Question 1

Government payments to households for which no good or service is provided in return are called:

Accepted Answer

A) transfer payments. 
B) government purchases. 
C) consumption expenditures. 
D) investment expenditures. 
A) transfer payments. 
B) government purchases. 
C) consumption expenditures. 
D) investment expenditures.

Question 2

The 2009 American Recovery and Reinvestment Act was an example of:

Accepted Answer

A) an automatic stabilizer. 
B) a contractionary government policy. 
C) a contractionary monetary policy. 
D) an expansionary fiscal policy. 
A) an automatic stabilizer. 
B) a contractionary government policy. 
C) a contractionary monetary policy. 
D) an expansionary fiscal policy.

Question 3

When the government has a deficit, it will most likely finance the deficit by:

Accepted Answer

A) cutting the salaries of the president and Congress. 
B) selling some military bases. 
C) borrowing the money. 
D) charging higher admission fees at national parks. 
A) cutting the salaries of the president and Congress. 
B) selling some military bases. 
C) borrowing the money. 
D) charging higher admission fees at national parks.

Question 4

Government's efforts to stabilize the business cycle through fiscal policy can destabilize the economy because of:

Accepted Answer

A) the time necessary to draw up a budget appropriate to the circumstances. 
B) a negative interaction between fiscal and monetary policy due to the multiplier effect. 
C) a tendency of prices to change faster than the interest rate. 
D) business cycles that are closely synchronized to the political cycle. 
A) the time necessary to draw up a budget appropriate to the circumstances. 
B) a negative interaction between fiscal and monetary policy due to the multiplier effect. 
C) a tendency of prices to change faster than the interest rate. 
D) business cycles that are closely synchronized to the political cycle.

Question 5

The main problem facing the government of Greece in 2009 was that it had a large budget surplus.

Accepted Answer

A) True 
 B)False

Question 6

Assume that marginal propensity to consume is 0.8 and potential output is $800 billion. The tax multiplier is:

Accepted Answer

A) exactly 0.8. 
B) impossible to determine. 
C) greater than 5. 
D) less than 5. 
A) exactly 0.8. 
B) impossible to determine. 
C) greater than 5. 
D) less than 5.

Question 7

If the government were required to balance the budget during a recession, it would have to increase taxes and decrease government spending.

Accepted Answer

A) True 
 B)False

Question 8

According to the text, the public debt of the U.S. federal government at the end of fiscal year 2013 equaled about:

Accepted Answer

A) $30 trillion. 
B) $12 trillion. 
C) $7.4 trillion. 
D) $4.8 trillion 
A) $30 trillion. 
B) $12 trillion. 
C) $7.4 trillion. 
D) $4.8 trillion

Question 9

When faced with a recessionary gap, the government can increase taxes and cut spending to close it.

Accepted Answer

A) True 
 B)False

Question 10

Suppose the economy is operating at an output level of $5,400 billion. Assume furthermore that potential output is $5,000 billion and the marginal propensity to consume is 0.75. _____ would close this inflationary gap.

Accepted Answer

A) A $400 billion tax hike 
B) Raising government purchases of goods and services by $400 billion 
C) Decreasing government purchases of goods and services by $100 billion 
D) Increasing government purchases of goods and services by $100 billion 
A) A $400 billion tax hike 
B) Raising government purchases of goods and services by $400 billion 
C) Decreasing government purchases of goods and services by $100 billion 
D) Increasing government purchases of goods and services by $100 billion

Question 11

Implicit liabilities refers to promises made by the government, such as:

Accepted Answer

A) aid to foreign countries. 
B) building roads and bridges. 
C) Social Security and Medicare payments. 
D) contributions to the National Endowment for the Arts. 
A) aid to foreign countries. 
B) building roads and bridges. 
C) Social Security and Medicare payments. 
D) contributions to the National Endowment for the Arts.

Question 12

Use the following to answer questions:
Figure: Short-Run Equilibrium  
-(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. It reflects a short-run inflationary gap. According to the labeling on the graph, the size of the inflationary gap is equal to:

Accepted Answer

A) P2 - P1. 
B) Y1 - YP. 
C) P2 - P0. 
D) P1 - P0. 
A) P2 - P1. 
B) Y1 - YP. 
C) P2 - P0. 
D) P1 - P0.

Question 13

An increase in government transfers is an example of _____ fiscal policy because it shifts the aggregate demand curve to the _____ aggregate output.

Accepted Answer

A) expansionary; left, increasing 
B) contractionary; left, decreasing 
C) expansionary; right, increasing 
D) contractionary; right, decreasing 
A) expansionary; left, increasing 
B) contractionary; left, decreasing 
C) expansionary; right, increasing 
D) contractionary; right, decreasing

Question 14

If a government has large consecutive budget deficits and if the public debt is growing faster than GDP, its ratio of debt to GDP will increase.

Accepted Answer

A) True 
 B)False

Question 15

Use the following to answer questions :
Figure: Short- and Long-Run Equilibrium  
-(Figure: Short- and Long-Run Equilibrium) Look at the figure Short- and Long-Run Equilibrium. If the economy is at equilibrium at E1, it is in a(n):

Accepted Answer

A) recessionary gap. 
B) inflationary gap. 
C) high level of unemployment. 
D) liquidity trap. 
A) recessionary gap. 
B) inflationary gap. 
C) high level of unemployment. 
D) liquidity trap.

Question 16

Which of the following is NOT an argument AGAINST the use of expansionary fiscal policy?

Accepted Answer

A) Government spending may crowd out private spending. 
B) Government borrowing may crowd out private investment spending. 
C) Government borrowing may reduce the marginal propensity to consume. 
D) Government budget deficits may lead to reduced private spending. 
A) Government spending may crowd out private spending. 
B) Government borrowing may crowd out private investment spending. 
C) Government borrowing may reduce the marginal propensity to consume. 
D) Government budget deficits may lead to reduced private spending.

Question 17

The marginal propensity to consume is the percentage of a household's income that is used to pay income tax.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is NOT a government transfer payment?

Accepted Answer

A) the federal payroll 
B) Social Security 
C) Medicare 
D) Medicaid 
A) the federal payroll 
B) Social Security 
C) Medicare 
D) Medicaid

Question 19

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

Accepted Answer

A) decrease; more than $25 billion 
B) decrease; less than $25 billion 
C) increase; more than $25 billion 
D) increase; less than $25 billion 
A) decrease; more than $25 billion 
B) decrease; less than $25 billion 
C) increase; more than $25 billion 
D) increase; less than $25 billion

Question 20

If the economy is at equilibrium above potential output, there is a(n) _____ gap, and _____ fiscal policy is appropriate.:

Accepted Answer

A) recessionary; expansionary 
B) inflationary; contractionary 
C) recessionary; contractionary 
D) inflationary; expansionary 
A) recessionary; expansionary 
B) inflationary; contractionary 
C) recessionary; contractionary 
D) inflationary; expansionary

Government payments to households for which no good or service is provided in return are called:

The 2009 American Recovery and Reinvestment Act was an example of:

When the government has a deficit, it will most likely finance the deficit by:

Government's efforts to stabilize the business cycle through fiscal policy can destabilize the economy because of:

The main problem facing the government of Greece in 2009 was that it had a large budget surplus.

Assume that marginal propensity to consume is 0.8 and potential output is $800 billion. The tax multiplier is:

If the government were required to balance the budget during a recession, it would have to increase taxes and decrease government spending.

According to the text, the public debt of the U.S. federal government at the end of fiscal year 2013 equaled about:

When faced with a recessionary gap, the government can increase taxes and cut spending to close it.

Suppose the economy is operating at an output level of $5,400 billion. Assume furthermore that potential output is $5,000 billion and the marginal propensity to consume is 0.75. _____ would close this inflationary gap.

Implicit liabilities refers to promises made by the government, such as:

Use the following to answer questions: Figure: Short-Run Equilibrium -(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. It reflects a short-run inflationary gap. According to the labeling on the graph, the size of the inflationary gap is equal to:

An increase in government transfers is an example of _ fiscal policy because it shifts the aggregate demand curve to the _ aggregate output.

If a government has large consecutive budget deficits and if the public debt is growing faster than GDP, its ratio of debt to GDP will increase.

Use the following to answer questions : Figure: Short- and Long-Run Equilibrium -(Figure: Short- and Long-Run Equilibrium) Look at the figure Short- and Long-Run Equilibrium. If the economy is at equilibrium at E₁, it is in a(n):

Which of the following is NOT an argument AGAINST the use of expansionary fiscal policy?

The marginal propensity to consume is the percentage of a household's income that is used to pay income tax.

Which of the following is NOT a government transfer payment?

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

If the economy is at equilibrium above potential output, there is a(n) _ gap, and _ fiscal policy is appropriate.:

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

Government payments to households for which no good or service is provided in return are called:

The 2009 American Recovery and Reinvestment Act was an example of:

When the government has a deficit, it will most likely finance the deficit by:

Government's efforts to stabilize the business cycle through fiscal policy can destabilize the economy because of:

The main problem facing the government of Greece in 2009 was that it had a large budget surplus.

Assume that marginal propensity to consume is 0.8 and potential output is $800 billion. The tax multiplier is:

If the government were required to balance the budget during a recession, it would have to increase taxes and decrease government spending.

According to the text, the public debt of the U.S. federal government at the end of fiscal year 2013 equaled about:

When faced with a recessionary gap, the government can increase taxes and cut spending to close it.

Suppose the economy is operating at an output level of $5,400 billion. Assume furthermore that potential output is $5,000 billion and the marginal propensity to consume is 0.75. _____ would close this inflationary gap.

Implicit liabilities refers to promises made by the government, such as:

Use the following to answer questions: Figure: Short-Run Equilibrium -(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. It reflects a short-run inflationary gap. According to the labeling on the graph, the size of the inflationary gap is equal to:

An increase in government transfers is an example of _____ fiscal policy because it shifts the aggregate demand curve to the _____ aggregate output.

If a government has large consecutive budget deficits and if the public debt is growing faster than GDP, its ratio of debt to GDP will increase.

Use the following to answer questions : Figure: Short- and Long-Run Equilibrium -(Figure: Short- and Long-Run Equilibrium) Look at the figure Short- and Long-Run Equilibrium. If the economy is at equilibrium at E1, it is in a(n):

Which of the following is NOT an argument AGAINST the use of expansionary fiscal policy?

The marginal propensity to consume is the percentage of a household's income that is used to pay income tax.

Which of the following is NOT a government transfer payment?

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

If the economy is at equilibrium above potential output, there is a(n) _____ gap, and _____ fiscal policy is appropriate.:

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

An increase in government transfers is an example of _ fiscal policy because it shifts the aggregate demand curve to the _ aggregate output.

Use the following to answer questions : Figure: Short- and Long-Run Equilibrium -(Figure: Short- and Long-Run Equilibrium) Look at the figure Short- and Long-Run Equilibrium. If the economy is at equilibrium at E₁, it is in a(n):

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

If the economy is at equilibrium above potential output, there is a(n) _ gap, and _ fiscal policy is appropriate.: