Question 1

As a country's public debt grows, the portion of its budget devoted to interest payments on the debt will decrease.

Accepted Answer

A) True 
 B)False

Question 2

Time lags make:

Accepted Answer

A) fiscal policy more effective than monetary policy. 
B) monetary policy more effective than fiscal policy. 
C) correct use of both fiscal and monetary policy challenging. 
D) both fiscal and monetary policy more effective. 
A) fiscal policy more effective than monetary policy. 
B) monetary policy more effective than fiscal policy. 
C) correct use of both fiscal and monetary policy challenging. 
D) both fiscal and monetary policy more effective.

Question 3

When the government borrows funds to pay for budget deficits:

Accepted Answer

A) planned aggregate spending decreases rather than increases. 
B) the multiplier effect of government purchases increases. 
C) private investment spending may be crowded out. 
D) the interest rate and savings decrease. 
A) planned aggregate spending decreases rather than increases. 
B) the multiplier effect of government purchases increases. 
C) private investment spending may be crowded out. 
D) the interest rate and savings decrease.

Question 4

Government spending will NOT crowd out private spending if:

Accepted Answer

A) all of the resources in the economy are employed. 
B) aggregate income is at its potential level. 
C) there is an inflationary gap. 
D) there is a recessionary gap. 
A) all of the resources in the economy are employed. 
B) aggregate income is at its potential level. 
C) there is an inflationary gap. 
D) there is a recessionary gap.

Question 5

When the economy expands, income tax receipts will:

Accepted Answer

A) rise, but sales tax revenues will remain the same. 
B) fall, but sales tax revenues will rise. 
C) stay the same unless the government changes the tax rates. 
D) rise, and sales tax revenues will rise. 
A) rise, but sales tax revenues will remain the same. 
B) fall, but sales tax revenues will rise. 
C) stay the same unless the government changes the tax rates. 
D) rise, and sales tax revenues will rise.

Question 6

A cut in taxes _____, shifting the aggregate demand curve to the _____.

Accepted Answer

A) decreases government transfers and consumption; right 
B) increases disposable income and consumption; right 
C) decreases the marginal propensity to save, increasing consumption; left 
D) increases corporate profits and investment; left 
A) decreases government transfers and consumption; right 
B) increases disposable income and consumption; right 
C) decreases the marginal propensity to save, increasing consumption; left 
D) increases corporate profits and investment; left

Question 7

Suppose that real GDP is $500, potential GDP is $1,000, and the marginal propensity to consume is 0.9. If the government is going to spend and does not impose taxes, what specific fiscal policy action should policy makers take?

Accepted Answer

The marginal propensity to con

Question 8

If the marginal propensity to consume is 0.9, then the government spending multiplier is:

Accepted Answer

A) 0.1. 
B) 1.11. 
C) 9. 
D) 10. 
A) 0.1. 
B) 1.11. 
C) 9. 
D) 10.

Question 9

The ratio of debt to GDP is a way to assess the ability of a government to pay its debts because it is an indicator of the taxes that the government can collect to pay the debt.

Accepted Answer

A) True 
 B)False

Question 10

If the economy exhibited an inflationary gap, the government should follow a(n) _____ policy, which would shift the AD curve to the _____.

Accepted Answer

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

Question 11

Medicaid, food stamps, and sales taxes are all automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 12

The largest source of federal tax revenues is:

Accepted Answer

A) property taxes. 
B) personal income taxes. 
C) corporate income taxes. 
D) sales taxes. 
A) property taxes. 
B) personal income taxes. 
C) corporate income taxes. 
D) sales taxes.

Question 13

Use the following to answer questions:
Figure: Fiscal Policy I  
-(Figure: Fiscal Policy I) Look at the figure Fiscal Policy I. Suppose that this economy is in equilibrium at E2. 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; right; decrease; increase 
A) AD2; left; increase; decrease 
B) AD2; left; decrease; decrease 
C) AD1; right; increase; increase 
D) AD1; right; decrease; increase

Question 14

If legislation required the budget to be balanced at all times, _____ as an automatic stabilizer of the business cycle.

Accepted Answer

A) fiscal policy could not operate 
B) it would reduce the effectiveness of monetary policy 
C) it would increase the effectiveness of discretionary fiscal policy 
D) monetary policy could not operate 
A) fiscal policy could not operate 
B) it would reduce the effectiveness of monetary policy 
C) it would increase the effectiveness of discretionary fiscal policy 
D) monetary policy could not operate

Question 15

The inclusion of a tax rate in the model results in a new multiplier that is:

Accepted Answer

A) larger than the original multiplier. 
B) the same as the original multiplier if the economy is in a recession. 
C) smaller than the original multiplier. 
D) not affected by automatic stabilizers. 
A) larger than the original multiplier. 
B) the same as the original multiplier if the economy is in a recession. 
C) smaller than the original multiplier. 
D) not affected by automatic stabilizers.

Question 16

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. The government spending multiplier is:

Accepted Answer

A) 5. 
B) 0.75. 
C) 4. 
D) 3. 
A) 5. 
B) 0.75. 
C) 4. 
D) 3.

Question 17

Because the revenue from personal income taxes increases as disposable income increases:

Accepted Answer

A) the multiplier effect decreases. 
B) the marginal propensity to consume decreases as income increases. 
C) the multiplier effect increases. 
D) the marginal propensity to save increases as income decreases. 
A) the multiplier effect decreases. 
B) the marginal propensity to consume decreases as income increases. 
C) the multiplier effect increases. 
D) the marginal propensity to save increases as income decreases.

Question 18

The multiplier effect of changes in government transfers is:

Accepted Answer

A) greater than the multiplier effect of a change in government spending. 
B) zero because transfer payments do not affect aggregate demand. 
C) less than the multiplier effect of a change in government spending. 
D) impossible to determine. 
A) greater than the multiplier effect of a change in government spending. 
B) zero because transfer payments do not affect aggregate demand. 
C) less than the multiplier effect of a change in government spending. 
D) impossible to determine.

Question 19

Suppose the government increases taxes by more than is necessary to close an inflationary gap. Which of the following is the most likely result?

Accepted Answer

A) Equilibrium real GDP will be more than anticipated. 
B) The economy will move into a recession. 
C) The economy will generate a larger inflationary gap than anticipated. 
D) This will not have any adverse effects on the economy, since inflation has been abated. 
A) Equilibrium real GDP will be more than anticipated. 
B) The economy will move into a recession. 
C) The economy will generate a larger inflationary gap than anticipated. 
D) This will not have any adverse effects on the economy, since inflation has been abated.

Question 20

The government has a budget deficit if:

Accepted Answer

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

As a country's public debt grows, the portion of its budget devoted to interest payments on the debt will decrease.

Time lags make:

When the government borrows funds to pay for budget deficits:

Government spending will NOT crowd out private spending if:

When the economy expands, income tax receipts will:

A cut in taxes _, shifting the aggregate demand curve to the _.

Suppose that real GDP is $500, potential GDP is $1,000, and the marginal propensity to consume is 0.9. If the government is going to spend and does not impose taxes, what specific fiscal policy action should policy makers take?

If the marginal propensity to consume is 0.9, then the government spending multiplier is:

The ratio of debt to GDP is a way to assess the ability of a government to pay its debts because it is an indicator of the taxes that the government can collect to pay the debt.

If the economy exhibited an inflationary gap, the government should follow a(n) _ policy, which would shift the AD curve to the _.

Medicaid, food stamps, and sales taxes are all automatic stabilizers.

The largest source of federal tax revenues is:

If legislation required the budget to be balanced at all times, _____ as an automatic stabilizer of the business cycle.

The inclusion of a tax rate in the model results in a new multiplier that is:

Because the revenue from personal income taxes increases as disposable income increases:

The multiplier effect of changes in government transfers is:

Suppose the government increases taxes by more than is necessary to close an inflationary gap. Which of the following is the most likely result?

The government has a budget deficit if:

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

As a country's public debt grows, the portion of its budget devoted to interest payments on the debt will decrease.

Time lags make:

When the government borrows funds to pay for budget deficits:

Government spending will NOT crowd out private spending if:

When the economy expands, income tax receipts will:

A cut in taxes _____, shifting the aggregate demand curve to the _____.

Suppose that real GDP is $500, potential GDP is $1,000, and the marginal propensity to consume is 0.9. If the government is going to spend and does not impose taxes, what specific fiscal policy action should policy makers take?

If the marginal propensity to consume is 0.9, then the government spending multiplier is:

The ratio of debt to GDP is a way to assess the ability of a government to pay its debts because it is an indicator of the taxes that the government can collect to pay the debt.

If the economy exhibited an inflationary gap, the government should follow a(n) _____ policy, which would shift the AD curve to the _____.

Medicaid, food stamps, and sales taxes are all automatic stabilizers.

The largest source of federal tax revenues is:

If legislation required the budget to be balanced at all times, _____ as an automatic stabilizer of the business cycle.

The inclusion of a tax rate in the model results in a new multiplier that is:

Because the revenue from personal income taxes increases as disposable income increases:

The multiplier effect of changes in government transfers is:

Suppose the government increases taxes by more than is necessary to close an inflationary gap. Which of the following is the most likely result?

The government has a budget deficit if:

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

A cut in taxes _, shifting the aggregate demand curve to the _.

If the economy exhibited an inflationary gap, the government should follow a(n) _ policy, which would shift the AD curve to the _.