Question 1

In the U.S. economy, the effect on federal tax revenues and spending of an increase in the unemployment rate is to:

Accepted Answer

A)  cut tax revenues and raise expenditures.
B)  cut expenditures and raise tax revenues.
C)  raise both tax revenues and expenditures.
D)  cut both expenditures and tax revenues.

Question 2

The marginal propensity to consume is:

Accepted Answer

A)  the change in income divided by the change in consumption.
B)  consumption spending divided by income.
C)  income divided by consumption spending.
D)  the change in consumption divided by the change in income.
E)  the change in consumption divided by income.

Question 3

Structures in the economy increase aggregate demand when the economy is in recession and decrease aggregate demand when the economy is inflationary are known as:

Accepted Answer

A)  tax transfers.
B)  inventory investment.
C)  accelerators.
D)  depreciation.
E)  automatic stabilizers.

Question 4

It is inflationary for government to increase spending if:

Accepted Answer

A)  it also cuts taxes.
B)  the aggregate supply curve is flat.
C)  the economy is at full employment.
D)  equilibrium real GDP is well below full employment.

Question 5

When an economy dips into recession, automatic stabilizers will:

Accepted Answer

A)  enlarge the budget deficit (or reduce the surplus) .
B)  reduce the budget deficit (or increase the surplus) .
C)  ensure that the budget remains in balance.
D)  expand the supply of money and, thereby, stimulate aggregate demand.

Question 6

Equal increases in government spending and taxes will:

Accepted Answer

A)  cancel each other out so that the equilibrium level of real GDP will remain unchanged.
B)  lead to an equal decrease in the equilibrium level of real GDP.
C)  lead to an equal increase in the equilibrium level of real GDP.
D)  lead to an increase in the equilibrium level of real GDP real GDP that is larger than the initial change in government spending and taxes.
E)  lead to an increase in the equilibrium level of output that is smaller than the initial change in government spending and taxes.

Question 7

Exhibit 11-6 Aggregate demand and supply model 2, the government should: A) raise taxes to move to AD1. B) cut taxes to move to AD3. C) cut spending to move to AD3. D) not change its policy." class="answers-bank-image d-inline" rel="preload" > In Exhibit 11-6, if the aggregate demand curve is at AD2, the government should:

Accepted Answer

A)  raise taxes to move to AD1.
B)  cut taxes to move to AD3.
C)  cut spending to move to AD3.
D)  not change its policy.

Question 8

Which of the following statements is true ?

Accepted Answer

A)  Fiscal policy is the manipulation of the nation's money supply to influence the nation's output, employment and price level.
B)  Discretionary fiscal policy is the deliberate use of changes in government spending and taxes to stabilize the economy.
C)  The tax multiplier is the change in aggregate demand resulting from an initial change in government spending.
D)  A budget deficit exists when government tax revenues exceed government spending.

Question 9

The formula to compute the spending multiplier is:

Accepted Answer

A)  1 \ (MPC + MPS) .
B)  1 \ (1 - MP
C)  .
C)  1 \ (1 - MPS) .
D)  1 \ (C + I) .

Question 10

The spending multiplier is:

Accepted Answer

A)  1 \ (1 - MP
C)  .
B)  1 - MPC.
C)  MPC.
D)  MPC \ (1 - MP
C)  .

Question 11

The Laffer curve is representative of which of the following schools?

Accepted Answer

A)  Supply-side school.
B)  Rational expectations school.
C)  Keynesians.
D)  Neo-Keynesians.
E)  Classical school.

Question 12

To combat a recession, Keynesian fiscal policy recommends:

Accepted Answer

A)  an increase in taxes.
B)  an increase in government spending.
C)  an increase in taxes and a decrease in government purchases to balance the budget.
D)  a reduction in both taxes and government spending.

Question 13

If no fiscal policy changes are made, suppose the current aggregate demand curve will increase horizontally (shift rightward) by $1,000 billion and cause inflation. If the marginal propensity to consume is 0.90, federal policymakers could follow Keynesian economics and restrain inflation by decreasing:

Accepted Answer

A)  government spending by $100 billion.
B)  taxes by $100 billion.
C)  taxes by $1,000 billion.
D)  government spending by $1,000 billion.

Question 14

If the marginal propensity to consume (MPC)is 0.80, the value of the spending multiplier is 2.

Accepted Answer

A) True 
 B)False

Question 15

Fiscal policy is concerned with:

Accepted Answer

A)  encouraging businesses to invest.
B)  regulation of net exports.
C)  changes in government spending and\or tax revenues.
D)  expanding and contracting the money supply.

Question 16

Exhibit 11-6 Aggregate demand and supply model 3, the government should: A) raise taxes to move to AD1. B) cut taxes to move to AD2. C) cut taxes to move to AD1. D) cut spending to move to AD2. E) not change its behavior." class="answers-bank-image d-inline" rel="preload" > In Exhibit 11-6, if the aggregate demand curve is at AD3, the government should:

Accepted Answer

A)  raise taxes to move to AD1.
B)  cut taxes to move to AD2.
C)  cut taxes to move to AD1.
D)  cut spending to move to AD2.
E)  not change its behavior.

Question 17

If the marginal propensity to save (MPS) is 0.50, the value of the spending multiplier is:

Accepted Answer

A)  1.
B)  2.
C)  4.
D)  9.

Question 18

Programs that automatically increase government spending (relative to revenue) during a recession and automatically decrease government spending (relative to revenue) during an economic boom are called:

Accepted Answer

A)  discretionary fiscal policy.
B)  supply-side programs.
C)  automatic stabilizers.
D)  tax credits.

Question 19

When the economy enters a recession, automatic stabilizers create:

Accepted Answer

A)  higher taxes.
B)  more discretionary spending.
C)  budget deficits.
D)  budget surpluses.

Question 20

The marginal propensity to save (MPS) is computed as the change in:

Accepted Answer

A)  savings divided by the change in saving.
B)  savings divided by the change in income.
C)  saving divided by the change in GDP.
D)  None of these.

Exam 11: Fiscal Policy

Exhibit 11-6 Aggregate demand and supply model In Exhibit 11-6, if the aggregate demand curve is at AD₂, the government should:

Correct Answer
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In the U.S. economy, the effect on federal tax revenues and spending of an increase in the unemployment rate is to:

Correct Answer
verified

Programs that automatically increase government spending (relative to revenue) during a recession and automatically decrease government spending (relative to revenue) during an economic boom are called:

Correct Answer
verified

If the marginal propensity to consume (MPC)is 0.80, the value of the spending multiplier is 2.

Correct Answer
verified

To combat a recession, Keynesian fiscal policy recommends:

Correct Answer
verified

The marginal propensity to save (MPS) is computed as the change in:

Correct Answer
verified

When the economy enters a recession, automatic stabilizers create:

Correct Answer
verified

The marginal propensity to consume is:

Correct Answer
verified

The Laffer curve is representative of which of the following schools?

Correct Answer
verified

If the marginal propensity to save (MPS) is 0.50, the value of the spending multiplier is:

Correct Answer
verified

It is inflationary for government to increase spending if:

Correct Answer
verified

Fiscal policy is concerned with:

Correct Answer
verified

Structures in the economy increase aggregate demand when the economy is in recession and decrease aggregate demand when the economy is inflationary are known as:

Correct Answer
verified

Correct Answer
verified

Exhibit 11-6 Aggregate demand and supply model In Exhibit 11-6, if the aggregate demand curve is at AD₃, the government should:

Correct Answer
verified

The formula to compute the spending multiplier is:

Correct Answer
verified

The spending multiplier is:

Correct Answer
verified

When an economy dips into recession, automatic stabilizers will:

Correct Answer
verified

Which of the following statements is true ?

Correct Answer
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Equal increases in government spending and taxes will:

Correct Answer
verified

Exam 11: Fiscal Policy

Exhibit 11-6 Aggregate demand and supply model In Exhibit 11-6, if the aggregate demand curve is at AD2, the government should:

Correct AnswerverifiedShow Answer

In the U.S. economy, the effect on federal tax revenues and spending of an increase in the unemployment rate is to:

Correct AnswerverifiedShow Answer

Programs that automatically increase government spending (relative to revenue) during a recession and automatically decrease government spending (relative to revenue) during an economic boom are called:

Correct AnswerverifiedShow Answer

If the marginal propensity to consume (MPC)is 0.80, the value of the spending multiplier is 2.

Correct AnswerverifiedShow Answer

To combat a recession, Keynesian fiscal policy recommends:

Correct AnswerverifiedShow Answer

The marginal propensity to save (MPS) is computed as the change in:

Correct AnswerverifiedShow Answer

When the economy enters a recession, automatic stabilizers create:

Correct AnswerverifiedShow Answer

The marginal propensity to consume is:

Correct AnswerverifiedShow Answer

The Laffer curve is representative of which of the following schools?

Correct AnswerverifiedShow Answer

If the marginal propensity to save (MPS) is 0.50, the value of the spending multiplier is:

Correct AnswerverifiedShow Answer

It is inflationary for government to increase spending if:

Correct AnswerverifiedShow Answer

Fiscal policy is concerned with:

Correct AnswerverifiedShow Answer

Structures in the economy increase aggregate demand when the economy is in recession and decrease aggregate demand when the economy is inflationary are known as:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Exhibit 11-6 Aggregate demand and supply model In Exhibit 11-6, if the aggregate demand curve is at AD3, the government should:

Correct AnswerverifiedShow Answer

The formula to compute the spending multiplier is:

Correct AnswerverifiedShow Answer

The spending multiplier is:

Correct AnswerverifiedShow Answer

When an economy dips into recession, automatic stabilizers will:

Correct AnswerverifiedShow Answer

Which of the following statements is true ?

Correct AnswerverifiedShow Answer

Equal increases in government spending and taxes will:

Correct AnswerverifiedShow Answer

Exhibit 11-6 Aggregate demand and supply model In Exhibit 11-6, if the aggregate demand curve is at AD₂, the government should:

Correct Answer
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Exhibit 11-6 Aggregate demand and supply model In Exhibit 11-6, if the aggregate demand curve is at AD₃, the government should:

Correct Answer
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