Question 1

A tax is considered to be autonomous if it is independent of

Accepted Answer

A) investment 
B) consumption 
C) government spending 
D) real GDP 
E) the price level 
A) investment 
B) consumption 
C) government spending 
D) real GDP 
E) the price level D

Question 2

The natural rate of unemployment is

Accepted Answer

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

Question 3

If government expenditures or taxes are assumed to be autonomous, they

Accepted Answer

A) do not depend upon on the level of GDP 
B) may be changed only through direct action by Congress 
C) change only when the price level changes 
D) change only upon executive order by the president of the United States 
E) are autonomous at low levels of GDP but not at higher levels of GDP 
A) do not depend upon on the level of GDP 
B) may be changed only through direct action by Congress 
C) change only when the price level changes 
D) change only upon executive order by the president of the United States 
E) are autonomous at low levels of GDP but not at higher levels of GDP A

Question 4

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, thereby increasing consumption 
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, thereby increasing consumption 
E) has no effect on aggregate expenditure

Question 5

If the MPC = 0.8, then the simple tax multiplier equals

Accepted Answer

A) 0.8 
B) 4 
C) 5 
D) -4 
E) -5 
A) 0.8 
B) 4 
C) 5 
D) -4 
E) -5

Question 6

Discretionary fiscal policy works by shifting the short-run aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 7

On June 24, 2009, President Obama signed into law the Consumer Assistance to Recycle and Save (CARS) Act, better known as

Accepted Answer

A) the Lightning McQueen program 
B) the Save General Motors program 
C) the Save the US Auto Industry program 
D) the Cash for Clunkers program 
E) the Loot for Lemons program 
A) the Lightning McQueen program 
B) the Save General Motors program 
C) the Save the US Auto Industry program 
D) the Cash for Clunkers program 
E) the Loot for Lemons program

Question 8

Classical economists believed that if saving were greater than investment, the interest rate would __________, causing saving to __________ and investment to __________ until the two were equal.

Accepted Answer

A) rise; decrease; increase 
B) fall; decrease; increase 
C) fall; increase; decrease 
D) rise; increase; decrease 
E) fall; increase; increase 
A) rise; decrease; increase 
B) fall; decrease; increase 
C) fall; increase; decrease 
D) rise; increase; decrease 
E) fall; increase; increase

Question 9

Which of the following best describes the concept of laissez-faire?

Accepted Answer

A) Government should not intervene in the economy. 
B) Government should actively intervene in the economy whenever it judges the action to be beneficial. 
C) Government should intervene in the economy only to promote short-term economic stability. 
D) Government should intervene in the economy only to maximize long-term growth rates. 
E) Government should intervene in the economy only when the economy is not at full employment or there is substantial inflation. 
A) Government should not intervene in the economy. 
B) Government should actively intervene in the economy whenever it judges the action to be beneficial. 
C) Government should intervene in the economy only to promote short-term economic stability. 
D) Government should intervene in the economy only to maximize long-term growth rates. 
E) Government should intervene in the economy only when the economy is not at full employment or there is substantial inflation.

Question 10

According to Keynes,

Accepted Answer

A) fiscal policy should not be used to influence the economy 
B) the economy eventually tends toward the potential output 
C) to get the economy to potential output, the SRAS curve must shift to the right 
D) the economy could be stuck at equilibrium below the potential output for a prolonged period 
E) deviations from potential output are short-lived 
A) fiscal policy should not be used to influence the economy 
B) the economy eventually tends toward the potential output 
C) to get the economy to potential output, the SRAS curve must shift to the right 
D) the economy could be stuck at equilibrium below the potential output for a prolonged period 
E) deviations from potential output are short-lived

Question 11

John Maynard Keynes influenced the use of fiscal policy in the U.S. by arguing effectively that

Accepted Answer

A) balancing the national budget at all times was sound economic policy 
B) natural economic forces were not necessarily adequate to move the economy toward its potential output level 
C) the government did not need to stimulate output in order for the economy to achieve its potential output level 
D) increases in taxes and increases in government purchases are equally effective in closing an expansionary gap 
E) increases in taxes and increases in government purchases are equally effective in closing a contractionary gap 
A) balancing the national budget at all times was sound economic policy 
B) natural economic forces were not necessarily adequate to move the economy toward its potential output level 
C) the government did not need to stimulate output in order for the economy to achieve its potential output level 
D) increases in taxes and increases in government purchases are equally effective in closing an expansionary gap 
E) increases in taxes and increases in government purchases are equally effective in closing a contractionary gap

Question 12

There is substantial evidence that people base their consumption decisions more on their current income than on the average income they expect to receive over a long period of time.

Accepted Answer

A) True 
 B)False

Question 13

The introduction of a $100 autonomous net tax in an economy with an MPC equal to 0.8 will, at each level of real GDP,

Accepted Answer

A) increase equilibrium real GDP demanded by $100 
B) decrease equilibrium real GDP demanded by $100 
C) increase equilibrium real GDP demanded by more than $100 
D) decrease equilibrium real GDP demanded by less than $100 
E) decrease equilibrium real GDP demanded by more than $100 
A) increase equilibrium real GDP demanded by $100 
B) decrease equilibrium real GDP demanded by $100 
C) increase equilibrium real GDP demanded by more than $100 
D) decrease equilibrium real GDP demanded by less than $100 
E) decrease equilibrium real GDP demanded by more than $100

Question 14

Exhibit 12-2  
-In an economy characterized by the aggregate expenditure line in Exhibit 12-2, how would a $100 decrease in autonomous government spending impact real GDP?

Accepted Answer

A) decrease real GDP by $200 
B) decrease real GDP by $100 
C) no impact on real GDP 
D) increase real GDP by $100 
E) increase real GDP by $200 
A) decrease real GDP by $200 
B) decrease real GDP by $100 
C) no impact on real GDP 
D) increase real GDP by $100 
E) increase real GDP by $200

Question 15

If equilibrium real GDP demanded rises from $4 trillion to $6 trillion when government purchases increase by $1 trillion, how large is the marginal propensity to consume?

Accepted Answer

A) 0.8 
B) 0.4 
C) 0.5 
D) 0.2 
E) 2 
A) 0.8 
B) 0.4 
C) 0.5 
D) 0.2 
E) 2

Question 16

Exhibit 12-2  
-In an economy characterized by the aggregate expenditure line in Exhibit 12-2, what would the equilibrium real GDP be equal to if autonomous net taxes decreased by $100?

Accepted Answer

A) $400 
B) $500 
C) $600 
D) $700 
E) $800 
A) $400 
B) $500 
C) $600 
D) $700 
E) $800

Question 17

The introduction of an autonomous net tax will

Accepted Answer

A) have no effect on real GDP, since real GDP = C + I + G, which does not include taxes 
B) affect consumption through a change in disposable income 
C) affect consumption through its effect on investment 
D) affect government spending, since the government levies the tax 
E) increase real GDP, since it enables government to increase spending 
A) have no effect on real GDP, since real GDP = C + I + G, which does not include taxes 
B) affect consumption through a change in disposable income 
C) affect consumption through its effect on investment 
D) affect government spending, since the government levies the tax 
E) increase real GDP, since it enables government to increase spending

Question 18

Other things constant, a decrease in real GDP demanded is caused by a(n)

Accepted Answer

A) increase in government purchases 
B) increase in transfer payments 
C) decrease in government purchases 
D) decrease in net taxes 
E) All of the answers are correct 
A) increase in government purchases 
B) increase in transfer payments 
C) decrease in government purchases 
D) decrease in net taxes 
E) All of the answers are correct

Question 19

The simple tax multiplier is

Accepted Answer

A) 1/MPC 
B) 1 
C) 1/(1 - MP
C)  
D) MPC/(1 - MP
C)  
E) -MPC/(1 - MP
C)  
A) 1/MPC 
B) 1 
C) 1/(1 - MP
C)  
D) MPC/(1 - MP
C)  
E) -MPC/(1 - MP
C)

Question 20

Exhibit 12-4  
-If the government wants the economy illustrated in Exhibit 12-4 to be at full employment, it should

Accepted Answer

A) increase taxes 
B) decrease transfer payments 
C) decrease government purchases 
D) wait for the SRAS curve to shift to the left 
E) do none of the above 
A) increase taxes 
B) decrease transfer payments 
C) decrease government purchases 
D) wait for the SRAS curve to shift to the left 
E) do none of the above

Exam 12: Fiscal Policy

A tax is considered to be autonomous if it is independent of

The natural rate of unemployment is

If government expenditures or taxes are assumed to be autonomous, they

A decrease in net taxes

If the MPC = 0.8, then the simple tax multiplier equals

Discretionary fiscal policy works by shifting the short-run aggregate supply curve.

On June 24, 2009, President Obama signed into law the Consumer Assistance to Recycle and Save (CARS) Act, better known as

Classical economists believed that if saving were greater than investment, the interest rate would __________, causing saving to __________ and investment to __________ until the two were equal.

Which of the following best describes the concept of laissez-faire?

According to Keynes,

John Maynard Keynes influenced the use of fiscal policy in the U.S. by arguing effectively that

There is substantial evidence that people base their consumption decisions more on their current income than on the average income they expect to receive over a long period of time.

The introduction of a $100 autonomous net tax in an economy with an MPC equal to 0.8 will, at each level of real GDP,

Exhibit 12-2 -In an economy characterized by the aggregate expenditure line in Exhibit 12-2, how would a $100 decrease in autonomous government spending impact real GDP?

If equilibrium real GDP demanded rises from $4 trillion to $6 trillion when government purchases increase by $1 trillion, how large is the marginal propensity to consume?

Exhibit 12-2 -In an economy characterized by the aggregate expenditure line in Exhibit 12-2, what would the equilibrium real GDP be equal to if autonomous net taxes decreased by $100?

The introduction of an autonomous net tax will

Other things constant, a decrease in real GDP demanded is caused by a(n)

The simple tax multiplier is

Exhibit 12-4 -If the government wants the economy illustrated in Exhibit 12-4 to be at full employment, it should

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Introduction to Macroeconomics

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Classical economists believed that if saving were greater than investment, the interest rate would , causing saving to and investment to __ until the two were equal.