Question 1

When the government decreases spending, the:

Accepted Answer

A) AD curve will shift to the left. 
B) SRAS curve will shift to the left. 
C) budget balance will move toward a deficit. 
D) government debt will increase. 
A) AD curve will shift to the left. 
B) SRAS curve will shift to the left. 
C) budget balance will move toward a deficit. 
D) government debt will increase.

Question 2

In Japan during the 1990s _____ policies were put into effect to _____.

Accepted Answer

A) contractionary tax; counter inflation 
B) contractionary spending; counter inflation 
C) expansionary tax; counter inflation 
D) expansionary spending; prop up aggregate demand 
A) contractionary tax; counter inflation 
B) contractionary spending; counter inflation 
C) expansionary tax; counter inflation 
D) expansionary spending; prop up aggregate demand

Question 3

A change in taxes 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 4

Some argue that budget deficits will lead to reduced private spending because:

Accepted Answer

A) the government will purchase so many goods and services that it will lead to a shortage of consumer goods and services. 
B) budget deficits will reduce interest rates on savings and decrease consumers' wealth. 
C) consumers, anticipating higher taxes, will reduce consumption to save money to pay the future taxes. 
D) the government will have to increase transfer payments to finance the deficit. 
A) the government will purchase so many goods and services that it will lead to a shortage of consumer goods and services. 
B) budget deficits will reduce interest rates on savings and decrease consumers' wealth. 
C) consumers, anticipating higher taxes, will reduce consumption to save money to pay the future taxes. 
D) the government will have to increase transfer payments to finance the deficit.

Question 5

If the marginal propensity to consume is 0.75, the multiplier for taxes and transfer payments is:

Accepted Answer

A) less than 4. 
B) equal to 4. 
C) greater than 4. 
D) equal to 0.75. 
A) less than 4. 
B) equal to 4. 
C) greater than 4. 
D) equal to 0.75.

Question 6

After passage of the American Recovery and Reinvestment Act in 2009 government borrowing _____, and interest rates_____.

Accepted Answer

A) increased; increased to record levels 
B) increased; remained very low 
C) decreased; increased 
D) decreased; decreased 
A) increased; increased to record levels 
B) increased; remained very low 
C) decreased; increased 
D) decreased; decreased

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) 0.8. 
B) 1.25. 
C) 5. 
D) 4. 
A) 0.8. 
B) 1.25. 
C) 5. 
D) 4.

Question 9

All of the following are examples of fiscal policy EXCEPT:

Accepted Answer

A) increasing Medicaid reimbursements. 
B) reducing the money supply to raise the interest rate. 
C) increasing personal income tax deductions for home ownership. 
D) reducing federal subsidies to state universities. 
A) increasing Medicaid reimbursements. 
B) reducing the money supply to raise the interest rate. 
C) increasing personal income tax deductions for home ownership. 
D) reducing federal subsidies to state universities.

Question 10

Some economists argue that when a government tries too hard to stabilize the economy through fiscal or monetary policy, it can end up making the economy less stable.

Accepted Answer

A) True 
 B)False

Question 11

Real GDP equals $200 billion, the government collects 20% of any increase in real GDP in the form of taxes, and the marginal propensity to consume is 0.8. If potential output equals $255.6 billion, the government could close the _____ gap by increasing government spending by _____.

Accepted Answer

A) recessionary; $20 billion 
B) recessionary; $55.6 billion 
C) inflationary; $20 billion 
D) inflationary; $55.6 billion 
A) recessionary; $20 billion 
B) recessionary; $55.6 billion 
C) inflationary; $20 billion 
D) inflationary; $55.6 billion

Question 12

An expansionary fiscal policy:

Accepted Answer

A) in the presence of a budget deficit would decrease the government debt. 
B) would shift AD to the right and increase the government budget deficit. 
C) would shift AD to the left and decrease the government budget deficit. 
D) would not be effective in the presence of a budget surplus. 
A) in the presence of a budget deficit would decrease the government debt. 
B) would shift AD to the right and increase the government budget deficit. 
C) would shift AD to the left and decrease the government budget deficit. 
D) would not be effective in the presence of a budget surplus.

Question 13

If the marginal propensity to consume is 0.75 and taxes increase by $30 billion, real GDP will:

Accepted Answer

A) increase by exactly $30 billion. 
B) decrease by exactly $30 billion. 
C) decrease by less than $120 billion. 
D) decrease by more than $120 billion. 
A) increase by exactly $30 billion. 
B) decrease by exactly $30 billion. 
C) decrease by less than $120 billion. 
D) decrease by more than $120 billion.

Question 14

The Works Progress Administration, a government program that put millions of unemployed Americans to work building bridges, roads, and parks in the 1930s, was an automatic stabilizer.

Accepted Answer

A) True 
 B)False

Question 15

The cyclically adjusted budget balance refers to:

Accepted Answer

A) the size of the budget in the current year. 
B) the average size of the budget over the long run. 
C) the swings in the budget as the business cycle changes. 
D) the budget balance if actual output were equal to potential output. 
A) the size of the budget in the current year. 
B) the average size of the budget over the long run. 
C) the swings in the budget as the business cycle changes. 
D) the budget balance if actual output were equal to potential output.

Question 16

Use the following to answer questions:
Figure: Short- and Long-Run Equilibrium II  
-(Figure: Short- and Long-Run Equilibrium II) Look at the figure Short- and Long-Run Equilibrium II. 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 17

The size of the multiplier increases as the size of the marginal propensity to consume increases.

Accepted Answer

A) True 
 B)False

Question 18

Use the following to answer questions :
Figure: Fiscal Policy Choices  
-(Figure: Fiscal Policy Choices) Look at the figure Fiscal Policy Choices. If the government uses discretionary fiscal policy for the economy in panel (a) when real GDP is Y1, government spending is likely to be _____ and taxes are likely to be _____.

Accepted Answer

A) reduced; cut 
B) increased; increased 
C) reduced; increased 
D) increased; cut 
A) reduced; cut 
B) increased; increased 
C) reduced; increased 
D) increased; cut

Question 19

Which of the following is NOT a tool of fiscal policy?

Accepted Answer

A) changing tax rates 
B) government transfers 
C) government purchases of goods and services 
D) changes in the money supply 
A) changing tax rates 
B) government transfers 
C) government purchases of goods and services 
D) changes in the money supply

Question 20

The government deficit:

Accepted Answer

A) is essentially the same as the government debt. 
B) is much higher than the government debt. 
C) measures the difference between the amount government spends and the amount it collects in tax revenues in a given period. 
D) is the total amount of money a government owes at a particular time. 
A) is essentially the same as the government debt. 
B) is much higher than the government debt. 
C) measures the difference between the amount government spends and the amount it collects in tax revenues in a given period. 
D) is the total amount of money a government owes at a particular time.

When the government decreases spending, the:

In Japan during the 1990s _ policies were put into effect to _.

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

Some argue that budget deficits will lead to reduced private spending because:

If the marginal propensity to consume is 0.75, the multiplier for taxes and transfer payments is:

After passage of the American Recovery and Reinvestment Act in 2009 government borrowing _, and interest rates_.

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

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

All of the following are examples of fiscal policy EXCEPT:

Some economists argue that when a government tries too hard to stabilize the economy through fiscal or monetary policy, it can end up making the economy less stable.

Real GDP equals $200 billion, the government collects 20% of any increase in real GDP in the form of taxes, and the marginal propensity to consume is 0.8. If potential output equals $255.6 billion, the government could close the _ gap by increasing government spending by _.

An expansionary fiscal policy:

If the marginal propensity to consume is 0.75 and taxes increase by $30 billion, real GDP will:

The Works Progress Administration, a government program that put millions of unemployed Americans to work building bridges, roads, and parks in the 1930s, was an automatic stabilizer.

The cyclically adjusted budget balance refers to:

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

The size of the multiplier increases as the size of the marginal propensity to consume increases.

Which of the following is NOT a tool of fiscal policy?

The government deficit:

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

When the government decreases spending, the:

In Japan during the 1990s _____ policies were put into effect to _____.

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

Some argue that budget deficits will lead to reduced private spending because:

If the marginal propensity to consume is 0.75, the multiplier for taxes and transfer payments is:

After passage of the American Recovery and Reinvestment Act in 2009 government borrowing _____, and interest rates_____.

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

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

All of the following are examples of fiscal policy EXCEPT:

Some economists argue that when a government tries too hard to stabilize the economy through fiscal or monetary policy, it can end up making the economy less stable.

Real GDP equals $200 billion, the government collects 20% of any increase in real GDP in the form of taxes, and the marginal propensity to consume is 0.8. If potential output equals $255.6 billion, the government could close the _____ gap by increasing government spending by _____.

An expansionary fiscal policy:

If the marginal propensity to consume is 0.75 and taxes increase by $30 billion, real GDP will:

The Works Progress Administration, a government program that put millions of unemployed Americans to work building bridges, roads, and parks in the 1930s, was an automatic stabilizer.

The cyclically adjusted budget balance refers to:

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

The size of the multiplier increases as the size of the marginal propensity to consume increases.

Which of the following is NOT a tool of fiscal policy?

The government deficit:

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

In Japan during the 1990s _ policies were put into effect to _.

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

After passage of the American Recovery and Reinvestment Act in 2009 government borrowing _, and interest rates_.

Real GDP equals $200 billion, the government collects 20% of any increase in real GDP in the form of taxes, and the marginal propensity to consume is 0.8. If potential output equals $255.6 billion, the government could close the _ gap by increasing government spending by _.

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