policy often affects only current income, but many economic decisions are made on the basis of permanent income. 
E)  Fiscal policy might have undesirable long-term effects on short-run aggregate supply. 
A)  The implementation of fiscal policy is difficult. 
B)  Time lags in fiscal policy are long and variable. 
C)  Fiscal policy works only during periods of stagflation. 
D)  Fiscal policy often affects only current income, but many economic decisions are made on the basis of permanent income. 
E)  Fiscal policy might have undesirable long-term effects on short-run aggregate supply.

Question 13

Equal increases in government purchases and in net taxes have equal but opposite effects on the level of real GDP demanded.

Accepted Answer

A) True 
 B)False

Question 14

Given the desire of politicians to get reelected, they might try in the short run to use _____

Accepted Answer

A)  a contractionary monetary policy. 
B)  an expansionary fiscal policy. 
C)  an expansionary monetary policy. 
D)  tax increases on high-income households. 
E)  automatic stabilizers to control demand. 
A)  a contractionary monetary policy. 
B)  an expansionary fiscal policy. 
C)  an expansionary monetary policy. 
D)  tax increases on high-income households. 
E)  automatic stabilizers to control demand.

Question 15

The one-time tax cuts used by the Bush administration to stimulate the economy in 2008 proved to be very successful.

Accepted Answer

A) True 
 B)False

Question 16

Permanent income _____

Accepted Answer

A)  is the income a person expects on average over the long term. 
B)  is the income a person expects on average over the short term. 
C)  is discretionary income. 
D)  is the income that is spent on durable goods. 
E)  is the income that is spent on nondurable goods. 
A)  is the income a person expects on average over the long term. 
B)  is the income a person expects on average over the short term. 
C)  is discretionary income. 
D)  is the income that is spent on durable goods. 
E)  is the income that is spent on nondurable goods.

Question 17

The American Recovery and Reinvestment Act, signed by President Obama in 2009, was intended to _____

Accepted Answer

A)  increase tax revenues by increasing the tax rate. 
B)  balance the budget by increasing defense spending and increasing taxes. 
C)  stimulate the economy by increasing government spending in order to increase aggregate supply. 
D)  stimulate the economy by decreasing taxes in order to increase aggregate supply. 
E)  stimulate aggregate demand through tax benefits and spending programs. 
A)  increase tax revenues by increasing the tax rate. 
B)  balance the budget by increasing defense spending and increasing taxes. 
C)  stimulate the economy by increasing government spending in order to increase aggregate supply. 
D)  stimulate the economy by decreasing taxes in order to increase aggregate supply. 
E)  stimulate aggregate demand through tax benefits and spending programs.

Question 18

A change in government spending can close an expansionary gap by shifting the short-run aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 19

The simple spending multiplier understates the amount by which output changes.

Accepted Answer

A) True 
 B)False

Question 20

Fiscal policy is likely to fail to correct stagflation in an economy because _____

Accepted Answer

A)  it affects both the aggregate demand and supply, but only aggregate supply needs to be changed. 
B)  it affects both the aggregate demand and supply, but only aggregate demand needs to be changed. 
C)  it affects aggregate demand only, but aggregate supply also needs to changed. 
D)  it affects aggregate supply only, but only aggregate demand needs to be changed. 
E)  it affects either aggregate demand or aggregate supply, but both need to be changed simultaneously. 
A)  it affects both the aggregate demand and supply, but only aggregate supply needs to be changed. 
B)  it affects both the aggregate demand and supply, but only aggregate demand needs to be changed. 
C)  it affects aggregate demand only, but aggregate supply also needs to changed. 
D)  it affects aggregate supply only, but only aggregate demand needs to be changed. 
E)  it affects either aggregate demand or aggregate supply, but both need to be changed simultaneously.

A decrease in net taxes _____

Which of the following is true of the Golden Age of fiscal policy of the 1960s?

The effect of automatic stabilizers on the business cycle is to _____

The natural rate of unemployment is _____

During an election year, the federal government would most likely increase _____

Economists believe that the fiscal stimulus of 2009 was _____

The only way the government can affect aggregate demand is through changes in its own purchasing.

What impact do tax rebates have?

Revenue and spending programs in the federal budget that automatically adjust with the ups and downs of the economy are known as _____

Which of the following statements best explains the effects of transfer payments and taxes on aggregate spending?

-Refer to Exhibit 11.2, which shows the relationship between the price level and real GDP. Which of the following would be the result of an increase in government purchases?

Which of the following is not a weakness of fiscal policy?

Equal increases in government purchases and in net taxes have equal but opposite effects on the level of real GDP demanded.

Given the desire of politicians to get reelected, they might try in the short run to use _____

The one-time tax cuts used by the Bush administration to stimulate the economy in 2008 proved to be very successful.

Permanent income _____

The American Recovery and Reinvestment Act, signed by President Obama in 2009, was intended to _____

A change in government spending can close an expansionary gap by shifting the short-run aggregate supply curve.

The simple spending multiplier understates the amount by which output changes.

Fiscal policy is likely to fail to correct stagflation in an economy because _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

Productivity and Growth.

Aggregate Demand.

Aggregate Supply.

Federal Budgets and Public Policy.

Money and the Financial System.

Banking and the Money Supply.

Monetary Theory and Policy.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

Filters

Exam 11: Fiscal Policy.

A decrease in net taxes _____

Which of the following is true of the Golden Age of fiscal policy of the 1960s?

The effect of automatic stabilizers on the business cycle is to _____

The natural rate of unemployment is _____

During an election year, the federal government would most likely increase _____

Economists believe that the fiscal stimulus of 2009 was _____

The only way the government can affect aggregate demand is through changes in its own purchasing.

What impact do tax rebates have?

Revenue and spending programs in the federal budget that automatically adjust with the ups and downs of the economy are known as _____

Which of the following statements best explains the effects of transfer payments and taxes on aggregate spending?

-Refer to Exhibit 11.2, which shows the relationship between the price level and real GDP. Which of the following would be the result of an increase in government purchases?

Which of the following is not a weakness of fiscal policy?

Equal increases in government purchases and in net taxes have equal but opposite effects on the level of real GDP demanded.

Given the desire of politicians to get reelected, they might try in the short run to use _____

The one-time tax cuts used by the Bush administration to stimulate the economy in 2008 proved to be very successful.

Permanent income _____

The American Recovery and Reinvestment Act, signed by President Obama in 2009, was intended to _____

A change in government spending can close an expansionary gap by shifting the short-run aggregate supply curve.

The simple spending multiplier understates the amount by which output changes.

Fiscal policy is likely to fail to correct stagflation in an economy because _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

Productivity and Growth.

Aggregate Demand.

Aggregate Supply.

Federal Budgets and Public Policy.

Money and the Financial System.

Banking and the Money Supply.

Monetary Theory and Policy.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

Filters