Question 1

Illustrate and explain the effects of tax reduction and simplification using the dynamic aggregate demand and supply model. To simplify the analysis, assume that aggregate demand is not affected by the tax cut.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> The economy's initial equilibrium is at...

Question 2

In an open economy, the government purchases multiplier will be larger the

Accepted Answer

A)   smaller the marginal propensity to import.
B)   smaller the marginal income tax rate.
C)   larger the marginal propensity to consume.
D)   All of the above are correct.

Question 3

An increase in individual income taxes ________ disposable income, which ________ consumption spending.

Accepted Answer

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

Question 4

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 5

In early 2008, the housing crisis and rising oil prices increased the risk of recession in the United States. What fiscal policy action was taken by Congress and the president to counter these events?

Accepted Answer

A)   The Federal Reserve cut its target for the federal funds rate.
B)   There was an increase in government spending on defense and unemployment compensation.
C)   Taxpayers were given rebates on taxes they already paid.
D)   Income taxes were raised to reduce the federal budget deficit and reduce interest rates.

Question 6

Long lags associated with the legislative process in implementing fiscal policy make it more difficult to use than monetary policy.

Accepted Answer

A) True 
 B)False

Question 7

Figure 27-5 
-From an initial long-run equilibrium, if aggregate demand grows more slowly than long-run and short-run aggregate supply, then Congress and the president would most likely

Accepted Answer

A)   increase the required reserve ratio and decrease government spending.
B)   decrease government spending.
C)   decrease oil prices.
D)   decrease taxes.
E)   lower interest rates.

Question 8

Figure 27-6 
-Refer to Figure 27-6. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B

Accepted Answer

A)   the unemployment rate is very low.
B)   firms are operating at below capacity.
C)   the economy is below full employment.
D)   income and profits are falling.
E)   there is pressure on wages and prices to fall.

Question 9

When President Obama took office in January 2009, he pledged to pursue an expansionary fiscal policy to try to pull the economy out of the recession. The next month, Congress passed the American Recovery and Reinvestment Act of 2009, a $840 billion package of ________ that was the largest fiscal policy action in U.S. history.

Accepted Answer

A)   spending increases and tax cuts
B)   interest rate reductions and increases in the money supply
C)   treasury bond purchases and mortgage-backed securities purchases
D)   commercial and investment bank bailouts

Question 10

Figure 27-4 
-Expansionary fiscal policy involves increasing government purchases or increasing taxes.

Accepted Answer

A) True 
 B)False

Question 11

Suppose that Congress allocates $5 billion to an "energy-efficient appliance rebate" program. It also raises taxes by $5 billion to keep the deficit from growing. If the marginal propensity to consume is 0.8, what is the effect on equilibrium GDP?

Accepted Answer

A)   GDP does not change.
B)   GDP increases by $25 billion.
C)   GDP increases by $4 billion.
D)   GDP increases by $5 billion.

Question 12

A one-time tax rebate, which is not expected to be extended in future years, will

Accepted Answer

A)   have a small positive effect on consumption and aggregate demand.
B)   have no effect on consumption and aggregate demand.
C)   have a significant positive effect on consumption and aggregate demand, with aggregate demand growing by a multiple of the tax rebate.
D)   increase aggregate supply and aggregate demand.

Question 13

Figure 27-11 
-Which of the following would increase the size of the government purchases multiplier?

Accepted Answer

A)   an increase in the tax rate
B)   an increase in the quantity of imports purchased by households from an increase in income
C)   a decrease in the amount of consumption spending by households from an increase in income
D)   a decrease in the amount saved by households from an increase in income

Question 14

Figure 27-1 
-Refer to Figure 27-1. Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium. Using the static AD-AS model in the figure above, this would be depicted as a movement from

Accepted Answer

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

Question 15

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Accepted Answer

A)   higher; higher
B)   higher; lower
C)   lower; higher
D)   lower; lower

Question 16

From the 1960s to 2012, transfer payments

Accepted Answer

A)   have risen from about 25 percent to 46 percent of federal government expenditures.
B)   remained the same percentage of total federal government expenditures.
C)   have declined by half as a percentage of total federal government expenditures.
D)   have grown very slowly as a percentage of total federal government expenditures.

Question 17

If the tax multiplier is -1.5 and a $200 billion tax increase is implemented, what is the change in GDP, holding everything else constant? (Assume the price level stays constant.)

Accepted Answer

A)   a $300 billion decrease in GDP
B)   a $300 billion increase in GDP
C)   a $30 billion increase in GDP
D)   a $133.33 billion decrease in GDP
E)   a $133.33 billion increase in GDP

Question 18

Prior to the 1930s, the majority of dollars spent by government was spent at the state and local levels.

Accepted Answer

A) True 
 B)False

Question 19

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, and have risen from 2001 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 20

Which of the following is an example of discretionary fiscal policy?

Accepted Answer

A)   an increase in unemployment insurance payments during a recession
B)   an increase in income tax receipts with rising income during an expansion
C)   the tax cuts passed by Congress in 2001 to combat the recession
D)   a decrease in food stamps issued during an expansion or boom

Exam 27: Fiscal Policy

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

Correct Answer
verified

If the tax multiplier is -1.5 and a $200 billion tax increase is implemented, what is the change in GDP, holding everything else constant? (Assume the price level stays constant.)

Correct Answer
verified

Figure 27-6 -Refer to Figure 27-6. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B

Correct Answer
verified

An increase in individual income taxes disposable income, which consumption spending.

Correct Answer
verified

Figure 27-5 -From an initial long-run equilibrium, if aggregate demand grows more slowly than long-run and short-run aggregate supply, then Congress and the president would most likely

Correct Answer
verified

Figure 27-1 -Refer to Figure 27-1. Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium. Using the static AD-AS model in the figure above, this would be depicted as a movement from

Correct Answer
verified

Illustrate and explain the effects of tax reduction and simplification using the dynamic aggregate demand and supply model. To simplify the analysis, assume that aggregate demand is not affected by the tax cut.

Correct Answer
verified
The economy's initial equilibrium is at...
View Answer

Figure 27-4 -Expansionary fiscal policy involves increasing government purchases or increasing taxes.

Correct Answer
verified

From the 1960s to 2012, transfer payments

Correct Answer
verified

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be and real GDP to be .

Correct Answer
verified

A one-time tax rebate, which is not expected to be extended in future years, will

Correct Answer
verified

Suppose that Congress allocates $5 billion to an "energy-efficient appliance rebate" program. It also raises taxes by $5 billion to keep the deficit from growing. If the marginal propensity to consume is 0.8, what is the effect on equilibrium GDP?

Correct Answer
verified

In an open economy, the government purchases multiplier will be larger the

Correct Answer
verified

Long lags associated with the legislative process in implementing fiscal policy make it more difficult to use than monetary policy.

Correct Answer
verified

Figure 27-11 -Which of the following would increase the size of the government purchases multiplier?

Correct Answer
verified

Federal government expenditures, as a percentage of GDP,

Correct Answer
verified

Which of the following is an example of discretionary fiscal policy?

Correct Answer
verified

Prior to the 1930s, the majority of dollars spent by government was spent at the state and local levels.

Correct Answer
verified

In early 2008, the housing crisis and rising oil prices increased the risk of recession in the United States. What fiscal policy action was taken by Congress and the president to counter these events?

Correct Answer
verified

Correct Answer
verified

Exam 27: Fiscal Policy

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

Correct AnswerverifiedShow Answer

If the tax multiplier is -1.5 and a $200 billion tax increase is implemented, what is the change in GDP, holding everything else constant? (Assume the price level stays constant.)

Correct AnswerverifiedShow Answer

Figure 27-6 -Refer to Figure 27-6. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B

Correct AnswerverifiedShow Answer

An increase in individual income taxes ________ disposable income, which ________ consumption spending.

Correct AnswerverifiedShow Answer

Figure 27-5 -From an initial long-run equilibrium, if aggregate demand grows more slowly than long-run and short-run aggregate supply, then Congress and the president would most likely

Correct AnswerverifiedShow Answer

Figure 27-1 -Refer to Figure 27-1. Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium. Using the static AD-AS model in the figure above, this would be depicted as a movement from

Correct AnswerverifiedShow Answer

Illustrate and explain the effects of tax reduction and simplification using the dynamic aggregate demand and supply model. To simplify the analysis, assume that aggregate demand is not affected by the tax cut.

Correct Answerverified The economy's initial equilibrium is at...View AnswerShow Answer

Figure 27-4 -Expansionary fiscal policy involves increasing government purchases or increasing taxes.

Correct AnswerverifiedShow Answer

From the 1960s to 2012, transfer payments

Correct AnswerverifiedShow Answer

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Correct AnswerverifiedShow Answer

A one-time tax rebate, which is not expected to be extended in future years, will

Correct AnswerverifiedShow Answer

Suppose that Congress allocates $5 billion to an "energy-efficient appliance rebate" program. It also raises taxes by $5 billion to keep the deficit from growing. If the marginal propensity to consume is 0.8, what is the effect on equilibrium GDP?

Correct AnswerverifiedShow Answer

In an open economy, the government purchases multiplier will be larger the

Correct AnswerverifiedShow Answer

Long lags associated with the legislative process in implementing fiscal policy make it more difficult to use than monetary policy.

Correct AnswerverifiedShow Answer

Figure 27-11 -Which of the following would increase the size of the government purchases multiplier?

Correct AnswerverifiedShow Answer

Federal government expenditures, as a percentage of GDP,

Correct AnswerverifiedShow Answer

Which of the following is an example of discretionary fiscal policy?

Correct AnswerverifiedShow Answer

Prior to the 1930s, the majority of dollars spent by government was spent at the state and local levels.

Correct AnswerverifiedShow Answer

In early 2008, the housing crisis and rising oil prices increased the risk of recession in the United States. What fiscal policy action was taken by Congress and the president to counter these events?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified

An increase in individual income taxes disposable income, which consumption spending.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified
The economy's initial equilibrium is at...
View Answer

Correct Answer
verified

Correct Answer
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Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be and real GDP to be .

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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