Question 1

Consumer spending will likely fall if:

Accepted Answer

A) government transfers rise. 
B) the government raises tax rates. 
C) the government lowers tax rates. 
D) government transfers rise or tax rates are lowered. 
A) government transfers rise. 
B) the government raises tax rates. 
C) the government lowers tax rates. 
D) government transfers rise or tax rates are lowered.

Question 2

The basic equation of national income accounting is GDP = C + I + G + X - IM. When the government uses fiscal policy to make changes to taxes and transfers, this policy primarily affects:

Accepted Answer

A) IM. 
B) I. 
C) C. 
D) X. 
A) IM. 
B) I. 
C) C. 
D) X.

Question 3

Use the following to answer questions:
Figure: Inflationary and Recessionary Gaps  
-(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E2, the economy:

Accepted Answer

A) is in equilibrium. 
B) has an inflationary gap. 
C) has a recessionary gap. 
D) has high unemployment. 
A) is in equilibrium. 
B) has an inflationary gap. 
C) has a recessionary gap. 
D) has high unemployment.

Question 4

Taxes increase as GDP rises. This is an example of an automatic stabilizer.

Accepted Answer

A) True 
 B)False

Question 5

A government encounters a recessionary gap and uses expansionary fiscal policy to correct the problem. It may:

Accepted Answer

A) find the policy ineffective, especially if the level of public debt is already very high, since additional government borrowing may put pressure on future budgets. 
B) find the policy ineffective if it has to borrow to increase government spending. 
C) cause its budget balance to move toward a surplus. 
D) decrease the level of public debt in the short run. 
A) find the policy ineffective, especially if the level of public debt is already very high, since additional government borrowing may put pressure on future budgets. 
B) find the policy ineffective if it has to borrow to increase government spending. 
C) cause its budget balance to move toward a surplus. 
D) decrease the level of public debt in the short run.

Question 6

Suppose the economy is in an inflationary gap. To move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to:

Accepted Answer

A) lower tax rates. 
B) decrease government purchases. 
C) increase the investment tax credit. 
D) lower the real interest rate. 
A) lower tax rates. 
B) decrease government purchases. 
C) increase the investment tax credit. 
D) lower the real interest rate.

Question 7

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

Accepted Answer

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

Question 8

Use the following to answer questions:
Figure: Fiscal Policy Options  
-(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is ADʺ, the most appropriate discretionary fiscal policy is to _____ government transfer payments and _____ income tax rates.

Accepted Answer

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

Question 9

Discretionary fiscal policy entails:

Accepted Answer

A) changing the money supply to influence interest rates and investment spending. 
B) using government spending or tax policy to affect aggregate demand. 
C) lifting trade barriers on imports. 
D) setting policy to raise the natural rate of unemployment. 
A) changing the money supply to influence interest rates and investment spending. 
B) using government spending or tax policy to affect aggregate demand. 
C) lifting trade barriers on imports. 
D) setting policy to raise the natural rate of unemployment.

Question 10

In terms of dollar costs, in the United States the three primary transfer payments are:

Accepted Answer

A) Social Security, Medicare, and Medicaid. 
B) Social Security, education, and welfare. 
C) welfare, interest payments on the debt, and military spending. 
D) Social Security, interest payments on the debt, and education. 
A) Social Security, Medicare, and Medicaid. 
B) Social Security, education, and welfare. 
C) welfare, interest payments on the debt, and military spending. 
D) Social Security, interest payments on the debt, and education.

Question 11

The budget deficit usually decreases when the unemployment rate increases.

Accepted Answer

A) True 
 B)False

Question 12

If the average retirement age decreases:

Accepted Answer

A) implicit liabilities will increase. 
B) implicit liabilities will decrease. 
C) implicit liabilities will be unaffected. 
D) the public debt will immediately increase. 
A) implicit liabilities will increase. 
B) implicit liabilities will decrease. 
C) implicit liabilities will be unaffected. 
D) the public debt will immediately increase.

Question 13

If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should _____ government purchases of goods and services by _____ .

Accepted Answer

A) decrease; $100 billion 
B) decrease; $60 billion 
C) decrease; $40 billion 
D) increase; $100 billion 
A) decrease; $100 billion 
B) decrease; $60 billion 
C) decrease; $40 billion 
D) increase; $100 billion

Question 14

Use the following to answer questions:
Figure: Short-Run Equilibrium  
-(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y1 and P1, the government should use _____ fiscal policy to shift the aggregate demand curve to the _____.

Accepted Answer

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

Question 15

If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should increase taxes by more than $40 billion.

Accepted Answer

A) True 
 B)False

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, the appropriate policy to return the economy to potential output would be a(n):

Accepted Answer

A) increase in government spending. 
B) decrease in government spending. 
C) increase in transfer payments. 
D) decrease in taxes. 
A) increase in government spending. 
B) decrease in government spending. 
C) increase in transfer payments. 
D) decrease in taxes.

Question 17

Suppose that U.S. debt is $7 trillion at the beginning of the fiscal year. During the fiscal year, its purchases of goods and services and its transfers are $2 trillion, and tax revenues are $1.5 trillion. At the end of the fiscal year, the debt is:

Accepted Answer

A) $10.5 trillion. 
B) $6.5 trillion. 
C) $9 trillion. 
D) $7.5 trillion. 
A) $10.5 trillion. 
B) $6.5 trillion. 
C) $9 trillion. 
D) $7.5 trillion.

Question 18

Real GDP equals $400 billion, the government collects 25% of any increase in real GDP in the form of taxes, and the marginal propensity to consume is 0.8. If potential output equals $250 billion, the government could close the _____ gap by decreasing government spending by _____.

Accepted Answer

A) recessionary; $30 billion 
B) recessionary; $150 billion 
C) inflationary; $30 billion 
D) inflationary; $60 billion 
A) recessionary; $30 billion 
B) recessionary; $150 billion 
C) inflationary; $30 billion 
D) inflationary; $60 billion

Question 19

Expansionary fiscal policy includes:

Accepted Answer

A) increasing taxes. 
B) increasing the money supply. 
C) decreasing government expenditures. 
D) increasing government expenditures. 
A) increasing taxes. 
B) increasing the money supply. 
C) decreasing government expenditures. 
D) increasing government expenditures.

Question 20

The marginal propensity to consume is:

Accepted Answer

A) equal to one. 
B) between zero and one. 
C) greater than one. 
D) often negative. 
A) equal to one. 
B) between zero and one. 
C) greater than one. 
D) often negative.

Consumer spending will likely fall if:

The basic equation of national income accounting is GDP = C + I + G + X - IM. When the government uses fiscal policy to make changes to taxes and transfers, this policy primarily affects:

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E₂, the economy:

Taxes increase as GDP rises. This is an example of an automatic stabilizer.

A government encounters a recessionary gap and uses expansionary fiscal policy to correct the problem. It may:

Suppose the economy is in an inflationary gap. To move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to:

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

Use the following to answer questions: Figure: Fiscal Policy Options -(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is ADʺ, the most appropriate discretionary fiscal policy is to _ government transfer payments and _ income tax rates.

Discretionary fiscal policy entails:

In terms of dollar costs, in the United States the three primary transfer payments are:

The budget deficit usually decreases when the unemployment rate increases.

If the average retirement age decreases:

If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should _ government purchases of goods and services by _ .

Use the following to answer questions: Figure: Short-Run Equilibrium -(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y₁ and P₁, the government should use _ fiscal policy to shift the aggregate demand curve to the _.

If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should increase taxes by more than $40 billion.

Suppose that U.S. debt is $7 trillion at the beginning of the fiscal year. During the fiscal year, its purchases of goods and services and its transfers are $2 trillion, and tax revenues are $1.5 trillion. At the end of the fiscal year, the debt is:

Real GDP equals $400 billion, the government collects 25% of any increase in real GDP in the form of taxes, and the marginal propensity to consume is 0.8. If potential output equals $250 billion, the government could close the _ gap by decreasing government spending by _.

Expansionary fiscal policy includes:

The marginal propensity to consume is:

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

Consumer spending will likely fall if:

The basic equation of national income accounting is GDP = C + I + G + X - IM. When the government uses fiscal policy to make changes to taxes and transfers, this policy primarily affects:

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E2, the economy:

Taxes increase as GDP rises. This is an example of an automatic stabilizer.

A government encounters a recessionary gap and uses expansionary fiscal policy to correct the problem. It may:

Suppose the economy is in an inflationary gap. To move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to:

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

Discretionary fiscal policy entails:

In terms of dollar costs, in the United States the three primary transfer payments are:

The budget deficit usually decreases when the unemployment rate increases.

If the average retirement age decreases:

If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should _____ government purchases of goods and services by _____ .

Use the following to answer questions: Figure: Short-Run Equilibrium -(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y1 and P1, the government should use _____ fiscal policy to shift the aggregate demand curve to the _____.

If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should increase taxes by more than $40 billion.

Suppose that U.S. debt is $7 trillion at the beginning of the fiscal year. During the fiscal year, its purchases of goods and services and its transfers are $2 trillion, and tax revenues are $1.5 trillion. At the end of the fiscal year, the debt is:

Real GDP equals $400 billion, the government collects 25% of any increase in real GDP in the form of taxes, and the marginal propensity to consume is 0.8. If potential output equals $250 billion, the government could close the _____ gap by decreasing government spending by _____.

Expansionary fiscal policy includes:

The marginal propensity to consume is:

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

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E₂, the economy:

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

If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should _ government purchases of goods and services by _ .

Use the following to answer questions: Figure: Short-Run Equilibrium -(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y₁ and P₁, the government should use _ fiscal policy to shift the aggregate demand curve to the _.

Real GDP equals $400 billion, the government collects 25% of any increase in real GDP in the form of taxes, and the marginal propensity to consume is 0.8. If potential output equals $250 billion, the government could close the _ gap by decreasing government spending by _.