Question 1

A cyclically adjusted budget balance:

Accepted Answer

A) shows what the budget balance would be with a significant amount of cyclical unemployment. 
B) is an estimate of what the budget balance would be if real GDP were equal to potential output. 
C) is a good indicator of the structural deficit in the economy. 
D) is the same as the national debt, and it rises as interest cost is accrued. 
A) shows what the budget balance would be with a significant amount of cyclical unemployment. 
B) is an estimate of what the budget balance would be if real GDP were equal to potential output. 
C) is a good indicator of the structural deficit in the economy. 
D) is the same as the national debt, and it rises as interest cost is accrued.

Question 2

Assume the marginal propensity to consume is 0.8 and potential output is $800 billion. If actual real GDP is $850 billion, which of the following policies would bring the economy to potential output?

Accepted Answer

A) Increase taxes by $50 billion. 
B) Increase taxes by $10 billion. 
C) Increase taxes by $12.5 billion. 
D) Increase transfers by $12.5 billion. 
A) Increase taxes by $50 billion. 
B) Increase taxes by $10 billion. 
C) Increase taxes by $12.5 billion. 
D) Increase transfers by $12.5 billion.

Question 3

Suppose that economic policy makers want to increase real GDP by $100 with as little impact on the budget balance as possible. Should they increase government purchases of goods and services, increase transfer payments, or decrease taxes?

Accepted Answer

Policy makers should increase government

Question 4

A government budget surplus would be contractionary because of all of the following EXCEPT _____ are contractionary.

Accepted Answer

A) increases in government purchases 
B) decreases in government purchases 
C) increases in taxes 
D) decreases in government transfers 
A) increases in government purchases 
B) decreases in government purchases 
C) increases in taxes 
D) decreases in government transfers

Question 5

If a government's debt is increasing but its GDP is increasing faster, the government's:

Accepted Answer

A) total debt is falling. 
B) ratio of debt to GDP is falling. 
C) deficit is falling. 
D) ability to pay is falling. 
A) total debt is falling. 
B) ratio of debt to GDP is falling. 
C) deficit is falling. 
D) ability to pay is falling.

Question 6

When the government decides to increase taxes to fight an inflationary gap, it is:

Accepted Answer

A) most likely to increase the budget deficit. 
B) an example of discretionary fiscal policy. 
C) an example of an automatic stabilizer. 
D) likely to dampen the effects of inflation but not to lead to a correction. 
A) most likely to increase the budget deficit. 
B) an example of discretionary fiscal policy. 
C) an example of an automatic stabilizer. 
D) likely to dampen the effects of inflation but not to lead to a correction.

Question 7

The economy is in an inflationary gap. What are the fiscal policy options available to the government?

Accepted Answer

Raise taxes, decreas

Question 8

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 an increase 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 9

If debt increases faster than GDP, the ratio of debt to GDP will fall.

Accepted Answer

A) True 
 B)False

Question 10

If the marginal propensity to consume is 0.1, then the tax multiplier is:

Accepted Answer

A) exactly 0.1. 
B) more than 10. 
C) less than 10. 
D) exactly 10. 
A) exactly 0.1. 
B) more than 10. 
C) less than 10. 
D) exactly 10.

Question 11

Decreasing funding for space exploration will shift the _____ curve to the _____.

Accepted Answer

A) short-run aggregate supply; left 
B) short-run aggregate supply; right 
C) aggregate demand; left 
D) aggregate demand; right 
A) short-run aggregate supply; left 
B) short-run aggregate supply; right 
C) aggregate demand; left 
D) aggregate demand; right

Question 12

All of the following are sources of state and local revenue EXCEPT:

Accepted Answer

A) social insurance taxes. 
B) property taxes. 
C) sales taxes. 
D) income taxes. 
A) social insurance taxes. 
B) property taxes. 
C) sales taxes. 
D) income taxes.

Question 13

Time lags associated with policy decision making and implementation suggest that:

Accepted Answer

A) increases in spending to fight a recessionary gap can be timed correctly. 
B) increases in spending to fight a recessionary gap may occur too early. 
C) increases in spending to fight a recessionary gap may occur too late. 
D) most information is old before the public is aware of it. 
A) increases in spending to fight a recessionary gap can be timed correctly. 
B) increases in spending to fight a recessionary gap may occur too early. 
C) increases in spending to fight a recessionary gap may occur too late. 
D) most information is old before the public is aware of it.

Question 14

What can the federal government do to finance a deficit?

Accepted Answer

A) cut taxes 
B) increase purchases of goods and services 
C) increase transfer payments 
D) borrow funds 
A) cut taxes 
B) increase purchases of goods and services 
C) increase transfer payments 
D) borrow funds

Question 15

The cyclically balanced budget is an estimate of what the budget balance would be during a recessionary gap with real GDP less than potential output.

Accepted Answer

A) True 
 B)False

Question 16

If overall spending declines and thus the economy contracts, the government could counter this by:

Accepted Answer

A) raising tax rates. 
B) decreasing government transfers. 
C) increasing government spending. 
D) decreasing government spending. 
A) raising tax rates. 
B) decreasing government transfers. 
C) increasing government spending. 
D) decreasing government spending.

Question 17

If the marginal propensity to consume is 0.8 and government purchases of goods and services decrease by $30 billion, real GDP will decrease by $24 billion.

Accepted Answer

A) True 
 B)False

Question 18

Changes in taxes and government transfers shift the aggregate demand curve _____ government purchases.

Accepted Answer

A) by more than 
B) by exactly as much as 
C) by less than 
D) in inverse proportion to 
A) by more than 
B) by exactly as much as 
C) by less than 
D) in inverse proportion to

Question 19

Policy makers use a contractionary fiscal policy when they want to close:

Accepted Answer

A) a recessionary gap. 
B) any kind of output gap. 
C) an inflationary gap. 
D) an open economy. 
A) a recessionary gap. 
B) any kind of output gap. 
C) an inflationary gap. 
D) an open economy.

Question 20

Budget deficits almost always:

Accepted Answer

A) decrease with inflation and increase with deflation. 
B) increase when unemployment increases and fall when unemployment falls. 
C) decrease when unemployment increases and increase when unemployment falls. 
D) increase when the aggregate price level increases and fall when the aggregate price level falls. 
A) decrease with inflation and increase with deflation. 
B) increase when unemployment increases and fall when unemployment falls. 
C) decrease when unemployment increases and increase when unemployment falls. 
D) increase when the aggregate price level increases and fall when the aggregate price level falls.

A cyclically adjusted budget balance:

Assume the marginal propensity to consume is 0.8 and potential output is $800 billion. If actual real GDP is $850 billion, which of the following policies would bring the economy to potential output?

Suppose that economic policy makers want to increase real GDP by $100 with as little impact on the budget balance as possible. Should they increase government purchases of goods and services, increase transfer payments, or decrease taxes?

A government budget surplus would be contractionary because of all of the following EXCEPT _____ are contractionary.

If a government's debt is increasing but its GDP is increasing faster, the government's:

When the government decides to increase taxes to fight an inflationary gap, it is:

The economy is in an inflationary gap. What are the fiscal policy options available to the government?

If debt increases faster than GDP, the ratio of debt to GDP will fall.

If the marginal propensity to consume is 0.1, then the tax multiplier is:

Decreasing funding for space exploration will shift the _ curve to the _.

All of the following are sources of state and local revenue EXCEPT:

Time lags associated with policy decision making and implementation suggest that:

What can the federal government do to finance a deficit?

The cyclically balanced budget is an estimate of what the budget balance would be during a recessionary gap with real GDP less than potential output.

If overall spending declines and thus the economy contracts, the government could counter this by:

If the marginal propensity to consume is 0.8 and government purchases of goods and services decrease by $30 billion, real GDP will decrease by $24 billion.

Changes in taxes and government transfers shift the aggregate demand curve _____ government purchases.

Policy makers use a contractionary fiscal policy when they want to close:

Budget deficits almost always:

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

A cyclically adjusted budget balance:

Assume the marginal propensity to consume is 0.8 and potential output is $800 billion. If actual real GDP is $850 billion, which of the following policies would bring the economy to potential output?

Suppose that economic policy makers want to increase real GDP by $100 with as little impact on the budget balance as possible. Should they increase government purchases of goods and services, increase transfer payments, or decrease taxes?

A government budget surplus would be contractionary because of all of the following EXCEPT _____ are contractionary.

If a government's debt is increasing but its GDP is increasing faster, the government's:

When the government decides to increase taxes to fight an inflationary gap, it is:

The economy is in an inflationary gap. What are the fiscal policy options available to the government?

If debt increases faster than GDP, the ratio of debt to GDP will fall.

If the marginal propensity to consume is 0.1, then the tax multiplier is:

Decreasing funding for space exploration will shift the _____ curve to the _____.

All of the following are sources of state and local revenue EXCEPT:

Time lags associated with policy decision making and implementation suggest that:

What can the federal government do to finance a deficit?

The cyclically balanced budget is an estimate of what the budget balance would be during a recessionary gap with real GDP less than potential output.

If overall spending declines and thus the economy contracts, the government could counter this by:

If the marginal propensity to consume is 0.8 and government purchases of goods and services decrease by $30 billion, real GDP will decrease by $24 billion.

Changes in taxes and government transfers shift the aggregate demand curve _____ government purchases.

Policy makers use a contractionary fiscal policy when they want to close:

Budget deficits almost always:

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

Decreasing funding for space exploration will shift the _ curve to the _.