Question 1

-Refer to the above data. A 10 percent proportional tax on income would:

Accepted Answer

A)  affect neither the size of the multiplier nor the stability of the economy. 
B)  increase the size of the multiplier and make the economy more stable. 
C)  increase the size of the multiplier and make the economy less stable. 
D)  reduce the size of the multiplier and make the economy more stable. 
A)  affect neither the size of the multiplier nor the stability of the economy. 
B)  increase the size of the multiplier and make the economy more stable. 
C)  increase the size of the multiplier and make the economy less stable. 
D)  reduce the size of the multiplier and make the economy more stable. D

Question 2

An expansionary fiscal policy in Canada which drives up Canadian interest rates is most likely to:

Accepted Answer

A)  decrease the foreign demand for dollars and appreciate the international value of the dollar. 
B)  decrease the foreign demand for dollars and depreciate the international value of the dollar. 
C)  increase the foreign demand for dollars and appreciate the international value of the dollar. 
D)  increase the foreign demand for dollars and depreciate the international value of the dollar. 
A)  decrease the foreign demand for dollars and appreciate the international value of the dollar. 
B)  decrease the foreign demand for dollars and depreciate the international value of the dollar. 
C)  increase the foreign demand for dollars and appreciate the international value of the dollar. 
D)  increase the foreign demand for dollars and depreciate the international value of the dollar. C

Question 3

The current popular view about the fiscal policy is that:

Accepted Answer

A)  it can "fine tune" the economy, but it cannot "push the economy" in a particular direction. 
B)  it can both "fine tune" the economy and, "push the economy" in a particular direction. 
C)  it can "push the economy" in a particular direction, but it cannot "fine tune" the economy. 
D)  it can neither "fine tune" nor "push the economy" in a particular direction. 
A)  it can "fine tune" the economy, but it cannot "push the economy" in a particular direction. 
B)  it can both "fine tune" the economy and, "push the economy" in a particular direction. 
C)  it can "push the economy" in a particular direction, but it cannot "fine tune" the economy. 
D)  it can neither "fine tune" nor "push the economy" in a particular direction. C

Question 4

-Refer to the above diagram wherein T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit:

Accepted Answer

A)  at all levels of GDP. 
B)  at any level of GDP above $400. 
C)  at any level of GDP below $400. 
D)  only when GDP is stable. 
A)  at all levels of GDP. 
B)  at any level of GDP above $400. 
C)  at any level of GDP below $400. 
D)  only when GDP is stable.

Question 5

Which is regarded as an automatic stabilizer in the economy?

Accepted Answer

A)  interest rates 
B)  exchange rates 
C)  the inflation rate 
D)  the progressive income tax 
A)  interest rates 
B)  exchange rates 
C)  the inflation rate 
D)  the progressive income tax

Question 6

The "crowding-out effect" suggests that:

Accepted Answer

A)  the economy's productive capacity will reduce. 
B)  imports are replacing domestic production. 
C)  private investment is increasing at the expense of government spending. 
D)  investment is increasing at the expense of consumption. 
A)  the economy's productive capacity will reduce. 
B)  imports are replacing domestic production. 
C)  private investment is increasing at the expense of government spending. 
D)  investment is increasing at the expense of consumption.

Question 7

Crowding-out is the notion that:

Accepted Answer

A)  since tax revenues vary directly with GDP, a rise in the level of GDP will increase the budget surplus and limit expansion. 
B)  deficit financing will increase the demand for money, increase the interest rate, and reduce the level of investment spending in the economy. 
C)  the full-employment budget is the best indicator of whether a budget deficit crowds out investment. 
D)  the actual budget is the best indicator of whether a budget deficit crowds out saving. 
A)  since tax revenues vary directly with GDP, a rise in the level of GDP will increase the budget surplus and limit expansion. 
B)  deficit financing will increase the demand for money, increase the interest rate, and reduce the level of investment spending in the economy. 
C)  the full-employment budget is the best indicator of whether a budget deficit crowds out investment. 
D)  the actual budget is the best indicator of whether a budget deficit crowds out saving.

Question 8

In 2011, the level of taxation (the average tax rate) required to pay interest on the public debt was about:

Accepted Answer

A)  2 percent of GDP. 
B)  12 percent of GDP. 
C)  26 percent of GDP. 
D)  57 percent of GDP. 
A)  2 percent of GDP. 
B)  12 percent of GDP. 
C)  26 percent of GDP. 
D)  57 percent of GDP.

Question 9

Refer to the data below. If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is: The following budget information is for a hypothetical economy. All data are in billions of dollars.

Accepted Answer

A)  7.5 percent. 
B)  1.39 percent. 
C)  2.5 percent. 
D)  3.9 percent. 
A)  7.5 percent. 
B)  1.39 percent. 
C)  2.5 percent. 
D)  3.9 percent.

Question 10

If taxation becomes more progressive, the built-in stability in the economy will increase.

Accepted Answer

A) True 
 B)False

Question 11

The more progressive the tax system, the:

Accepted Answer

A)  less is the built-in stability for the economy. 
B)  greater is the built-in stability for the economy. 
C)  less is the effect of crowding-out on the economy. 
D)  greater is the severity of business fluctuations on the economy. 
A)  less is the built-in stability for the economy. 
B)  greater is the built-in stability for the economy. 
C)  less is the effect of crowding-out on the economy. 
D)  greater is the severity of business fluctuations on the economy.

Question 12

Which combination of fiscal policy actions would be most contractionary for an economy experiencing severe demand-pull inflation?

Accepted Answer

A)  increase taxes and government spending 
B)  decrease taxes and government spending 
C)  increase taxes and decrease government spending 
D)  decrease taxes and increase government spending 
A)  increase taxes and government spending 
B)  decrease taxes and government spending 
C)  increase taxes and decrease government spending 
D)  decrease taxes and increase government spending

Question 13

If the MPC in the economy is .75, government could shift the aggregate demand curve rightward by $30 billion by cutting taxes by $10 billion.

Accepted Answer

A) True 
 B)False

Question 14

-Lines A and B in the above graph represent:

Accepted Answer

A)  the crowding-out effect. 
B)  the interest-rate effect. 
C)  investment demand curves. 
D)  money demand curves. 
A)  the crowding-out effect. 
B)  the interest-rate effect. 
C)  investment demand curves. 
D)  money demand curves.

Question 15

Which combination of fiscal policy actions would most likely be offsetting?

Accepted Answer

A)  increase in taxes and government spending 
B)  decrease in taxes and increase in government spending 
C)  increase in taxes, but make no change in government spending 
D)  decrease in taxes, but make no change in government spending 
A)  increase in taxes and government spending 
B)  decrease in taxes and increase in government spending 
C)  increase in taxes, but make no change in government spending 
D)  decrease in taxes, but make no change in government spending

Question 16

-Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP and actual GDP are each $400 billion, this economy will realize a:

Accepted Answer

A)  full-employment or structural deficit of $20 billion. 
B)  cyclical deficit of $20 billion. 
C)  cyclical surplus of $20 billion. 
D)  full-employment deficit of zero. 
A)  full-employment or structural deficit of $20 billion. 
B)  cyclical deficit of $20 billion. 
C)  cyclical surplus of $20 billion. 
D)  full-employment deficit of zero.

Question 17

-Refer to the above diagram wherein T is tax revenues and G is government expenditures. All figures are in billions. The equilibrium level of GDP in this economy:

Accepted Answer

A)  is $400. 
B)  is greater than $400. 
C)  is less than $400. 
D)  cannot be determined from the information given. 
A)  is $400. 
B)  is greater than $400. 
C)  is less than $400. 
D)  cannot be determined from the information given.

Question 18

The greater the progressiveness of the tax system, the less is the built-in stability of the economy.

Accepted Answer

A) True 
 B)False

Question 19

A cyclically adjusted budget deficit is also called a:

Accepted Answer

A)  full- employment deficit. 
B)  cyclical deficit. 
C)  recession-caused deficit. 
D)  built-in stabilizer. 
A)  full- employment deficit. 
B)  cyclical deficit. 
C)  recession-caused deficit. 
D)  built-in stabilizer.

Question 20

A major advantage of the built-in or automatic stabilizers is that they:

Accepted Answer

A)  simultaneously stabilize the economy and reduce the absolute size of the public debt. 
B)  automatically produce surpluses during recessions and deficits during inflations. 
C)  require no discretionary budgetary policy. 
D)  guarantee that the federal budget will be balanced over the course of the business cycle. 
A)  simultaneously stabilize the economy and reduce the absolute size of the public debt. 
B)  automatically produce surpluses during recessions and deficits during inflations. 
C)  require no discretionary budgetary policy. 
D)  guarantee that the federal budget will be balanced over the course of the business cycle.

-Refer to the above data. A 10 percent proportional tax on income would:

An expansionary fiscal policy in Canada which drives up Canadian interest rates is most likely to:

The current popular view about the fiscal policy is that:

-Refer to the above diagram wherein T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit:

Which is regarded as an automatic stabilizer in the economy?

The "crowding-out effect" suggests that:

Crowding-out is the notion that:

In 2011, the level of taxation (the average tax rate) required to pay interest on the public debt was about:

Refer to the data below. If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is: The following budget information is for a hypothetical economy. All data are in billions of dollars.

If taxation becomes more progressive, the built-in stability in the economy will increase.

The more progressive the tax system, the:

Which combination of fiscal policy actions would be most contractionary for an economy experiencing severe demand-pull inflation?

If the MPC in the economy is .75, government could shift the aggregate demand curve rightward by $30 billion by cutting taxes by $10 billion.

-Lines A and B in the above graph represent:

Which combination of fiscal policy actions would most likely be offsetting?

-Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP and actual GDP are each $400 billion, this economy will realize a:

-Refer to the above diagram wherein T is tax revenues and G is government expenditures. All figures are in billions. The equilibrium level of GDP in this economy:

The greater the progressiveness of the tax system, the less is the built-in stability of the economy.

A cyclically adjusted budget deficit is also called a:

A major advantage of the built-in or automatic stabilizers is that they:

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Introduction to Macroeconomics

Measuring the Economys Output

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Money, Banking, and Money Creation

Interest Rates and Monetary Policy

Financial Economics

Long-Run Macroeconomic Adjustments

International Trade

Exchange Rates and the Balance of Payments

Filters

Exam 11: Fiscal Policy, Deficits, Surpluses, and Debt

-Refer to the above data. A 10 percent proportional tax on income would:

An expansionary fiscal policy in Canada which drives up Canadian interest rates is most likely to:

The current popular view about the fiscal policy is that:

-Refer to the above diagram wherein T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit:

Which is regarded as an automatic stabilizer in the economy?

The "crowding-out effect" suggests that:

Crowding-out is the notion that:

In 2011, the level of taxation (the average tax rate) required to pay interest on the public debt was about:

Refer to the data below. If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is: The following budget information is for a hypothetical economy. All data are in billions of dollars.

If taxation becomes more progressive, the built-in stability in the economy will increase.

The more progressive the tax system, the:

Which combination of fiscal policy actions would be most contractionary for an economy experiencing severe demand-pull inflation?

If the MPC in the economy is .75, government could shift the aggregate demand curve rightward by $30 billion by cutting taxes by $10 billion.

-Lines A and B in the above graph represent:

Which combination of fiscal policy actions would most likely be offsetting?

-Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP and actual GDP are each $400 billion, this economy will realize a:

-Refer to the above diagram wherein T is tax revenues and G is government expenditures. All figures are in billions. The equilibrium level of GDP in this economy:

The greater the progressiveness of the tax system, the less is the built-in stability of the economy.

A cyclically adjusted budget deficit is also called a:

A major advantage of the built-in or automatic stabilizers is that they:

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Introduction to Macroeconomics

Measuring the Economys Output

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Money, Banking, and Money Creation

Interest Rates and Monetary Policy

Financial Economics

Long-Run Macroeconomic Adjustments

International Trade

Exchange Rates and the Balance of Payments

Filters