Question 1

A fiscal stimulus works to close a recessionary gap by shifting the

Accepted Answer

A)  AD curve leftward. 
B)  AS curve leftward. 
C)  AD curve leftward and AS curve leftward. 
D)  AD curve rightward. 
E)  potential GDP line leftward. 
A)  AD curve leftward. 
B)  AS curve leftward. 
C)  AD curve leftward and AS curve leftward. 
D)  AD curve rightward. 
E)  potential GDP line leftward. D

Question 2

Compare the views of Keynesian and mainstream economists on the effects fiscal stimulus has on real GDP and employment.

Accepted Answer

Keynesian economists believe fiscal stimulus results in a boost of real GDP and employment as a result of the multiplier effect.Mainstream economists believe the Keynesian economists overstate the size of the multiplier.They believe the stimulus 'crowds out' private expenditures and investments and create a greater burden of government debt on future generations.

Question 3

The figure above shows a labor market with an income tax.
-According to the figure above, if there is no income tax, the equilibrium real wage rate is ________ and the equilibrium hours of labor are ________.

Accepted Answer

A)  $20; 200 billion 
B)  $30; 250 billion 
C)  $35; 200 billion 
D)  $30; 200 billion 
E)  The equilibrium is not shown. 
A)  $20; 200 billion 
B)  $30; 250 billion 
C)  $35; 200 billion 
D)  $30; 200 billion 
E)  The equilibrium is not shown. B

Question 4

The figure above shows an economy's aggregate demand curve, aggregate supply curve, and potential GDP.
-In the figure above, to use fiscal policy to move the economy back to potential GDP, the government must decrease government expenditure by ________ $1 trillion and/or increase taxes by ________ $1 trillion.

Accepted Answer

A)  recessionary; more than; more than 
B)  inflationary; less than; more than 
C)  inflationary; exactly; exactly 
D)  inflationary; less than; less than 
E)  recessionary; less than; less than 
A)  recessionary; more than; more than 
B)  inflationary; less than; more than 
C)  inflationary; exactly; exactly 
D)  inflationary; less than; less than 
E)  recessionary; less than; less than

Question 5

Automatic stabilizers decrease the impact of a recession on the level of economic activity because they

Accepted Answer

A)  reduce the interest rate and so allow firms to increase their level of investment. 
B)  increase taxes so the budget is always balanced. 
C)  raise the exchange rate so U.S.exports become more attractive to foreigners. 
D)  mean disposable income does not change by as much as real GDP. 
E)  increase the quantity of money in circulation. 
A)  reduce the interest rate and so allow firms to increase their level of investment. 
B)  increase taxes so the budget is always balanced. 
C)  raise the exchange rate so U.S.exports become more attractive to foreigners. 
D)  mean disposable income does not change by as much as real GDP. 
E)  increase the quantity of money in circulation.

Question 6

The government expenditure multiplier reflects the magnification on ________ from a change in government expenditure on goods and services.

Accepted Answer

A)  aggregate demand. 
B)  the budget deficit. 
C)  tax receipts. 
D)  aggregate supply. 
E)  potential GDP. 
A)  aggregate demand. 
B)  the budget deficit. 
C)  tax receipts. 
D)  aggregate supply. 
E)  potential GDP.

Question 7

Assume the federal government raises taxes (a contractionary fiscal policy). If the tax increase affects AS and AD equally, then real GDP will ________ and the price level will ________.

Accepted Answer

A)  decrease; decrease 
B)  increase; be unchanged 
C)  increase; increase 
D)  decrease; be unchanged 
E)  increase; decrease 
A)  decrease; decrease 
B)  increase; be unchanged 
C)  increase; increase 
D)  decrease; be unchanged 
E)  increase; decrease

Question 8

If the federal government has a budget surplus, then it is definitely the case that

Accepted Answer

A)  tax revenue exceeds government outlays. 
B)  tax revenue and government outlays are equal. 
C)  the tax revenue is falling and government outlays are rising. 
D)  government outlays exceed tax revenue. 
E)  the tax revenue is rising and government outlays are falling. 
A)  tax revenue exceeds government outlays. 
B)  tax revenue and government outlays are equal. 
C)  the tax revenue is falling and government outlays are rising. 
D)  government outlays exceed tax revenue. 
E)  the tax revenue is rising and government outlays are falling.

Question 9

If government expenditure on goods and services increase by $10 billion, then aggregate demand

Accepted Answer

A)  increases by $10 billion. 
B)  increases by $10 billion multiplied by the government expenditure multiplier. 
C)  increases by $10 billion multiplied by the tax multiplier. 
D)  decreases by $10 billion. 
E)  decreases by $10 billion multiplied by the government expenditure multiplier. 
A)  increases by $10 billion. 
B)  increases by $10 billion multiplied by the government expenditure multiplier. 
C)  increases by $10 billion multiplied by the tax multiplier. 
D)  decreases by $10 billion. 
E)  decreases by $10 billion multiplied by the government expenditure multiplier.

Question 10

Needs-tested spending is defined as

Accepted Answer

A)  spending by Congress on its own perks of office. 
B)  taxes paid by those qualified by their income. 
C)  spending on programs for people qualified to receive benefits. 
D)  spending by the President on the White House. 
E)  spending that increases in expansions and decreases in recessions. 
A)  spending by Congress on its own perks of office. 
B)  taxes paid by those qualified by their income. 
C)  spending on programs for people qualified to receive benefits. 
D)  spending by the President on the White House. 
E)  spending that increases in expansions and decreases in recessions.

Question 11

When government outlays are less than tax revenues, the government has

Accepted Answer

A)  a budget with a positive balance. 
B)  a budget deficit. 
C)  a budget surplus. 
D)  a budget with a negative debt. 
E)  an illegal budget because outlays must exceed tax revenues. 
A)  a budget with a positive balance. 
B)  a budget deficit. 
C)  a budget surplus. 
D)  a budget with a negative debt. 
E)  an illegal budget because outlays must exceed tax revenues.

Question 12

The balanced budget multiplier is

Accepted Answer

A)  equal to zero because taxes and government expenditure are changed to leave the budget balanced. 
B)  misnamed because it does not leave the budget balanced. 
C)  greater than zero and less than the government expenditure multiplier. 
D)  greater than zero and greater than the government expenditure multiplier. 
E)  less than zero, that is, it is negative. 
A)  equal to zero because taxes and government expenditure are changed to leave the budget balanced. 
B)  misnamed because it does not leave the budget balanced. 
C)  greater than zero and less than the government expenditure multiplier. 
D)  greater than zero and greater than the government expenditure multiplier. 
E)  less than zero, that is, it is negative.

Question 13

In a recession, needs-tested spending ________ and induced taxes ________.

Accepted Answer

A)  increases; increase 
B)  increases; decrease 
C)  decreases; increase 
D)  decreases; decrease 
E)  increase; do not change 
A)  increases; increase 
B)  increases; decrease 
C)  decreases; increase 
D)  decreases; decrease 
E)  increase; do not change

Question 14

Which has a larger effect on aggregate demand: an increase in government expenditure or an equal sized decrease in taxes?
 Explain your answer.

Accepted Answer

The multiplier for a change in governmen

Question 15

If the economy is in an equilibrium with real GDP less than potential GDP, a fiscal stimulus could move the economy toward potential GDP by simultaneously ________ taxes and ________ government expenditures on goods and services.

Accepted Answer

A)  raising; increasing 
B)  raising; decreasing 
C)  cutting; increasing 
D)  cutting; decreasing 
E)  raising; not changing 
A)  raising; increasing 
B)  raising; decreasing 
C)  cutting; increasing 
D)  cutting; decreasing 
E)  raising; not changing

Question 16

When government outlays exceed tax revenue, the situation is called a budget

Accepted Answer

A)  with a negative balance. 
B)  deficit. 
C)  surplus. 
D)  debt. 
E)  with no balance. 
A)  with a negative balance. 
B)  deficit. 
C)  surplus. 
D)  debt. 
E)  with no balance.

Question 17

The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP.
-In the figure above, the ________ gap is equal to ________.

Accepted Answer

A)  recessionary; $1 trillion 
B)  inflationary; $1 trillion 
C)  recessionary; $12 trillion 
D)  inflationary; $12 trillion 
E)  recessionary; $13 trillion 
A)  recessionary; $1 trillion 
B)  inflationary; $1 trillion 
C)  recessionary; $12 trillion 
D)  inflationary; $12 trillion 
E)  recessionary; $13 trillion

Question 18

Needs-tested spending

Accepted Answer

A)  increases as real GDP increases. 
B)  increases as unemployment increases. 
C)  decreases as unemployment increases. 
D)  decreases in recession. 
E)  makes recessions more severe. 
A)  increases as real GDP increases. 
B)  increases as unemployment increases. 
C)  decreases as unemployment increases. 
D)  decreases in recession. 
E)  makes recessions more severe.

Question 19

Induced taxes are defined as taxes

Accepted Answer

A)  we are forced to pay for services from the government. 
B)  that vary with real GDP. 
C)  that are avoided with the use of legal tax shelters. 
D)  enacted by Congress that explicitly state the amount to be paid. 
E)  that rise in recessions and fall in expansions. 
A)  we are forced to pay for services from the government. 
B)  that vary with real GDP. 
C)  that are avoided with the use of legal tax shelters. 
D)  enacted by Congress that explicitly state the amount to be paid. 
E)  that rise in recessions and fall in expansions.

Question 20

Explain what fiscal policy actions could eliminate an inflationary gap.

Accepted Answer

An inflationary gap exists when real GDP

A fiscal stimulus works to close a recessionary gap by shifting the

Compare the views of Keynesian and mainstream economists on the effects fiscal stimulus has on real GDP and employment.

The figure above shows a labor market with an income tax. -According to the figure above, if there is no income tax, the equilibrium real wage rate is and the equilibrium hours of labor are .

The figure above shows an economy's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, to use fiscal policy to move the economy back to potential GDP, the government must decrease government expenditure by $1 trillion and/or increase taxes by $1 trillion.

Automatic stabilizers decrease the impact of a recession on the level of economic activity because they

The government expenditure multiplier reflects the magnification on ________ from a change in government expenditure on goods and services.

Assume the federal government raises taxes (a contractionary fiscal policy). If the tax increase affects AS and AD equally, then real GDP will and the price level will .

If the federal government has a budget surplus, then it is definitely the case that

If government expenditure on goods and services increase by $10 billion, then aggregate demand

Needs-tested spending is defined as

When government outlays are less than tax revenues, the government has

The balanced budget multiplier is

In a recession, needs-tested spending and induced taxes .

Which has a larger effect on aggregate demand: an increase in government expenditure or an equal sized decrease in taxes? Explain your answer.

If the economy is in an equilibrium with real GDP less than potential GDP, a fiscal stimulus could move the economy toward potential GDP by simultaneously taxes and government expenditures on goods and services.

When government outlays exceed tax revenue, the situation is called a budget

The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, the gap is equal to .

Needs-tested spending

Induced taxes are defined as taxes

Explain what fiscal policy actions could eliminate an inflationary gap.

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and the Natural Unemployment Rate

Economic Growth

Finance, Saving, and Investment

The Monetary System

Money, Interest, and Inflation

Aggregate Supply and Aggregate Demand

Aggregate Expenditure Multiplier

The Short-Run Policy Tradeoff

Monetary Policy

International Trade Policy

International Finance

Filters

Exam 16: Fiscal Policy

A fiscal stimulus works to close a recessionary gap by shifting the

Compare the views of Keynesian and mainstream economists on the effects fiscal stimulus has on real GDP and employment.

The figure above shows a labor market with an income tax. -According to the figure above, if there is no income tax, the equilibrium real wage rate is ________ and the equilibrium hours of labor are ________.

Automatic stabilizers decrease the impact of a recession on the level of economic activity because they

The government expenditure multiplier reflects the magnification on ________ from a change in government expenditure on goods and services.

Assume the federal government raises taxes (a contractionary fiscal policy). If the tax increase affects AS and AD equally, then real GDP will ________ and the price level will ________.

If the federal government has a budget surplus, then it is definitely the case that

If government expenditure on goods and services increase by $10 billion, then aggregate demand

Needs-tested spending is defined as

When government outlays are less than tax revenues, the government has

The balanced budget multiplier is

In a recession, needs-tested spending ________ and induced taxes ________.

Which has a larger effect on aggregate demand: an increase in government expenditure or an equal sized decrease in taxes? Explain your answer.

If the economy is in an equilibrium with real GDP less than potential GDP, a fiscal stimulus could move the economy toward potential GDP by simultaneously ________ taxes and ________ government expenditures on goods and services.

When government outlays exceed tax revenue, the situation is called a budget

The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, the ________ gap is equal to ________.

Needs-tested spending

Induced taxes are defined as taxes

Explain what fiscal policy actions could eliminate an inflationary gap.

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and the Natural Unemployment Rate

Economic Growth

Finance, Saving, and Investment

The Monetary System

Money, Interest, and Inflation

Aggregate Supply and Aggregate Demand

Aggregate Expenditure Multiplier

The Short-Run Policy Tradeoff

Monetary Policy

International Trade Policy

International Finance

Filters

The figure above shows a labor market with an income tax. -According to the figure above, if there is no income tax, the equilibrium real wage rate is and the equilibrium hours of labor are .

Assume the federal government raises taxes (a contractionary fiscal policy). If the tax increase affects AS and AD equally, then real GDP will and the price level will .

In a recession, needs-tested spending and induced taxes .

If the economy is in an equilibrium with real GDP less than potential GDP, a fiscal stimulus could move the economy toward potential GDP by simultaneously taxes and government expenditures on goods and services.

The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, the gap is equal to .