Question 1

What is the difference between federal purchases and federal expenditures?

Accepted Answer

Federal purchases refer to federal spending where the federal government receives a good or service in return,like an aircraft carrier.Federal expenditures include federal purchases plus interest on the national debt,grants to state and local governments,and transfer payments.

Question 2

What are the key differences between how we illustrate a contractionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

Accepted Answer

In the basic aggregate demand and aggregate supply model,contractionary fiscal policy is illustrated by a leftward shift of the aggregate demand curve,with the short-run aggregate supply curve and long-run aggregate supply curve remaining stationary.The dynamic aggregate demand and aggregate supply model takes into account the economy experiencing continuing inflation from year to year and the economy experiencing long-run growth.In the dynamic model,contractionary fiscal policy is illustrated by a rightward shift of the aggregate demand curve which is less than the rightward shifts of the short run aggregate supply curve and the long run aggregate supply curve.

Question 3

Does expansionary fiscal policy directly increase the money supply? Isn't it true that the president and Congress fight recessions by spending more money?

Accepted Answer

No,expansionary fiscal policy does not directly increase the money supply.The president and the Congress fight recessions by increasing spending,not the money supply,by either increasing government spending or cutting taxes to increase household disposable income and,therefore,consumption spending.

Question 4

Before the Great Depression of the 1930s,the majority of government spending took place at the ________ and after the Great Depression the majority of government spending took place at the ________.

Accepted Answer

A) state and local levels; federal level 
B) local level; federal level 
C) federal level; state and local levels 
D) federal level; state level 
A) state and local levels; federal level 
B) local level; federal level 
C) federal level; state and local levels 
D) federal level; state level

Question 5

If policy makers implement an expansionary fiscal policy but do not take into account the potential for crowding out,the new equilibrium level of GDP is likely to

Accepted Answer

A) be at potential GDP. 
B) be above potential GDP. 
C) be below potential GDP. 
D) There is insufficient information given here to draw a conclusion. 
A) be at potential GDP. 
B) be above potential GDP. 
C) be below potential GDP. 
D) There is insufficient information given here to draw a conclusion.

Question 6

Following a decrease in government spending,as the price level falls we would expect the level of interest rates to ________ and investment to ________.

Accepted Answer

A) decrease; decrease 
B) decrease; increase 
C) increase; decrease 
D) increase; increase 
A) decrease; decrease 
B) decrease; increase 
C) increase; decrease 
D) increase; increase

Question 7

The majority of the federal government debt is held by government agencies.

Accepted Answer

A) True 
 B)False

Question 8

If the absolute value of the tax multiplier equals 1.6,real GDP is $13 trillion,and potential real GDP is $13.4 trillion,then taxes would need to be cut by ________ to restore the economy to potential real GDP.

Accepted Answer

A) $250 billion 
B) $400 billion 
C) $640 billion 
D) None of the above are correct.Taxes should be increased in this case. 
A) $250 billion 
B) $400 billion 
C) $640 billion 
D) None of the above are correct.Taxes should be increased in this case.

Question 9

The cyclically adjusted budget is calculated at potential GDP.

Accepted Answer

A) True 
 B)False

Question 10

Economists who believe the supply-side effects of tax cuts are small essentially believe that

Accepted Answer

A) tax cuts mainly affect aggregate demand. 
B) tax cuts mainly affect aggregate supply. 
C) tax cuts will increase the quantity of labor supplied. 
D) tax cuts will result in relatively small changes in the price level. 
A) tax cuts mainly affect aggregate demand. 
B) tax cuts mainly affect aggregate supply. 
C) tax cuts will increase the quantity of labor supplied. 
D) tax cuts will result in relatively small changes in the price level.

Question 11

An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.

Accepted Answer

A) True 
 B)False

Question 12

Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion.To move the economy back to potential GDP,Congress should

Accepted Answer

A) lower taxes by an amount less than $500 billion. 
B) raise government purchases by $500 billion. 
C) raise government purchases by more than $500 billion. 
D) lower taxes by $500 billion. 
E) lower government purchases by $500 billion. 
A) lower taxes by an amount less than $500 billion. 
B) raise government purchases by $500 billion. 
C) raise government purchases by more than $500 billion. 
D) lower taxes by $500 billion. 
E) lower government purchases by $500 billion.

Question 13

Suppose the government wants to maintain a balanced budget.To achieve this goal,when the economy falls into recession government would need to ________ taxes,which would cause aggregate demand to ________.

Accepted Answer

A) decrease; decrease 
B) decrease; increase 
C) increase; decrease 
D) increase; increase 
A) decrease; decrease 
B) decrease; increase 
C) increase; decrease 
D) increase; increase

Question 14

Which of the following is the largest category of federal government expenditures?

Accepted Answer

A) defense spending 
B) transfer payments 
C) interest on the debt 
D) grants to state and local governments 
A) defense spending 
B) transfer payments 
C) interest on the debt 
D) grants to state and local governments

Question 15

Explain why the tax multiplier is different from the government purchases multiplier,in both sign and relative magnitude.

Accepted Answer

A dollar change in government purchases

Question 16

A change in tax rates

Accepted Answer

A) has a less complicated effect on GDP than does a tax cut of a fixed amount. 
B) has a larger multiplier effect the smaller the tax rate. 
C) will not affect disposable income. 
D) will not affect the size of the multiplier. 
A) has a less complicated effect on GDP than does a tax cut of a fixed amount. 
B) has a larger multiplier effect the smaller the tax rate. 
C) will not affect disposable income. 
D) will not affect the size of the multiplier.

Question 17

The crowding out of private spending by government spending will be greater the

Accepted Answer

A) less sensitive consumption,investment,and net exports are to changes in interest rates. 
B) more sensitive consumption,investment,and net exports are to changes in interest rates. 
C) less sensitive consumption,investment,and net exports are to changes in the price level. 
D) more sensitive consumption,investment,and net exports are to changes in the price level. 
A) less sensitive consumption,investment,and net exports are to changes in interest rates. 
B) more sensitive consumption,investment,and net exports are to changes in interest rates. 
C) less sensitive consumption,investment,and net exports are to changes in the price level. 
D) more sensitive consumption,investment,and net exports are to changes in the price level.

Question 18

The automatic budget surpluses and budget deficits that occur in the federal budget over the business cycle

Accepted Answer

A) destabilize the economy. 
B) stabilize the economy. 
C) decrease potential GDP. 
D) increase potential GDP. 
A) destabilize the economy. 
B) stabilize the economy. 
C) decrease potential GDP. 
D) increase potential GDP.

Question 19

In preparing their estimates of the stimulus package's effect on GDP,Obama administration economists estimated a government purchases multiplier of 1.57.Economist Robert Barro argues that during wartime,the government purchases multiplier would be ________ the administration's estimate,and economists Lawrence Christiano,Martin Eichenbaum,and Sergio Rebelo argued that when short-term interest rates are near zero,the multiplier would be ________ the administration's estimate.

Accepted Answer

A) higher than; lower than 
B) lower than; higher than 
C) higher than; equal to 
D) equal to; lower than 
A) higher than; lower than 
B) lower than; higher than 
C) higher than; equal to 
D) equal to; lower than

Question 20

Figure 16-1  
-Refer to Figure 16-1.Suppose the economy is in short-run equilibrium below potential GDP and no fiscal or monetary policy is pursued.Using the static AD-AS model in the figure above,this would be depicted as a movement from

Accepted Answer

A) A to B. 
B) B to C. 
C) C to B. 
D) B to A. 
E) A to E. 
A) A to B. 
B) B to C. 
C) C to B. 
D) B to A. 
E) A to E.

What is the difference between federal purchases and federal expenditures?

What are the key differences between how we illustrate a contractionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

Does expansionary fiscal policy directly increase the money supply? Isn't it true that the president and Congress fight recessions by spending more money?

Before the Great Depression of the 1930s,the majority of government spending took place at the and after the Great Depression the majority of government spending took place at the .

If policy makers implement an expansionary fiscal policy but do not take into account the potential for crowding out,the new equilibrium level of GDP is likely to

Following a decrease in government spending,as the price level falls we would expect the level of interest rates to and investment to .

The majority of the federal government debt is held by government agencies.

If the absolute value of the tax multiplier equals 1.6,real GDP is $13 trillion,and potential real GDP is $13.4 trillion,then taxes would need to be cut by ________ to restore the economy to potential real GDP.

The cyclically adjusted budget is calculated at potential GDP.

Economists who believe the supply-side effects of tax cuts are small essentially believe that

An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.

Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion.To move the economy back to potential GDP,Congress should

Suppose the government wants to maintain a balanced budget.To achieve this goal,when the economy falls into recession government would need to taxes,which would cause aggregate demand to .

Which of the following is the largest category of federal government expenditures?

Explain why the tax multiplier is different from the government purchases multiplier,in both sign and relative magnitude.

A change in tax rates

The crowding out of private spending by government spending will be greater the

The automatic budget surpluses and budget deficits that occur in the federal budget over the business cycle

Figure 16-1 -Refer to Figure 16-1.Suppose the economy is in short-run equilibrium below potential GDP and no fiscal or monetary policy is pursued.Using the static AD-AS model in the figure above,this would be depicted as a movement from

Economics: Foundations and Models

Trade-Offs,comparative Advantage,and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

The Economics of Health Care

Firms,the Stock Market,and Corporate Governance

Comparative Advantage and the Gains From International Trade

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Exam 16: Fiscal Policy

What is the difference between federal purchases and federal expenditures?

What are the key differences between how we illustrate a contractionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

Does expansionary fiscal policy directly increase the money supply? Isn't it true that the president and Congress fight recessions by spending more money?

Before the Great Depression of the 1930s,the majority of government spending took place at the ________ and after the Great Depression the majority of government spending took place at the ________.

If policy makers implement an expansionary fiscal policy but do not take into account the potential for crowding out,the new equilibrium level of GDP is likely to

Following a decrease in government spending,as the price level falls we would expect the level of interest rates to ________ and investment to ________.

The majority of the federal government debt is held by government agencies.

If the absolute value of the tax multiplier equals 1.6,real GDP is $13 trillion,and potential real GDP is $13.4 trillion,then taxes would need to be cut by ________ to restore the economy to potential real GDP.

The cyclically adjusted budget is calculated at potential GDP.

Economists who believe the supply-side effects of tax cuts are small essentially believe that

An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.

Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion.To move the economy back to potential GDP,Congress should

Suppose the government wants to maintain a balanced budget.To achieve this goal,when the economy falls into recession government would need to ________ taxes,which would cause aggregate demand to ________.

Which of the following is the largest category of federal government expenditures?

Explain why the tax multiplier is different from the government purchases multiplier,in both sign and relative magnitude.

A change in tax rates

The crowding out of private spending by government spending will be greater the

The automatic budget surpluses and budget deficits that occur in the federal budget over the business cycle

Figure 16-1 -Refer to Figure 16-1.Suppose the economy is in short-run equilibrium below potential GDP and no fiscal or monetary policy is pursued.Using the static AD-AS model in the figure above,this would be depicted as a movement from

Economics: Foundations and Models

Trade-Offs,comparative Advantage,and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

The Economics of Health Care

Firms,the Stock Market,and Corporate Governance

Comparative Advantage and the Gains From International Trade

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Before the Great Depression of the 1930s,the majority of government spending took place at the and after the Great Depression the majority of government spending took place at the .

Following a decrease in government spending,as the price level falls we would expect the level of interest rates to and investment to .

Suppose the government wants to maintain a balanced budget.To achieve this goal,when the economy falls into recession government would need to taxes,which would cause aggregate demand to .