Question 1

Implicit liabilities of a government are:

Accepted Answer

A) bonds held by foreigners. 
B) spending promises, like Social Security benefits, that are effectively debt although no bond is associated with the promise. 
C) debt of a country adjusted for the price ratio. 
D) the ratio of a country's debt to its GDP. 
A) bonds held by foreigners. 
B) spending promises, like Social Security benefits, that are effectively debt although no bond is associated with the promise. 
C) debt of a country adjusted for the price ratio. 
D) the ratio of a country's debt to its GDP.

Question 2

If the government's revenues are less than its expenditures, then it has a budget:

Accepted Answer

A) deficit. 
B) surplus. 
C) balance. 
D) equality. 
A) deficit. 
B) surplus. 
C) balance. 
D) equality.

Question 3

An example of an automatic stabilizer is:

Accepted Answer

A) tax receipts rising when GDP rises. 
B) a discretionary increase in taxes. 
C) government purchases of goods and services rising when GDP rises. 
D) government transfers rising when GDP rises. 
A) tax receipts rising when GDP rises. 
B) a discretionary increase in taxes. 
C) government purchases of goods and services rising when GDP rises. 
D) government transfers rising when GDP rises.

Question 4

Government transfer payments rise when the economy is contracting and fall when the economy is expanding. In this role, transfer payments are described as:

Accepted Answer

A) automatic stabilizers. 
B) discretionary fiscal policy. 
C) balanced budget policy. 
D) deficit reduction policy. 
A) automatic stabilizers. 
B) discretionary fiscal policy. 
C) balanced budget policy. 
D) deficit reduction policy.

Question 5

Suppose the government increases spending more than is necessary to close a recessionary gap. What is the most likely result?

Accepted Answer

A) Inflation will increase. 
B) The price level will decline. 
C) The equilibrium real GDP will fall. 
D) The equilibrium real GDP will fall short of potential GDP. 
A) Inflation will increase. 
B) The price level will decline. 
C) The equilibrium real GDP will fall. 
D) The equilibrium real GDP will fall short of potential GDP.

Question 6

The marginal propensity to consume:

Accepted Answer

A) is the change in consumption divided by the change in saving. 
B) is usually higher for unemployed individuals than for people who are very wealthy. 
C) is equal to the marginal propensity to save plus 1. 
D) tells policy makers the additional amount of investment spending that would accompany an additional amount of government spending. 
A) is the change in consumption divided by the change in saving. 
B) is usually higher for unemployed individuals than for people who are very wealthy. 
C) is equal to the marginal propensity to save plus 1. 
D) tells policy makers the additional amount of investment spending that would accompany an additional amount of government spending.

Question 7

If the marginal propensity to consume is 0.8 and the government spending decreases by $50 million, then equilibrium GDP will decrease by:

Accepted Answer

A) $40 million. 
B) $50 million. 
C) $200 million. 
D) $250 million. 
A) $40 million. 
B) $50 million. 
C) $200 million. 
D) $250 million.

Question 8

If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should _____ government purchases of goods and services by _____ .

Accepted Answer

A) increase; $25 billion 
B) increase; $33 billion 
C) increase; $100 billion 
D) decrease; $100 billion 
A) increase; $25 billion 
B) increase; $33 billion 
C) increase; $100 billion 
D) decrease; $100 billion

Question 9

The 2009 U.S. stimulus was a(n) _____ fiscal policy that _____ aggregate demand.

Accepted Answer

A) expansionary; increased 
B) expansionary; decreased 
C) contractionary; increased 
D) contractionary; decreased 
A) expansionary; increased 
B) expansionary; decreased 
C) contractionary; increased 
D) contractionary; decreased

Question 10

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 E1. If there is a decrease in government purchases, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

Accepted Answer

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

Question 11

The theory of Ricardian equivalence argues that expansionary fiscal policy:

Accepted Answer

A) will have no effect on the economy because consumers, anticipating higher taxes to pay for government spending, will decrease spending today to save for the higher taxes. 
B) is not effective because it causes higher interest rates and crowds out investment spending. 
C) is effective, but contractionary fiscal policy is not. 
D) is more effective than expansionary monetary policy. 
A) will have no effect on the economy because consumers, anticipating higher taxes to pay for government spending, will decrease spending today to save for the higher taxes. 
B) is not effective because it causes higher interest rates and crowds out investment spending. 
C) is effective, but contractionary fiscal policy is not. 
D) is more effective than expansionary monetary policy.

Question 12

Use the following to answer questions :
Figure: Fiscal Policy Choices  
-(Figure: Fiscal Policy Choices) Look at the figure Fiscal Policy Choices. It would be appropriate to use expansionary fiscal policy to shift aggregate demand in _____ from _____.

Accepted Answer

A) panel (b); AD1 to AD2 
B) panel (a); AD2 to AD1 
C) panel (a); AD1 to AD2 
D) panel (b); AD2 to AD1 
A) panel (b); AD1 to AD2 
B) panel (a); AD2 to AD1 
C) panel (a); AD1 to AD2 
D) panel (b); AD2 to AD1

Question 13

A change in government transfers shifts the aggregate demand curve by _____ than a change in government spending for goods and services and has a _____ effect on real GDP.

Accepted Answer

A) more; smaller 
B) more; larger 
C) less; smaller 
D) less; larger 
A) more; smaller 
B) more; larger 
C) less; smaller 
D) less; larger

Question 14

The U.S. national debt as a percentage of GDP is _____ that of Greece.

Accepted Answer

A) slightly higher than 
B) equivalent to 
C) substantially higher than 
D) lower than 
A) slightly higher than 
B) equivalent to 
C) substantially higher than 
D) lower than

Question 15

Many economists caution against extremely active stabilization policy because of time lags in its use. Explain this rationale.

Accepted Answer

It takes several months for economic dat

Question 16

The multiplier effect of government purchases of goods and services:

Accepted Answer

A) has a more direct and bigger impact than an equal amount of tax changes. 
B) has a less direct and smaller impact than an equal amount of tax changes. 
C) is a type of automatic stabilizer. 
D) is useful for recessions but not for inflation. 
A) has a more direct and bigger impact than an equal amount of tax changes. 
B) has a less direct and smaller impact than an equal amount of tax changes. 
C) is a type of automatic stabilizer. 
D) is useful for recessions but not for inflation.

Question 17

Holding everything else constant, the government's budget balance during an expansion will:

Accepted Answer

A) move toward a larger surplus or reduced deficit. 
B) remain the same. 
C) move toward a reduced deficit or a smaller surplus. 
D) be equal to 100. 
A) move toward a larger surplus or reduced deficit. 
B) remain the same. 
C) move toward a reduced deficit or a smaller surplus. 
D) be equal to 100.

Question 18

A contractionary fiscal policy is one that reduces aggregate demand by decreasing:

Accepted Answer

A) government purchases. 
B) the money supply. 
C) interest rates. 
D) taxes. 
A) government purchases. 
B) the money supply. 
C) interest rates. 
D) taxes.

Question 19

If the marginal propensity to consume is 0.80, the multiplier for government purchases of goods and services will be 1.25.

Accepted Answer

A) True 
 B)False

Question 20

Discretionary fiscal policy refers to changes in:

Accepted Answer

A) interest rates. 
B) the money supply. 
C) government spending or taxes to close a recessionary or inflationary gap. 
D) taxes to account for externalities and control pollution. 
A) interest rates. 
B) the money supply. 
C) government spending or taxes to close a recessionary or inflationary gap. 
D) taxes to account for externalities and control pollution.

Implicit liabilities of a government are:

If the government's revenues are less than its expenditures, then it has a budget:

An example of an automatic stabilizer is:

Government transfer payments rise when the economy is contracting and fall when the economy is expanding. In this role, transfer payments are described as:

Suppose the government increases spending more than is necessary to close a recessionary gap. What is the most likely result?

The marginal propensity to consume:

If the marginal propensity to consume is 0.8 and the government spending decreases by $50 million, then equilibrium GDP will decrease by:

If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should _ government purchases of goods and services by _ .

The 2009 U.S. stimulus was a(n) _ fiscal policy that _ aggregate demand.

The theory of Ricardian equivalence argues that expansionary fiscal policy:

Use the following to answer questions : Figure: Fiscal Policy Choices -(Figure: Fiscal Policy Choices) Look at the figure Fiscal Policy Choices. It would be appropriate to use expansionary fiscal policy to shift aggregate demand in _ from _.

A change in government transfers shifts the aggregate demand curve by _ than a change in government spending for goods and services and has a _ effect on real GDP.

The U.S. national debt as a percentage of GDP is _____ that of Greece.

Many economists caution against extremely active stabilization policy because of time lags in its use. Explain this rationale.

The multiplier effect of government purchases of goods and services:

Holding everything else constant, the government's budget balance during an expansion will:

A contractionary fiscal policy is one that reduces aggregate demand by decreasing:

If the marginal propensity to consume is 0.80, the multiplier for government purchases of goods and services will be 1.25.

Discretionary fiscal policy refers to changes in:

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

Implicit liabilities of a government are:

If the government's revenues are less than its expenditures, then it has a budget:

An example of an automatic stabilizer is:

Government transfer payments rise when the economy is contracting and fall when the economy is expanding. In this role, transfer payments are described as:

Suppose the government increases spending more than is necessary to close a recessionary gap. What is the most likely result?

The marginal propensity to consume:

If the marginal propensity to consume is 0.8 and the government spending decreases by $50 million, then equilibrium GDP will decrease by:

If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should _____ government purchases of goods and services by _____ .

The 2009 U.S. stimulus was a(n) _____ fiscal policy that _____ aggregate demand.

The theory of Ricardian equivalence argues that expansionary fiscal policy:

Use the following to answer questions : Figure: Fiscal Policy Choices -(Figure: Fiscal Policy Choices) Look at the figure Fiscal Policy Choices. It would be appropriate to use expansionary fiscal policy to shift aggregate demand in _____ from _____.

A change in government transfers shifts the aggregate demand curve by _____ than a change in government spending for goods and services and has a _____ effect on real GDP.

The U.S. national debt as a percentage of GDP is _____ that of Greece.

Many economists caution against extremely active stabilization policy because of time lags in its use. Explain this rationale.

The multiplier effect of government purchases of goods and services:

Holding everything else constant, the government's budget balance during an expansion will:

A contractionary fiscal policy is one that reduces aggregate demand by decreasing:

If the marginal propensity to consume is 0.80, the multiplier for government purchases of goods and services will be 1.25.

Discretionary fiscal policy refers to changes in:

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

If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should _ government purchases of goods and services by _ .

The 2009 U.S. stimulus was a(n) _ fiscal policy that _ aggregate demand.

Use the following to answer questions : Figure: Fiscal Policy Choices -(Figure: Fiscal Policy Choices) Look at the figure Fiscal Policy Choices. It would be appropriate to use expansionary fiscal policy to shift aggregate demand in _ from _.

A change in government transfers shifts the aggregate demand curve by _ than a change in government spending for goods and services and has a _ effect on real GDP.