Question 1

Poorly timed discretionary policy can do more harm than good.Getting the timing right with fiscal policy is generally

Accepted Answer

A)   less difficult than with monetary policy.
B)   far less difficult than with monetary policy.
C)   more difficult than with monetary policy.
D)   about the same difficulty as with monetary policy.

Question 2

How can tax simplification be beneficial to the economy?

Accepted Answer

Tax simplification would free up resourc...

Question 3

Describe the differences (in sign and relative magnitude)between the government purchases multiplier and the tax multiplier.

Accepted Answer

First,changes in government purchases af...

Question 4

A tax rebate by the government would

Accepted Answer

A)   increase your pretax income, but not your disposable income.
B)   increase your disposable income, but not your pretax income.
C)   decrease your pretax income, but not your disposable income.
D)   decrease your disposable income, but not your pretax income.

Question 5

Figure 18-1
 
-Refer to Figure 18-1.Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued.Using the basic AD-AS model in the figure above,this would be depicted as a movement from

Accepted Answer

A)   D to C.
B)   A to E.
C)   C to D.
D)   C to B.
E)   E to A.

Question 6

Consider the following statement,"The Federal Reserve fights recessions by increasing the money supply so people will have more money to spend." What is wrong with the statement and how can it be corrected?

Accepted Answer

The Federal Reserve fights recessions by...

Question 7

Figure 18-3
 
-Refer to Figure 18-3.In the graph above,suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by Congress and the president?

Accepted Answer

A)   a decrease in income taxes
B)   a decrease in interest rates
C)   a decrease in government purchases
D)   an increase in the money supply

Question 8

Tax cuts on business income increase aggregate demand by increasing

Accepted Answer

A)   business investment spending.
B)   consumption spending.
C)   government spending.
D)   wage rates.

Question 9

An increase in government purchases of $200 billion will shift the aggregate demand curve to the right by

Accepted Answer

A)   $200 billion.
B)   less than $200 billion.
C)   more than $200 billion.
D)   None of the above are correct. This policy shifts the long-run aggregate supply curve.

Question 10

Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight rising inflation.

Accepted Answer

A) True 
 B)False

Question 11

Federal government expenditures as a percentage of GDP

Accepted Answer

A)   have risen since the early 1950s to the present.
B)   have fallen since the early 1950s to the present.
C)   rose from 1950 to 1991, fell from 1992 to 2001, rose again until 2011, and have fallen from 2011 to the present.
D)   rose from 1950 to 2001 and then fell from 2001 to the present.
E)   rose from 1950 to 1980, fell from 1981 to 2001, and have risen from 2001 to the present.

Question 12

To combat a recession with discretionary fiscal policy,Congress and the president should

Accepted Answer

A)   decrease government spending to balance the budget.
B)   decrease taxes to increase consumer disposable income.
C)   lower interest rates and increase investment by increasing the money supply.
D)   raise taxes on interest and dividends, but not on personal income.

Question 13

Which of the following provides health-care coverage to people age 65 and over?

Accepted Answer

A)   Medicaid
B)   Medicare
C)   Social Security
D)   Health-Aid

Question 14

The aggregate demand curve will shift to the right ________ the initial decrease in taxes.

Accepted Answer

A)   by less than
B)   by more than
C)   by the same amount as
D)   sometimes by more than and other times by less than

Question 15

When the Social Security program was in its infancy in 1940,the ratio of workers to retirees was more than 150 to 1.Currently,the ratio of workers to retirees is

Accepted Answer

A)   more than 300 to 1.
B)   50 to 1.
C)   less than 3 to 1.
D)   an even 1 to 1.

Question 16

Figure 18-11
 
-Refer to Figure 18-11.In the graph above,the shift from AD₁ to AD₂ represents the total change in aggregate demand.If government purchases increased by $50 billion,then the distance from point A to point B ________ $50 billion.

Accepted Answer

A)   would be equal to
B)   would be greater than
C)   would be less than
D)   may be greater than or less than

Question 17

Increasing the federal budget deficit will contribute to increasing the federal government debt.

Accepted Answer

A) True 
 B)False

Question 18

The cyclically adjusted budget deficit calculates the budget surplus or deficit at

Accepted Answer

A)   real GDP.
B)   potential GDP.
C)   nominal GDP.
D)   average GDP.

Question 19

Decreasing government spending ________ the price level and ________ equilibrium real GDP.

Accepted Answer

A)   decreases; increases
B)   increases; decreases
C)   increases; increases
D)   decreases; decreases

Question 20

The multiplier effect following an increase in expenditure is generated by induced increases in consumption expenditure as income rises.

Accepted Answer

A) True 
 B)False

Exam 18: Fiscal Policy

Increasing the federal budget deficit will contribute to increasing the federal government debt.

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Figure 18-1 -Refer to Figure 18-1.Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued.Using the basic AD-AS model in the figure above,this would be depicted as a movement from

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Figure 18-11 -Refer to Figure 18-11.In the graph above,the shift from AD₁ to AD₂ represents the total change in aggregate demand.If government purchases increased by $50 billion,then the distance from point A to point B ________ $50 billion.

Correct AnswerverifiedShow Answer

Which of the following provides health-care coverage to people age 65 and over?

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The cyclically adjusted budget deficit calculates the budget surplus or deficit at

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Tax cuts on business income increase aggregate demand by increasing

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Consider the following statement,"The Federal Reserve fights recessions by increasing the money supply so people will have more money to spend." What is wrong with the statement and how can it be corrected?

Correct AnswerverifiedThe Federal Reserve fights recessions by...View AnswerShow Answer

The aggregate demand curve will shift to the right ________ the initial decrease in taxes.

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A tax rebate by the government would

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The multiplier effect following an increase in expenditure is generated by induced increases in consumption expenditure as income rises.

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Federal government expenditures as a percentage of GDP

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When the Social Security program was in its infancy in 1940,the ratio of workers to retirees was more than 150 to 1.Currently,the ratio of workers to retirees is

Correct AnswerverifiedShow Answer

How can tax simplification be beneficial to the economy?

Correct AnswerverifiedTax simplification would free up resourc...View AnswerShow Answer

Poorly timed discretionary policy can do more harm than good.Getting the timing right with fiscal policy is generally

Correct AnswerverifiedShow Answer

Figure 18-3 -Refer to Figure 18-3.In the graph above,suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by Congress and the president?

Correct AnswerverifiedShow Answer

An increase in government purchases of $200 billion will shift the aggregate demand curve to the right by

Correct AnswerverifiedShow Answer

To combat a recession with discretionary fiscal policy,Congress and the president should

Correct AnswerverifiedShow Answer

Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight rising inflation.

Correct AnswerverifiedShow Answer

Decreasing government spending ________ the price level and ________ equilibrium real GDP.

Correct AnswerverifiedShow Answer

Describe the differences (in sign and relative magnitude)between the government purchases multiplier and the tax multiplier.

Correct AnswerverifiedFirst,changes in government purchases af...View AnswerShow Answer

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The Federal Reserve fights recessions by...
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Tax simplification would free up resourc...
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Decreasing government spending the price level and equilibrium real GDP.

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First,changes in government purchases af...
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