Question 1

Economic advisers who fear that the economy is growing too rapidly would recommend that the government decrease spending and/or increase taxes.

Accepted Answer

A) True 
 B)False

Question 2

Suppose an economy has a balanced federal budget, and a favorable supply shock hits the economy. Tax revenues will ________ and expenditures on transfer payments will ________, resulting in a budget ________.

Accepted Answer

A)   fall; increase; deficit
B)   increase; increase; surplus
C)   fall; fall; deficit
D)   increase; fall; surplus

Question 3

The prospect of future deficits

Accepted Answer

A)   encourages government to conduct expansionary fiscal policy.
B)   would prompt government to vastly expand discretionary spending.
C)   requires a government to eliminate all entitlement spending.
D)   limits the ability of government to conduct fiscal policy in the near future.

Question 4

In the United States during the 1930s

Accepted Answer

A)   government spending and taxes both increased, resulting in zero net fiscal expansion.
B)   government spending and taxes both decreased, resulting in a net fiscal contraction.
C)   government spending increased and taxes decreased, resulting in a fiscal expansion.
D)   government spending decreased and taxes increased, resulting in a fiscal contraction.

Question 5

An inside lag is the time period it takes for the stabilization policies to take effect after they have been implemented.

Accepted Answer

A) True 
 B)False

Question 6

Explain how an increased federal budget deficit resulting from a recession can actually help stabilize an economy.

Accepted Answer

Help in stabilizing the economy can come...

Question 7

Describe the three broad categories of the U.S. budget.

Accepted Answer

Discretionary spending constitutes spend...

Question 8

Stabilization policies are policies designed to

Accepted Answer

A)   keep output constant.
B)   keep prices constant.
C)   move the economy closer to potential output.
D)   increase trade.

Question 9

When the government develops policies to stabilize the economy

Accepted Answer

A)   these policies are unaffected by the multiplier effect.
B)   only expansionary fiscal policy is impacted by the multiplier effect.
C)   it needs to consider the multiplier effect for all fiscal policies.
D)   only contractionary fiscal policy is impacted by the multiplier effect.

Question 10

A decrease in the personal income tax rate ________ disposable income which ________ consumption.

Accepted Answer

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

Question 11

In 2003, the Bush administration revised the tax bill to include provisions to

Accepted Answer

A)   delay tax increases from the 2001 bill.
B)   decrease the child tax credit.
C)   lower taxes on dividends.
D)   increase taxes on capital gains.

Question 12

When the economy slows down and national income falls, the government will have ________ tax revenue to fund programs.

Accepted Answer

A)   more
B)   less
C)   about the same
D)   a rapid increase in

Question 13

Recall the Application about the relationship between tax rates and tax revenues which was proposed by Yu Juo, one of the twelve wise men who succeeded Confucius in ancient China, to answer the following question(s) .
-Recall the Application. The idea regarding the relationship between tax rates and tax revenues proposed by Yu Juo is very similar to the idea proposed by economist

Accepted Answer

A)   Adam Smith.
B)   Arthur Laffer.
C)   David Ricardo.
D)   Ben Bernanke.

Question 14

Using expansionary policies to combat a recession would

Accepted Answer

A)   increase a budget deficit.
B)   increase a budget surplus.
C)   decrease discretionary spending.
D)   increase federal revenue.

Question 15

In the United States during the Vietnam War era, as military spending increased

Accepted Answer

A)   unemployment dropped to very low levels.
B)   both frictional and cyclical unemployment increased.
C)   frictional unemployment dropped, but cyclical unemployment increased.
D)   overall unemployment rates did not change.

Question 16

When the government conducts activist fiscal policy, what type of spending does it usually use?

Accepted Answer

A)   entitlement and mandatory spending
B)   net interest spending
C)   discretionary spending
D)   strategic spending

Question 17

Recall the Application about how society will cope with increased demands for entitlement programs to answer the following question(s) . This Application addresses the impact of increasing life expectancy and aging populations on the costs of government entitlement programs such as Social Security, Medicare and Medicaid, and examines several possible solutions to the potential problem.
-According to this Application, how will an increase in government spending on entitlement programs affect the macroeconomy?

Accepted Answer

A)   It will increase aggregate demand.
B)   It will decrease aggregate demand.
C)   It will increase aggregate supply.
D)   It will decrease aggregate supply.

Question 18

Recall the Application about how society will cope with increased demands for entitlement programs to answer the following question(s) . This Application addresses the impact of increasing life expectancy and aging populations on the costs of government entitlement programs such as Social Security, Medicare and Medicaid, and examines several possible solutions to the potential problem.
-According to this Application, current spending on federal retirement and health programs accounts for 10 percent of GDP. Experts estimate that this spending component's share of GDP ________ by the year 2075.

Accepted Answer

A)   is likely to shrink
B)   will more than double
C)   will remain constant
D)   will grow moderately initially then taper off

Question 19

In order to ________, a government must decrease spending and increase taxation.

Accepted Answer

A)   increase aggregate demand
B)   decrease aggregate demand
C)   increase aggregate supply
D)   decrease aggregate supply

Question 20

Policies taken to move the economy closer to potential output

Accepted Answer

A)   must necessarily be expansionary policies.
B)   must necessarily be contractionary policies.
C)   are called stabilization policies.
D)   are lagging policies or automatic policies.

Exam 15: Fiscal Policy

Correct Answer
verified

Explain how an increased federal budget deficit resulting from a recession can actually help stabilize an economy.

Correct Answer
verified
Help in stabilizing the economy can come...
View Answer

In order to ________, a government must decrease spending and increase taxation.

Correct Answer
verified

Correct Answer
verified

Policies taken to move the economy closer to potential output

Correct Answer
verified

In the United States during the Vietnam War era, as military spending increased

Correct Answer
verified

A decrease in the personal income tax rate disposable income which consumption.

Correct Answer
verified

Stabilization policies are policies designed to

Correct Answer
verified

Describe the three broad categories of the U.S. budget.

Correct Answer
verified
Discretionary spending constitutes spend...
View Answer

Correct Answer
verified

When the government develops policies to stabilize the economy

Correct Answer
verified

The prospect of future deficits

Correct Answer
verified

Using expansionary policies to combat a recession would

Correct Answer
verified

When the government conducts activist fiscal policy, what type of spending does it usually use?

Correct Answer
verified

Suppose an economy has a balanced federal budget, and a favorable supply shock hits the economy. Tax revenues will and expenditures on transfer payments will , resulting in a budget .

Correct Answer
verified

An inside lag is the time period it takes for the stabilization policies to take effect after they have been implemented.

Correct Answer
verified

When the economy slows down and national income falls, the government will have ________ tax revenue to fund programs.

Correct Answer
verified

In the United States during the 1930s

Correct Answer
verified

Economic advisers who fear that the economy is growing too rapidly would recommend that the government decrease spending and/or increase taxes.

Correct Answer
verified

In 2003, the Bush administration revised the tax bill to include provisions to

Correct Answer
verified

Exam 15: Fiscal Policy

Correct AnswerverifiedShow Answer

Explain how an increased federal budget deficit resulting from a recession can actually help stabilize an economy.

Correct AnswerverifiedHelp in stabilizing the economy can come...View AnswerShow Answer

In order to ________, a government must decrease spending and increase taxation.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Policies taken to move the economy closer to potential output

Correct AnswerverifiedShow Answer

In the United States during the Vietnam War era, as military spending increased

Correct AnswerverifiedShow Answer

A decrease in the personal income tax rate ________ disposable income which ________ consumption.

Correct AnswerverifiedShow Answer

Stabilization policies are policies designed to

Correct AnswerverifiedShow Answer

Describe the three broad categories of the U.S. budget.

Correct AnswerverifiedDiscretionary spending constitutes spend...View AnswerShow Answer

Correct AnswerverifiedShow Answer

When the government develops policies to stabilize the economy

Correct AnswerverifiedShow Answer

The prospect of future deficits

Correct AnswerverifiedShow Answer

Using expansionary policies to combat a recession would

Correct AnswerverifiedShow Answer

When the government conducts activist fiscal policy, what type of spending does it usually use?

Correct AnswerverifiedShow Answer

Suppose an economy has a balanced federal budget, and a favorable supply shock hits the economy. Tax revenues will ________ and expenditures on transfer payments will ________, resulting in a budget ________.

Correct AnswerverifiedShow Answer

An inside lag is the time period it takes for the stabilization policies to take effect after they have been implemented.

Correct AnswerverifiedShow Answer

When the economy slows down and national income falls, the government will have ________ tax revenue to fund programs.

Correct AnswerverifiedShow Answer

In the United States during the 1930s

Correct AnswerverifiedShow Answer

Economic advisers who fear that the economy is growing too rapidly would recommend that the government decrease spending and/or increase taxes.

Correct AnswerverifiedShow Answer

In 2003, the Bush administration revised the tax bill to include provisions to

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
Help in stabilizing the economy can come...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

A decrease in the personal income tax rate disposable income which consumption.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Discretionary spending constitutes spend...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Suppose an economy has a balanced federal budget, and a favorable supply shock hits the economy. Tax revenues will and expenditures on transfer payments will , resulting in a budget .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified