Question 1

When the government decides to increase income taxes,this is an example of contractionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 2

What are the two types of discretionary fiscal policy?

Accepted Answer

A)  automatic and expansionary 
B)  expansionary and contractionary 
C)  expansionary and recessionary 
D)  automatic and contractionary 
A)  automatic and expansionary 
B)  expansionary and contractionary 
C)  expansionary and recessionary 
D)  automatic and contractionary

Question 3

The economy is in a recessionary gap,wages are inflexible downward,and there is complete crowding out.Which of the following is consistent with this state of affairs?

Accepted Answer

A)  The economy will soon self-regulate and produce Natural Real GDP. 
B)  Expansionary fiscal policy will be effective at removing the economy from the recessionary gap. 
C)  If expansionary fiscal policy is implemented,the AD curve will shift to the right,and eventually the price level and Real GDP will rise. 
D)  b and c 
E)  none of the above 
A)  The economy will soon self-regulate and produce Natural Real GDP. 
B)  Expansionary fiscal policy will be effective at removing the economy from the recessionary gap. 
C)  If expansionary fiscal policy is implemented,the AD curve will shift to the right,and eventually the price level and Real GDP will rise. 
D)  b and c 
E)  none of the above

Question 4

Which of the following illustrates the wait-and-see lag?

Accepted Answer

A)  Policymakers believe an economic downturn has occurred,but they decide not to take action until they are sure. 
B)  Policymakers are in the process of proposing policy measures to deal with the current economic slowdown. 
C)  Policymakers first learn of the recession when it is five months old. 
D)  Policymakers implement policy X,but it will be a few months before it starts working. 
E)  Policymakers agree to policy X,but it will be at least two months before the policy is implemented. 
A)  Policymakers believe an economic downturn has occurred,but they decide not to take action until they are sure. 
B)  Policymakers are in the process of proposing policy measures to deal with the current economic slowdown. 
C)  Policymakers first learn of the recession when it is five months old. 
D)  Policymakers implement policy X,but it will be a few months before it starts working. 
E)  Policymakers agree to policy X,but it will be at least two months before the policy is implemented.

Question 5

Suppose Congress increases income taxes.This is an example of

Accepted Answer

A)  expansionary fiscal policy. 
B)  expansionary monetary policy. 
C)  contractionary fiscal policy. 
D)  contractionary monetary policy. 
A)  expansionary fiscal policy. 
B)  expansionary monetary policy. 
C)  contractionary fiscal policy. 
D)  contractionary monetary policy.

Question 6

Suppose that income tax revenues are maximized at an average (income)tax rate of 45 percent.If the Laffer curve is a correct diagrammatic representation of the relationship between tax rates and tax revenue,it follows that a tax rate of

Accepted Answer

A)  35 percent will reduce tax revenues. 
B)  48 percent will reduce tax revenues. 
C)  48 percent will generate as much tax revenue as a tax rate of 45 percent. 
D)  35 percent will generate as much tax revenue as a tax rate of 45 percent. 
E)  a and b 
A)  35 percent will reduce tax revenues. 
B)  48 percent will reduce tax revenues. 
C)  48 percent will generate as much tax revenue as a tax rate of 45 percent. 
D)  35 percent will generate as much tax revenue as a tax rate of 45 percent. 
E)  a and b

Question 7

The unique feature of a progressive income tax is that the higher one's income (up to some point),the __________ one pays.

Accepted Answer

A)  more taxes 
B)  higher the tax rate 
C)  less taxes 
D)  lower the tax rate 
E)  none of the above 
A)  more taxes 
B)  higher the tax rate 
C)  less taxes 
D)  lower the tax rate 
E)  none of the above

Question 8

Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $700 million.This is an example of

Accepted Answer

A)  incomplete crowding out. 
B)  complete crowding out. 
C)  zero crowding out. 
D)  a and c 
E)  none of the above 
A)  incomplete crowding out. 
B)  complete crowding out. 
C)  zero crowding out. 
D)  a and c 
E)  none of the above

Question 9

The data lag is the time between

Accepted Answer

A)  the implementation of a policy and when the impact of the policy is felt. 
B)  the enactment of a policy and the implementation of the policy. 
C)  realizing a policy is needed and enacting the policy. 
D)  the occurrence of an event and policymakers realizing the event has occurred. 
A)  the implementation of a policy and when the impact of the policy is felt. 
B)  the enactment of a policy and the implementation of the policy. 
C)  realizing a policy is needed and enacting the policy. 
D)  the occurrence of an event and policymakers realizing the event has occurred.

Question 10

A structural deficit refers to that part of the deficit that exists as a result of a downturn in economic activity.

Accepted Answer

A) True 
 B)False

Question 11

The economy is in a recessionary gap and a Keynesian economist advocates expansionary fiscal policy.What is a likely reason this economist advocates expansionary fiscal policy?

Accepted Answer

A)  The economist believes the economy is stuck in a recessionary gap and crowding out will be complete. 
B)  The economist believes the economy is stuck in a recessionary gap and there will be no crowding out. 
C)  The economist believes that wages are too flexible and that crowding out will be incomplete. 
D)  The economist believes the AD curve is downward-sloping,the SRAS curve is upward-sloping,and prices are flexible. 
E)  none of the above 
A)  The economist believes the economy is stuck in a recessionary gap and crowding out will be complete. 
B)  The economist believes the economy is stuck in a recessionary gap and there will be no crowding out. 
C)  The economist believes that wages are too flexible and that crowding out will be incomplete. 
D)  The economist believes the AD curve is downward-sloping,the SRAS curve is upward-sloping,and prices are flexible. 
E)  none of the above

Question 12

There is zero crowding out and the federal budget is balanced at the time government purchases are increased.It follows that the __________ curve shifts to the __________,and in the short run both the price level and Real GDP __________.

Accepted Answer

A)  AD; left; rise 
B)  AD; right; fall 
C)  AD; right; rise 
D)  AD; left; fall 
E)  SRAS; right; rise 
A)  AD; left; rise 
B)  AD; right; fall 
C)  AD; right; rise 
D)  AD; left; fall 
E)  SRAS; right; rise

Question 13

An example of expansionary fiscal policy is

Accepted Answer

A)  an increase in government spending,or an increase in taxes,or both. 
B)  a decrease in government spending,or a decrease in taxes,or both. 
C)  an increase in government spending,or a decrease in taxes,or both. 
D)  a decrease in government spending,or an increase in taxes,or both. 
E)  holding government spending constant while increasing taxes. 
A)  an increase in government spending,or an increase in taxes,or both. 
B)  a decrease in government spending,or a decrease in taxes,or both. 
C)  an increase in government spending,or a decrease in taxes,or both. 
D)  a decrease in government spending,or an increase in taxes,or both. 
E)  holding government spending constant while increasing taxes.

Question 14

The marginal tax rate is found by dividing a person's tax payment by the person's taxable income.

Accepted Answer

A) True 
 B)False

Question 15

The effectiveness lag is the time between

Accepted Answer

A)  the implementation of a policy and when the impact of the policy is felt. 
B)  the enactment of a policy and the implementation of the policy. 
C)  realizing a policy is needed and enacting the policy. 
D)  the occurrence of an event and policymakers realizing the event has occurred. 
A)  the implementation of a policy and when the impact of the policy is felt. 
B)  the enactment of a policy and the implementation of the policy. 
C)  realizing a policy is needed and enacting the policy. 
D)  the occurrence of an event and policymakers realizing the event has occurred.

Question 16

If the structural deficit is $80 billion and the cyclical deficit is $150 billion,it follows that the __________ is __________ billion.

Accepted Answer

A)  public debt; $230 
B)  total budget deficit; $70 
C)  total budget deficit; $230 
D)  net public debt; $70 
E)  none of the above 
A)  public debt; $230 
B)  total budget deficit; $70 
C)  total budget deficit; $230 
D)  net public debt; $70 
E)  none of the above

Question 17

If there is complete crowding out as a result of an increase in government spending there will be

Accepted Answer

A)  a decrease in aggregate demand. 
B)  no change in aggregate demand. 
C)  an increase in aggregate demand. 
D)  a downward movement along the aggregate demand curve. 
A)  a decrease in aggregate demand. 
B)  no change in aggregate demand. 
C)  an increase in aggregate demand. 
D)  a downward movement along the aggregate demand curve.

Question 18

The marginal tax rate is equal to the

Accepted Answer

A)  total amount of a person's tax payment divided by the total amount of the person's taxable income. 
B)  total amount of a person's tax payment divided by the change in the person's taxable income. 
C)  change in the person's tax payment divided by the total amount of the person's taxable income. 
D)  change in the person's tax payment divided by the change in the person's taxable income. 
A)  total amount of a person's tax payment divided by the total amount of the person's taxable income. 
B)  total amount of a person's tax payment divided by the change in the person's taxable income. 
C)  change in the person's tax payment divided by the total amount of the person's taxable income. 
D)  change in the person's tax payment divided by the change in the person's taxable income.

Question 19

With complete crowding out,an increase in government spending

Accepted Answer

A)  is completely offset by a reduction in private spending. 
B)  is matched by an increase in private spending. 
C)  results in an increase in aggregate supply. 
D)  results in an increase in aggregate demand. 
A)  is completely offset by a reduction in private spending. 
B)  is matched by an increase in private spending. 
C)  results in an increase in aggregate supply. 
D)  results in an increase in aggregate demand.

Question 20

Expansionary fiscal policy is ineffective if

Accepted Answer

A)  there are idle resources in the economy. 
B)  the MPC is less than 0.60. 
C)  the government has a budget surplus. 
D)  there is complete crowding out. 
E)  a and d 
A)  there are idle resources in the economy. 
B)  the MPC is less than 0.60. 
C)  the government has a budget surplus. 
D)  there is complete crowding out. 
E)  a and d

Exam 11: Monopolistic Competition, oligopoly, and Game Theory

When the government decides to increase income taxes,this is an example of contractionary fiscal policy.

What are the two types of discretionary fiscal policy?

The economy is in a recessionary gap,wages are inflexible downward,and there is complete crowding out.Which of the following is consistent with this state of affairs?

Which of the following illustrates the wait-and-see lag?

Suppose Congress increases income taxes.This is an example of

Suppose that income tax revenues are maximized at an average (income)tax rate of 45 percent.If the Laffer curve is a correct diagrammatic representation of the relationship between tax rates and tax revenue,it follows that a tax rate of

The unique feature of a progressive income tax is that the higher one's income (up to some point),the __________ one pays.

Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $700 million.This is an example of

The data lag is the time between

A structural deficit refers to that part of the deficit that exists as a result of a downturn in economic activity.

The economy is in a recessionary gap and a Keynesian economist advocates expansionary fiscal policy.What is a likely reason this economist advocates expansionary fiscal policy?

There is zero crowding out and the federal budget is balanced at the time government purchases are increased.It follows that the __________ curve shifts to the __________,and in the short run both the price level and Real GDP __________.

An example of expansionary fiscal policy is

The marginal tax rate is found by dividing a person's tax payment by the person's taxable income.

The effectiveness lag is the time between

If the structural deficit is $80 billion and the cyclical deficit is $150 billion,it follows that the __________ is __________ billion.

If there is complete crowding out as a result of an increase in government spending there will be

The marginal tax rate is equal to the

With complete crowding out,an increase in government spending

Expansionary fiscal policy is ineffective if

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free,controlled,and Relative

Supply,demand,and Price: Applications

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,union,and Labor

The Distribution of Income and Poverty

Interest,rent,and Profit

Market Failure: Externalities, public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government: Five Topics Considered

Stocks,bonds,futures,and Options

Stocks,bonds,futures,and Options

Filters

There is zero crowding out and the federal budget is balanced at the time government purchases are increased.It follows that the curve shifts to the ,and in the short run both the price level and Real GDP __.

If the structural deficit is $80 billion and the cyclical deficit is $150 billion,it follows that the is billion.