Question 1

If the economy is at full employment, expansionary fiscal policy is most likely to lead to:

Accepted Answer

A) lower inflation rates. 
B) higher inflation rates. 
C) increases in unemployment. 
D) decreases in interest rates. 
A) lower inflation rates. 
B) higher inflation rates. 
C) increases in unemployment. 
D) decreases in interest rates.

Question 2

A fiscal year for the federal government runs from January 1 to December 31.

Accepted Answer

A) True 
 B)False

Question 3

The cyclically adjusted budget balance is an estimate of:

Accepted Answer

A) the contractionary fiscal policy needed to close an inflationary gap. 
B) the tax increase needed to compensate for larger government transfers so that the budget remains balanced. 
C) the expansionary fiscal policy needed to close a recessionary gap. 
D) what the budget balance would be if real GDP were exactly equal to potential output. 
A) the contractionary fiscal policy needed to close an inflationary gap. 
B) the tax increase needed to compensate for larger government transfers so that the budget remains balanced. 
C) the expansionary fiscal policy needed to close a recessionary gap. 
D) what the budget balance would be if real GDP were exactly equal to potential output.

Question 4

Do economists believe that the budget should be balanced each fiscal year?

Accepted Answer

A) Yes, a budget should be balanced annually; otherwise persistent budget deficits can cause havoc in the economy. 
B) Yes, as the law states that both the federal and state budgets should always be balanced. 
C) Yes, since the balanced budget multiplier is larger, so it makes the economy grow faster. 
D) No, a budget should be balanced only on average; it can be in a deficit during a recession and offset by surpluses when the economy is doing well. 
A) Yes, a budget should be balanced annually; otherwise persistent budget deficits can cause havoc in the economy. 
B) Yes, as the law states that both the federal and state budgets should always be balanced. 
C) Yes, since the balanced budget multiplier is larger, so it makes the economy grow faster. 
D) No, a budget should be balanced only on average; it can be in a deficit during a recession and offset by surpluses when the economy is doing well.

Question 5

A lump sum tax is a tax whose rate increases as income increases.

Accepted Answer

A) True 
 B)False

Question 6

Automatic stabilizers are government spending and taxation changes that cause fiscal policy to be _____ when the economy contracts.

Accepted Answer

A) expansionary 
B) contractionary 
C) neutral 
D) ineffective 
A) expansionary 
B) contractionary 
C) neutral 
D) ineffective

Question 7

When the economy is in a recession, tax receipts _____ and unemployment insurance payments _____.

Accepted Answer

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

Question 8

Which of the following is an expansionary fiscal policy?

Accepted Answer

A) an increase in the money supply that decreases interest rates 
B) an increase in taxes that reduces the budget deficit and decreases consumption 
C) a decrease in government spending 
D) an increase in unemployment benefits 
A) an increase in the money supply that decreases interest rates 
B) an increase in taxes that reduces the budget deficit and decreases consumption 
C) a decrease in government spending 
D) an increase in unemployment benefits

Question 9

The government has a budget surplus if _____ expenditures.

Accepted Answer

A) its revenues are equal to 
B) its revenues are less than 
C) its revenues are greater than 
D) the money supply is less than 
A) its revenues are equal to 
B) its revenues are less than 
C) its revenues are greater than 
D) the money supply is less than

Question 10

Why does the budget surplus get smaller or the deficit get larger, even without discretionary fiscal policy, when unemployment increases?

Accepted Answer

In the absence of discretionary fiscal p

Question 11

Why does a $1,000 tax cut generate a smaller multiplier effect than a $1,000 increase in government purchases?

Accepted Answer

When a household receives $1,000 of addi

Question 12

Social insurance is:

Accepted Answer

A) essentially any type of spending by the federal government. 
B) available only when the economy is in an inflation. 
C) a government program designed to protect individuals or families from economic hardship. 
D) available only when the economy is below the full employment level. 
A) essentially any type of spending by the federal government. 
B) available only when the economy is in an inflation. 
C) a government program designed to protect individuals or families from economic hardship. 
D) available only when the economy is below the full employment level.

Question 13

A government can pay off its debt if:

Accepted Answer

A) GDP and the debt grow at the same rate. 
B) the ratio of debt to GDP is increasing. 
C) GDP grows faster than the debt. 
D) the debt grows faster than GDP. 
A) GDP and the debt grow at the same rate. 
B) the ratio of debt to GDP is increasing. 
C) GDP grows faster than the debt. 
D) the debt grows faster than GDP.

Question 14

A reduction in government transfers _____, therefore shifting the aggregate demand curve to the _____.

Accepted Answer

A) increases labor costs to companies, increasing investment; left 
B) decreases government purchases of goods and services, decreasing consumption; right 
C) increases the marginal propensity to save, decreasing consumption; right 
D) decreases disposable income and consumption; left 
A) increases labor costs to companies, increasing investment; left 
B) decreases government purchases of goods and services, decreasing consumption; right 
C) increases the marginal propensity to save, decreasing consumption; right 
D) decreases disposable income and consumption; left

Question 15

Which of the following is a government transfer?

Accepted Answer

A) wages paid to U.S. senators 
B) purchases of tanks for the army 
C) Social Security payments to retired auto workers 
D) payments to contractors for repairs on interstate highways 
A) wages paid to U.S. senators 
B) purchases of tanks for the army 
C) Social Security payments to retired auto workers 
D) payments to contractors for repairs on interstate highways

Question 16

An inflationary gap occurs when:

Accepted Answer

A) prices are too low. 
B) real output is too low. 
C) potential output exceeds actual output. 
D) actual output exceeds potential output. 
A) prices are too low. 
B) real output is too low. 
C) potential output exceeds actual output. 
D) actual output exceeds potential output.

Question 17

If the marginal propensity to consume is 0.75, the multiplier for government purchases of goods and services will be:

Accepted Answer

A) 0.75. 
B) 1.33. 
C) 4. 
D) 7.5. 
A) 0.75. 
B) 1.33. 
C) 4. 
D) 7.5.

Question 18

The Social Security trust fund is the:

Accepted Answer

A) cash held in a savings account by the government. 
B) government bonds held by the Social Security system. 
C) money held by the government from the Medicare tax. 
D) interest earned over time by the money from Social Security taxes. 
A) cash held in a savings account by the government. 
B) government bonds held by the Social Security system. 
C) money held by the government from the Medicare tax. 
D) interest earned over time by the money from Social Security taxes.

Question 19

Use the following to answer questions :
Scenario: Fiscal Policy
Consider the economy of Arcadia. Its households spend 75% of increases in their income. There are no taxes and no foreign trade. Its currency is the arc. Potential output is 600 billion arcs.
-(Scenario: Fiscal Policy) Look at the scenario Fiscal Policy. Suppose the government decides to tax its citizens. The tax multiplier is:

Accepted Answer

A) greater than the government spending multiplier. 
B) less than the government spending multiplier. 
C) zero, because changes in taxes have no effect on aggregate demand. 
D) impossible to determine. 
A) greater than the government spending multiplier. 
B) less than the government spending multiplier. 
C) zero, because changes in taxes have no effect on aggregate demand. 
D) impossible to determine.

Question 20

Fiscal policy is the use of taxes, government transfers, or government purchases to shift the aggregate demand curve.

Accepted Answer

A) True 
 B)False

If the economy is at full employment, expansionary fiscal policy is most likely to lead to:

A fiscal year for the federal government runs from January 1 to December 31.

The cyclically adjusted budget balance is an estimate of:

Do economists believe that the budget should be balanced each fiscal year?

A lump sum tax is a tax whose rate increases as income increases.

Automatic stabilizers are government spending and taxation changes that cause fiscal policy to be _____ when the economy contracts.

When the economy is in a recession, tax receipts _ and unemployment insurance payments _.

Which of the following is an expansionary fiscal policy?

The government has a budget surplus if _____ expenditures.

Why does the budget surplus get smaller or the deficit get larger, even without discretionary fiscal policy, when unemployment increases?

Why does a $1,000 tax cut generate a smaller multiplier effect than a $1,000 increase in government purchases?

Social insurance is:

A government can pay off its debt if:

A reduction in government transfers _, therefore shifting the aggregate demand curve to the _.

Which of the following is a government transfer?

An inflationary gap occurs when:

If the marginal propensity to consume is 0.75, the multiplier for government purchases of goods and services will be:

The Social Security trust fund is the:

Fiscal policy is the use of taxes, government transfers, or government purchases to shift the aggregate demand curve.

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

If the economy is at full employment, expansionary fiscal policy is most likely to lead to:

A fiscal year for the federal government runs from January 1 to December 31.

The cyclically adjusted budget balance is an estimate of:

Do economists believe that the budget should be balanced each fiscal year?

A lump sum tax is a tax whose rate increases as income increases.

Automatic stabilizers are government spending and taxation changes that cause fiscal policy to be _____ when the economy contracts.

When the economy is in a recession, tax receipts _____ and unemployment insurance payments _____.

Which of the following is an expansionary fiscal policy?

The government has a budget surplus if _____ expenditures.

Why does the budget surplus get smaller or the deficit get larger, even without discretionary fiscal policy, when unemployment increases?

Why does a $1,000 tax cut generate a smaller multiplier effect than a $1,000 increase in government purchases?

Social insurance is:

A government can pay off its debt if:

A reduction in government transfers _____, therefore shifting the aggregate demand curve to the _____.

Which of the following is a government transfer?

An inflationary gap occurs when:

If the marginal propensity to consume is 0.75, the multiplier for government purchases of goods and services will be:

The Social Security trust fund is the:

Fiscal policy is the use of taxes, government transfers, or government purchases to shift the aggregate demand curve.

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

When the economy is in a recession, tax receipts _ and unemployment insurance payments _.

A reduction in government transfers _, therefore shifting the aggregate demand curve to the _.