Question 1

Which of the following represents the government budget balance most accurately?

Accepted Answer

A) T + G + TR 
B) T + G - TR 
C) T - G - TR 
D) T + TR - G 
A) T + G + TR 
B) T + G - TR 
C) T - G - TR 
D) T + TR - G

Question 2

If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should decrease government purchases of goods and services by $40 billion.

Accepted Answer

A) True 
 B)False

Question 3

Lower government transfers or higher taxes make a budget surplus smaller or a budget deficit larger.

Accepted Answer

A) True 
 B)False

Question 4

The cyclically balanced budget is important because it:

Accepted Answer

A) is an estimate of the amount of expansionary fiscal policy necessary to close an inflationary gap. 
B) is an estimate of the amount of contractionary fiscal policy necessary to close a recessionary gap. 
C) indicates the amount of tax revenue that will be available for implicit liabilities. 
D) helps to determine whether the government's taxing and spending policies are sustainable in the long run. 
A) is an estimate of the amount of expansionary fiscal policy necessary to close an inflationary gap. 
B) is an estimate of the amount of contractionary fiscal policy necessary to close a recessionary gap. 
C) indicates the amount of tax revenue that will be available for implicit liabilities. 
D) helps to determine whether the government's taxing and spending policies are sustainable in the long run.

Question 5

If the marginal propensity to consume is 0.9, then the tax multiplier will be:

Accepted Answer

A) impossible to determine. 
B) greater than 10. 
C) less than 10. 
D) zero, because there is no multiplier effect from taxes. 
A) impossible to determine. 
B) greater than 10. 
C) less than 10. 
D) zero, because there is no multiplier effect from taxes.

Question 6

If the marginal propensity to save is 0.25, investment spending is $700 million, and the government increases its purchases of goods and services by $100 million, then real GDP increases by:

Accepted Answer

A) $25 million. 
B) $175 million. 
C) $400 million. 
D) $2,800 million. 
A) $25 million. 
B) $175 million. 
C) $400 million. 
D) $2,800 million.

Question 7

Use the following to answer questions:
Figure: Short- and Long-Run Equilibrium II  
-(Figure: Short- and Long-Run Equilibrium II) Look at the figure Short- and Long-Run Equilibrium II. If the economy is at equilibrium at E1, the government should use _____ fiscal policy to shift the aggregate demand curve to the _____.

Accepted Answer

A) expansionary; right 
B) expansionary; left 
C) contractionary; right 
D) contractionary; left 
A) expansionary; right 
B) expansionary; left 
C) contractionary; right 
D) contractionary; left

Question 8

The government budget balance equals taxes _____ purchases _____ transfers.

Accepted Answer

A) plus; plus 
B) minus; minus 
C) minus; plus 
D) plus; minus 
A) plus; plus 
B) minus; minus 
C) minus; plus 
D) plus; minus

Question 9

If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should increase government transfers by $75 billion.

Accepted Answer

A) True 
 B)False

Question 10

The primary taxes at the U.S. federal level are:

Accepted Answer

A) the property tax, sales taxes, and income taxes. 
B) personal income taxes, corporate profit taxes, and social insurance taxes. 
C) sales taxes and fees. 
D) property taxes and user fees. 
A) the property tax, sales taxes, and income taxes. 
B) personal income taxes, corporate profit taxes, and social insurance taxes. 
C) sales taxes and fees. 
D) property taxes and user fees.

Question 11

Public debt is:

Accepted Answer

A) taxes minus government purchases minus government transfers. 
B) government debt held by foreigners. 
C) government debt held by individuals and institutions outside the government. 
D) the government deficit divided by GDP. 
A) taxes minus government purchases minus government transfers. 
B) government debt held by foreigners. 
C) government debt held by individuals and institutions outside the government. 
D) the government deficit divided by GDP.

Question 12

To close an inflationary gap with fiscal policy, the government could:

Accepted Answer

A) reduce budget allocations to interstate highway maintenance. 
B) increase federal subsidies to state universities. 
C) lower the corporate income tax rate. 
D) raise the average amount awarded for a disability pension. 
A) reduce budget allocations to interstate highway maintenance. 
B) increase federal subsidies to state universities. 
C) lower the corporate income tax rate. 
D) raise the average amount awarded for a disability pension.

Question 13

In 1999 many European countries signed a stability pact in which they agreed to accept the dollar as their common currency.

Accepted Answer

A) True 
 B)False

Question 14

The 2009 U.S. stimulus was an expansionary fiscal policy that increased aggregate demand.

Accepted Answer

A) True 
 B)False

Question 15

A government might want to increase aggregate demand to:

Accepted Answer

A) close an inflationary gap. 
B) close a recessionary gap. 
C) reduce prices. 
D) reduce employment. 
A) close an inflationary gap. 
B) close a recessionary gap. 
C) reduce prices. 
D) reduce employment.

Question 16

Which statement is CORRECT?

Accepted Answer

A) Automatic stabilizers indicate deliberate action by policy makers. 
B) Discretionary fiscal policy shows automatic adjustments without any specific effort by policy makers. 
C) Discretionary fiscal policy indicates deliberate action by policy makers. 
D) Automatic stabilizers are risky to use and sometimes can get the economy destabilized. 
A) Automatic stabilizers indicate deliberate action by policy makers. 
B) Discretionary fiscal policy shows automatic adjustments without any specific effort by policy makers. 
C) Discretionary fiscal policy indicates deliberate action by policy makers. 
D) Automatic stabilizers are risky to use and sometimes can get the economy destabilized.

Question 17

Which of the following fiscal policies would make a budget surplus larger or a budget deficit smaller?

Accepted Answer

A) an increase in government purchases of goods and services 
B) lower government transfers 
C) lower taxes 
D) higher interest rates 
A) an increase in government purchases of goods and services 
B) lower government transfers 
C) lower taxes 
D) higher interest rates

Question 18

Use the following to answer questions:
Figure: Fiscal Policy Options  
-(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD:

Accepted Answer

A) a contractionary fiscal policy may be warranted. 
B) an expansionary fiscal policy may be warranted. 
C) no change in discretionary fiscal policy is warranted. 
D) the economy is in an inflationary gap. 
A) a contractionary fiscal policy may be warranted. 
B) an expansionary fiscal policy may be warranted. 
C) no change in discretionary fiscal policy is warranted. 
D) the economy is in an inflationary gap.

Question 19

Consider an economy that already has a sizable budget deficit. If the economy is facing a major downturn, the government should:

Accepted Answer

A) stimulate the economy by raising expenditure as long as the ratio of debt to GDP is declining. 
B) stimulate the economy by raising expenditure irrespective of the ratio of debt to GDP. 
C) not stimulate the economy by raising expenditure because of the burden of debt. 
D) not increase government expenditure, since the budget should be balanced. 
A) stimulate the economy by raising expenditure as long as the ratio of debt to GDP is declining. 
B) stimulate the economy by raising expenditure irrespective of the ratio of debt to GDP. 
C) not stimulate the economy by raising expenditure because of the burden of debt. 
D) not increase government expenditure, since the budget should be balanced.

Question 20

Automatic stabilizers act like:

Accepted Answer

A) automatic expansionary fiscal policy when the economy is in inflation. 
B) automatic expansionary fiscal policy when the economy is in a recession. 
C) an additional multiplier effect. 
D) automatic contractionary policy when the economy is in a recession. 
A) automatic expansionary fiscal policy when the economy is in inflation. 
B) automatic expansionary fiscal policy when the economy is in a recession. 
C) an additional multiplier effect. 
D) automatic contractionary policy when the economy is in a recession.

Which of the following represents the government budget balance most accurately?

If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should decrease government purchases of goods and services by $40 billion.

Lower government transfers or higher taxes make a budget surplus smaller or a budget deficit larger.

The cyclically balanced budget is important because it:

If the marginal propensity to consume is 0.9, then the tax multiplier will be:

If the marginal propensity to save is 0.25, investment spending is $700 million, and the government increases its purchases of goods and services by $100 million, then real GDP increases by:

The government budget balance equals taxes _ purchases _ transfers.

If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should increase government transfers by $75 billion.

The primary taxes at the U.S. federal level are:

Public debt is:

To close an inflationary gap with fiscal policy, the government could:

In 1999 many European countries signed a stability pact in which they agreed to accept the dollar as their common currency.

The 2009 U.S. stimulus was an expansionary fiscal policy that increased aggregate demand.

A government might want to increase aggregate demand to:

Which statement is CORRECT?

Which of the following fiscal policies would make a budget surplus larger or a budget deficit smaller?

Use the following to answer questions: Figure: Fiscal Policy Options -(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD:

Consider an economy that already has a sizable budget deficit. If the economy is facing a major downturn, the government should:

Automatic stabilizers act like:

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

Which of the following represents the government budget balance most accurately?

If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should decrease government purchases of goods and services by $40 billion.

Lower government transfers or higher taxes make a budget surplus smaller or a budget deficit larger.

The cyclically balanced budget is important because it:

If the marginal propensity to consume is 0.9, then the tax multiplier will be:

If the marginal propensity to save is 0.25, investment spending is $700 million, and the government increases its purchases of goods and services by $100 million, then real GDP increases by:

The government budget balance equals taxes _____ purchases _____ transfers.

If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should increase government transfers by $75 billion.

The primary taxes at the U.S. federal level are:

Public debt is:

To close an inflationary gap with fiscal policy, the government could:

In 1999 many European countries signed a stability pact in which they agreed to accept the dollar as their common currency.

The 2009 U.S. stimulus was an expansionary fiscal policy that increased aggregate demand.

A government might want to increase aggregate demand to:

Which statement is CORRECT?

Which of the following fiscal policies would make a budget surplus larger or a budget deficit smaller?

Use the following to answer questions: Figure: Fiscal Policy Options -(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD:

Consider an economy that already has a sizable budget deficit. If the economy is facing a major downturn, the government should:

Automatic stabilizers act like:

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

The government budget balance equals taxes _ purchases _ transfers.