Question 1

An economy is in the midst of a recession. A government policy aimed at moving the economy back to potential GDP is:

Accepted Answer

A) an increase in taxes. 
B) an increase in government purchases for infrastructure improvements. 
C) an increase in the property tax. 
D) a decrease in unemployment benefits. 
A) an increase in taxes. 
B) an increase in government purchases for infrastructure improvements. 
C) an increase in the property tax. 
D) a decrease in unemployment benefits.

Question 2

In 2009 many lenders refused to make more loans to Greece because they were not confident that Greece was able to repay its debt.

Accepted Answer

A) True 
 B)False

Question 3

Discretionary fiscal policy may fail to stabilize the economy or may even make the economy less stable because of:

Accepted Answer

A) its ineffectiveness. 
B) government waste. 
C) lags in deciding on and implementing a policy change. 
D) the business cycle. 
A) its ineffectiveness. 
B) government waste. 
C) lags in deciding on and implementing a policy change. 
D) the business cycle.

Question 4

When governments borrow in financial markets to pay for budget deficits, interest rates may increase and crowd out private investment spending.

Accepted Answer

A) True 
 B)False

Question 5

Most economists oppose an annually balanced budget because it would undermine automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 6

What is meant by the term social insurance? Give an example of a social insurance program.

Accepted Answer

Social insurance is any government progr

Question 7

A contractionary fiscal policy:

Accepted Answer

A) decreases a government budget deficit or increases a government budget surplus. 
B) may include increases in government spending. 
C) may include reductions in taxes. 
D) may include discretionary increases in transfer payments. 
A) decreases a government budget deficit or increases a government budget surplus. 
B) may include increases in government spending. 
C) may include reductions in taxes. 
D) may include discretionary increases in transfer payments.

Question 8

Contractionary fiscal policy includes:

Accepted Answer

A) decreasing taxes. 
B) increasing taxes. 
C) increasing the money supply. 
D) increasing government expenditures. 
A) decreasing taxes. 
B) increasing taxes. 
C) increasing the money supply. 
D) increasing government expenditures.

Question 9

What was the main financial problem that the government of Greece faced in 2009?

Accepted Answer

A) It had a large budget surplus that it needed to invest, but it was unable to find investments that offered a high rate of return. 
B) It had a large budget surplus, but the president vetoed attempts to use the surplus to give tax refunds to the citizens. 
C) It had a large budget deficit, but the parliament refused to raise transfer payments to reduce the deficit. 
D) It had a large budget deficit, but most of its creditors were unwilling to make loans to Greece or charged extremely high interest rates to compensate them for the risk of loss. 
A) It had a large budget surplus that it needed to invest, but it was unable to find investments that offered a high rate of return. 
B) It had a large budget surplus, but the president vetoed attempts to use the surplus to give tax refunds to the citizens. 
C) It had a large budget deficit, but the parliament refused to raise transfer payments to reduce the deficit. 
D) It had a large budget deficit, but most of its creditors were unwilling to make loans to Greece or charged extremely high interest rates to compensate them for the risk of loss.

Question 10

Assume that marginal propensity to consume is 0.8 and potential output is $800 billion. If the actual real GDP is $700 billion, _____ government spending by _____ would bring the economy to potential output.

Accepted Answer

A) increasing; $25 billion 
B) increasing; $100 billion 
C) increasing; $20 billion 
D) decreasing; $100 billion 
A) increasing; $25 billion 
B) increasing; $100 billion 
C) increasing; $20 billion 
D) decreasing; $100 billion

Question 11

Use the following to answer questions:
Figure: Fiscal Policy II  
-(Figure: Fiscal Policy II) Look at the figure Fiscal Policy II. Suppose that this economy is in equilibrium at E2. If there is an increase in government transfers, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

Accepted Answer

A) AD2; right; increase; increase 
B) AD2; left; decrease; decrease 
C) AD1; right; increase; increase 
D) AD1; left; decrease; decrease 
A) AD2; right; increase; increase 
B) AD2; left; decrease; decrease 
C) AD1; right; increase; increase 
D) AD1; left; decrease; decrease

Question 12

When policy makers make a deliberate fiscal policy decision:

Accepted Answer

A) it is called discretionary fiscal policy. 
B) it is an example of an automatic stabilizer. 
C) no lag effects will result. 
D) the value of the multiplier will be reduced. 
A) it is called discretionary fiscal policy. 
B) it is an example of an automatic stabilizer. 
C) no lag effects will result. 
D) the value of the multiplier will be reduced.

Question 13

If the government increases its spending when the economy is expanding, automatic stabilizers _____ the government spending multiplier.

Accepted Answer

A) may or may not affect 
B) will increase 
C) will not affect 
D) will decrease 
A) may or may not affect 
B) will increase 
C) will not affect 
D) will decrease

Question 14

Use the following to answer questions:
Figure: Short-Run Equilibrium  
-(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y1 and P1, the appropriate policy to return the economy to potential output would be a(n):

Accepted Answer

A) increase in transfer payments. 
B) increase in government spending. 
C) increase in taxes. 
D) decrease in taxes. 
A) increase in transfer payments. 
B) increase in government spending. 
C) increase in taxes. 
D) decrease in taxes.

Question 15

If the marginal propensity to consume is 0.75 and government purchases of goods and services decrease by $30 billion, real GDP will:

Accepted Answer

A) increase by $30 billion. 
B) increase by $22.5 billion. 
C) decrease by $30 billion. 
D) decrease by $120 billion. 
A) increase by $30 billion. 
B) increase by $22.5 billion. 
C) decrease by $30 billion. 
D) decrease by $120 billion.

Question 16

Fiscal experts in the United States are most concerned about the country's:

Accepted Answer

A) implicit liabilities. 
B) high ratio of debt to GDP. 
C) risk of debt default. 
D) low ratio of debt to GDP. 
A) implicit liabilities. 
B) high ratio of debt to GDP. 
C) risk of debt default. 
D) low ratio of debt to GDP.

Question 17

Explain the difference between automatic stabilizers and discretionary fiscal policy measures. Provide examples to clarify the distinctions.

Accepted Answer

Automatic stabilizers are spending and t

Question 18

Because of the role of automatic stabilizers and discretionary fiscal policy, the historical record of the United States since 1970 shows that the budget tends to:

Accepted Answer

A) move into a deficit during expansions. 
B) move into a surplus during recessions. 
C) move into a deficit during recessions. 
D) remain balanced throughout expansions and recessions. 
A) move into a deficit during expansions. 
B) move into a surplus during recessions. 
C) move into a deficit during recessions. 
D) remain balanced throughout expansions and recessions.

Question 19

Use the following to answer questions:
Figure: Inflationary and Recessionary Gaps  
-(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. Which of the following measures a recessionary gap?

Accepted Answer

A) Y3 - Y1 
B) Y3 - Y2 
C) Y2 - Y1 
D) Y3 - Y0 
A) Y3 - Y1 
B) Y3 - Y2 
C) Y2 - Y1 
D) Y3 - Y0

Question 20

The national debt _____ when the federal government incurs a _____.

Accepted Answer

A) falls; deficit 
B) rises; surplus 
C) stays the same; surplus 
D) rises; deficit 
A) falls; deficit 
B) rises; surplus 
C) stays the same; surplus 
D) rises; deficit

An economy is in the midst of a recession. A government policy aimed at moving the economy back to potential GDP is:

In 2009 many lenders refused to make more loans to Greece because they were not confident that Greece was able to repay its debt.

Discretionary fiscal policy may fail to stabilize the economy or may even make the economy less stable because of:

When governments borrow in financial markets to pay for budget deficits, interest rates may increase and crowd out private investment spending.

Most economists oppose an annually balanced budget because it would undermine automatic stabilizers.

What is meant by the term social insurance? Give an example of a social insurance program.

A contractionary fiscal policy:

Contractionary fiscal policy includes:

What was the main financial problem that the government of Greece faced in 2009?

Assume that marginal propensity to consume is 0.8 and potential output is $800 billion. If the actual real GDP is $700 billion, _ government spending by _ would bring the economy to potential output.

When policy makers make a deliberate fiscal policy decision:

If the government increases its spending when the economy is expanding, automatic stabilizers _____ the government spending multiplier.

Use the following to answer questions: Figure: Short-Run Equilibrium -(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y₁ and P₁, the appropriate policy to return the economy to potential output would be a(n):

If the marginal propensity to consume is 0.75 and government purchases of goods and services decrease by $30 billion, real GDP will:

Fiscal experts in the United States are most concerned about the country's:

Explain the difference between automatic stabilizers and discretionary fiscal policy measures. Provide examples to clarify the distinctions.

Because of the role of automatic stabilizers and discretionary fiscal policy, the historical record of the United States since 1970 shows that the budget tends to:

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. Which of the following measures a recessionary gap?

The national debt _ when the federal government incurs a _.

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

Exam 13: Fiscal Policy Appendix Taxes and the Multiplier

An economy is in the midst of a recession. A government policy aimed at moving the economy back to potential GDP is:

In 2009 many lenders refused to make more loans to Greece because they were not confident that Greece was able to repay its debt.

Discretionary fiscal policy may fail to stabilize the economy or may even make the economy less stable because of:

When governments borrow in financial markets to pay for budget deficits, interest rates may increase and crowd out private investment spending.

Most economists oppose an annually balanced budget because it would undermine automatic stabilizers.

What is meant by the term social insurance? Give an example of a social insurance program.

A contractionary fiscal policy:

Contractionary fiscal policy includes:

What was the main financial problem that the government of Greece faced in 2009?

Assume that marginal propensity to consume is 0.8 and potential output is $800 billion. If the actual real GDP is $700 billion, _____ government spending by _____ would bring the economy to potential output.

When policy makers make a deliberate fiscal policy decision:

If the government increases its spending when the economy is expanding, automatic stabilizers _____ the government spending multiplier.

Use the following to answer questions: Figure: Short-Run Equilibrium -(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y1 and P1, the appropriate policy to return the economy to potential output would be a(n):

If the marginal propensity to consume is 0.75 and government purchases of goods and services decrease by $30 billion, real GDP will:

Fiscal experts in the United States are most concerned about the country's:

Explain the difference between automatic stabilizers and discretionary fiscal policy measures. Provide examples to clarify the distinctions.

Because of the role of automatic stabilizers and discretionary fiscal policy, the historical record of the United States since 1970 shows that the budget tends to:

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. Which of the following measures a recessionary gap?

The national debt _____ when the federal government incurs a _____.

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

Assume that marginal propensity to consume is 0.8 and potential output is $800 billion. If the actual real GDP is $700 billion, _ government spending by _ would bring the economy to potential output.

Use the following to answer questions: Figure: Short-Run Equilibrium -(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y₁ and P₁, the appropriate policy to return the economy to potential output would be a(n):

The national debt _ when the federal government incurs a _.