Question 1

Which of the following best describes stagflation?

Accepted Answer

A) rising unemployment together with economic growth 
B) deflation coupled with a decline of the money supply 
C) deficits coupled with rising unemployment 
D) rising unemployment and inflation rates 
E) inflation coupled with balance of trade deficits 
A) rising unemployment together with economic growth 
B) deflation coupled with a decline of the money supply 
C) deficits coupled with rising unemployment 
D) rising unemployment and inflation rates 
E) inflation coupled with balance of trade deficits D

Question 2

"Net taxes" equals "taxes minus transfer payments."

Accepted Answer

A) True 
 B)False  True

Question 3

If fiscal policy is used to close an expansionary gap, the

Accepted Answer

A) SRAS curve shifts leftward and the price level falls 
B) SRAS curve shifts rightward and the price level increases 
C) SRAS curve shifts rightward and the price level falls 
D) AD curve shifts leftward and the price level decreases 
E) AD curve shifts rightward and the price level decreases 
A) SRAS curve shifts leftward and the price level falls 
B) SRAS curve shifts rightward and the price level increases 
C) SRAS curve shifts rightward and the price level falls 
D) AD curve shifts leftward and the price level decreases 
E) AD curve shifts rightward and the price level decreases D

Question 4

Under which of the following conditions will a change in government purchases have the greatest effect on the economy in the short run?

Accepted Answer

A) The aggregate demand curve is relatively flat. 
B) The aggregate demand curve is relatively steep. 
C) The short-run aggregate supply curve is relatively flat. 
D) The aggregate demand curve is vertical. 
E) The short-run aggregate supply curve is vertical. 
A) The aggregate demand curve is relatively flat. 
B) The aggregate demand curve is relatively steep. 
C) The short-run aggregate supply curve is relatively flat. 
D) The aggregate demand curve is vertical. 
E) The short-run aggregate supply curve is vertical.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Assume autonomous net taxes rise by $500; the marginal propensity to consume = 0.75. Net exports, planned investment, taxes, and government purchases are autonomous and remain fixed. As a result, equilibrium real GDP demanded will

Accepted Answer

A) rise by $500 
B) fall by $500 
C) rise by $1,500 
D) fall by $1,500 
E) rise by $2,000 
A) rise by $500 
B) fall by $500 
C) rise by $1,500 
D) fall by $1,500 
E) rise by $2,000

Question 7

Who argued that the economy should be left to itself to close a contractionary gap?

Accepted Answer

A) John F. Kennedy 
B) John Maynard Keynes 
C) the mercantilists 
D) the classical economists 
E) the socialists 
A) John F. Kennedy 
B) John Maynard Keynes 
C) the mercantilists 
D) the classical economists 
E) the socialists

Question 8

It has been estimated that the marginal propensity to consume out of tax rebate money is around 1/3.

Accepted Answer

A) True 
 B)False

Question 9

The government can close an expansionary gap by increasing the price level.

Accepted Answer

A) True 
 B)False

Question 10

According to classical economists, government intervention is

Accepted Answer

A) necessary to maintain a stable price level in the long run 
B) necessary to maintain a stable price level in the short run 
C) necessary to maintain full employment in the long run 
D) necessary to maintain full employment in the short run 
E) not necessary to maintain full employment 
A) necessary to maintain a stable price level in the long run 
B) necessary to maintain a stable price level in the short run 
C) necessary to maintain full employment in the long run 
D) necessary to maintain full employment in the short run 
E) not necessary to maintain full employment

Question 11

Because natural market forces may take a long time to close a contractionary gap, governments often turn to discretionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 12

Exhibit 12-2
  
-In an economy characterized by the aggregate expenditure line in Exhibit 12-2, how would a $100 decrease in autonomous net taxes 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 13

If people base their spending decision more on permanent income than current income, then

Accepted Answer

A) consumption spending will be more responsive to a temporary change in income than a change in permanent income 
B) shifts in aggregate supply will be less predictable than if spending was based on current income 
C) consumption spending will fluctuate more widely than if such spending was determined by current income 
D) shifts in short-run aggregate supply will be more predictable than if spending was based on current income 
E) attempts to fine-tune the economy with temporary tax rate adjustments will be less effective 
A) consumption spending will be more responsive to a temporary change in income than a change in permanent income 
B) shifts in aggregate supply will be less predictable than if spending was based on current income 
C) consumption spending will fluctuate more widely than if such spending was determined by current income 
D) shifts in short-run aggregate supply will be more predictable than if spending was based on current income 
E) attempts to fine-tune the economy with temporary tax rate adjustments will be less effective

Question 14

All of the following are tools of fiscal policy except one. Which is the exception?

Accepted Answer

A) taxes 
B) transfer payments 
C) interest rates 
D) government purchases of goods 
E) government purchases of services 
A) taxes 
B) transfer payments 
C) interest rates 
D) government purchases of goods 
E) government purchases of services

Question 15

If autonomous net taxes equal $1 trillion at all levels of real GDP, then we can safely assume that net taxes

Accepted Answer

A) are too burdensome 
B) are autonomous 
C) equal transfer payments 
D) depend on the level of real GDP 
E) equal zero when GDP equals zero 
A) are too burdensome 
B) are autonomous 
C) equal transfer payments 
D) depend on the level of real GDP 
E) equal zero when GDP equals zero

Question 16

Reducing net taxes and reducing government purchases are both effective ways of eliminating an expansionary gap.

Accepted Answer

A) True 
 B)False

Question 17

An increase in government purchases must always be accompanied by an increase in autonomous net taxes.

Accepted Answer

A) True 
 B)False

Question 18

A progressive income tax ensures that during expansionary periods,

Accepted Answer

A) consumption will increase by more than the increase in disposable income 
B) consumption will increase by more than the decrease in disposable income 
C) disposable income will increase by more than the increase in GDP 
D) disposable income will increase by less than the increase in GDP 
E) disposable income will increase by more than the decrease in GDP 
A) consumption will increase by more than the increase in disposable income 
B) consumption will increase by more than the decrease in disposable income 
C) disposable income will increase by more than the increase in GDP 
D) disposable income will increase by less than the increase in GDP 
E) disposable income will increase by more than the decrease in GDP

Question 19

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

Question 20

Prior to the Great Depression, the principal fiscal policy was a balanced budget.

Accepted Answer

A) True 
 B)False

Exam 13: Fiscal Policy

Which of the following best describes stagflation?

"Net taxes" equals "taxes minus transfer payments."

If fiscal policy is used to close an expansionary gap, the

Under which of the following conditions will a change in government purchases have the greatest effect on the economy in the short run?

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

Assume autonomous net taxes rise by $500; the marginal propensity to consume = 0.75. Net exports, planned investment, taxes, and government purchases are autonomous and remain fixed. As a result, equilibrium real GDP demanded will

Who argued that the economy should be left to itself to close a contractionary gap?

It has been estimated that the marginal propensity to consume out of tax rebate money is around 1/3.

The government can close an expansionary gap by increasing the price level.

According to classical economists, government intervention is

Because natural market forces may take a long time to close a contractionary gap, governments often turn to discretionary fiscal policy.

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

If people base their spending decision more on permanent income than current income, then

All of the following are tools of fiscal policy except one. Which is the exception?

If autonomous net taxes equal $1 trillion at all levels of real GDP, then we can safely assume that net taxes

Reducing net taxes and reducing government purchases are both effective ways of eliminating an expansionary gap.

An increase in government purchases must always be accompanied by an increase in autonomous net taxes.

A progressive income tax ensures that during expansionary periods,

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

Prior to the Great Depression, the principal fiscal policy was a balanced budget.

The Art and Science of Economic Analysis

Understanding Graphs-Appendix

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the Us Economy

Unemployment and Inflation

Productivity and Growth

Aaggregate Expenditure and Agregate Demand

Aggregate Expenditure and 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

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