Question 1

Government decreasing taxes is an example of:

Accepted Answer

A)   expansionary fiscal policy.
B)   contractionary fiscal policy.
C)   expansionary monetary policy.
D)   contractionary monetary policy.

Question 2

The effect of an initial spending change causing a larger change in overall output is:

Accepted Answer

A)   the multiplier effect
B)   crowding out.
C)   the income effect.
D)   the substitution effect.

Question 3

An example of fiscal policy would be government:

Accepted Answer

A)   increasing the amount of available educational grants.
B)   decreasing the income tax.
C)   increasing corporate income taxes.
D)   increasing money supply.

Question 4

If the government enacts contractionary fiscal policy, it:

Accepted Answer

A)   must want to slow economic activity.
B)   could increase taxes.
C)   expects aggregate demand to decrease.
D)   All of these are true.

Question 5

When an economy is in a recession, discretionary fiscal policy would call for ________, and the automatic stabilizers would ____________.

Accepted Answer

A)   lowering tax rates; lower tax revenues
B)   increasing tax rates; increase tax revenues
C)   increasing tax revenues; increase tax rates
D)   increasing tax rates, lower tax revenues.

Question 6

By 2016, the dollar value of the debt had climbed:

Accepted Answer

A)   to 104 percent of GDP.
B)   to just under $500 billion.
C)   to $800 billion.
D)   down to 80 percent of GDP.

Question 7

An indirect cost of government debt is:

Accepted Answer

A)   it can distort the credit market and slow economic growth.
B)   it can cause hyperinflation.
C)   it can cause unemployment below the natural rate.
D)   All of these are true.

Question 8

According to the text, The American Recovery and Reinvestment Act of 2009:

Accepted Answer

A)   was successful.
B)   was unsuccessful.
C)   remains hotly debated whether it was successful or not.
D)   is known as the most effective legislation ever passed in U.S. history.

Question 9

If Ricardian equivalence holds, one way to get the expansionary effects of a tax cut to occur is:

Accepted Answer

A)   pair it with reduced government spending.
B)   pair it with increased government spending.
C)   to run a campaign inspiring people to buy goods made in the United States.
D)   None of these will create the expansionary effects of a tax cut.

Question 10

Assuming the economy in the graph shown is currently at equilibrium A, if the government wanted to enact a policy it would likely enact:

Accepted Answer

A)   expansionary fiscal policy in an effort to move aggregate demand to the right.
B)   contractionary fiscal policy in an effort to move aggregate demand to the left.
C)   expansionary fiscal policy in an effort to move aggregate demand to the left.
D)   contractionary fiscal policy in an effort to move aggregate demand to the right.

Question 11

If the government undertakes expansionary fiscal policy, it might:

Accepted Answer

A)   increase income taxes.
B)   decrease income taxes.
C)   decrease government spending.
D)   increase corporate income taxes.

Question 12

Democrats often argue in favor of what to push the economy toward economic recovery, as they did during the recession that began in 2008?

Accepted Answer

A)   Tax cuts
B)   Increase government spending
C)   Decrease government spending
D)   Encourage the public to save more

Question 13

Taxes and government spending that affect fiscal policy without specific action from policymakers are called:

Accepted Answer

A)   automatic stabilizers.
B)   discretionary fiscal policy.
C)   expansionary fiscal policy.
D)   contractionary fiscal policy.

Question 14

An example of an automatic stabilizer is:

Accepted Answer

A)   increased unemployment rates cause the government to pay out more in unemployment insurance.
B)   increased tax revenues due to nominalincome going up during a boom.
C)   reduced unemployment rates during a boom means more people working, and the government pays less out in food assistance.
D)   All of these are examples of automatic stabilizers.

Question 15

Which of the following is not true about The American Recovery and Reinvestment Act of 2009:

Accepted Answer

A)   it is more commonly known as the "stimulus plan."
B)   it Increased government spending.
C)   it included tax cuts.
D)   It privatized social security system.

Question 16

Automatic stabilizers are the:

Accepted Answer

A)   taxes and government spending that affect fiscal policy without specific action from policymakers.
B)   fiscal policies that government actively chooses to adopt.
C)   expansionary fiscal policies.
D)   Keynesian policies.

Question 17

Two main reasons that the deficit may increase are:

Accepted Answer

A)   decreases in tax revenues and an increase in government spending.
B)   changes in interest rates and unemployment.
C)   increases in household spending and decreases in firm spending.
D)   decreases in tax revenues and government spending.

Question 18

Transfer payments:

Accepted Answer

A)   are payments from government accounts to individuals for programs that do not involve a purchase of goods or services.
B)   involve programs such as Social Security and welfare.
C)   do not show up in GDP.
D)   All of these are true.

Question 19

If the government undertakes expansionary fiscal policy, it:

Accepted Answer

A)   could increase income taxes.
B)   expects aggregate demand to increase.
C)   expects aggregate demand to decrease.
D)   should force people to change their spending patterns.

Question 20

The amount of time it takes for fiscal policy to have an impact on the economy creates:

Accepted Answer

A)   an information lag.
B)   a formulation lag.
C)   an implementation lag.
D)   a direction lag.

Exam 13: Fiscal Policy

If the government undertakes expansionary fiscal policy, it might:

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An example of an automatic stabilizer is:

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An indirect cost of government debt is:

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By 2016, the dollar value of the debt had climbed:

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When an economy is in a recession, discretionary fiscal policy would call for ________, and the automatic stabilizers would ____________.

Correct AnswerverifiedShow Answer

Democrats often argue in favor of what to push the economy toward economic recovery, as they did during the recession that began in 2008?

Correct AnswerverifiedShow Answer

If Ricardian equivalence holds, one way to get the expansionary effects of a tax cut to occur is:

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If the government undertakes expansionary fiscal policy, it:

Correct AnswerverifiedShow Answer

Transfer payments:

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The effect of an initial spending change causing a larger change in overall output is:

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Two main reasons that the deficit may increase are:

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According to the text, The American Recovery and Reinvestment Act of 2009:

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An example of fiscal policy would be government:

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The amount of time it takes for fiscal policy to have an impact on the economy creates:

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If the government enacts contractionary fiscal policy, it:

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Government decreasing taxes is an example of:

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Assuming the economy in the graph shown is currently at equilibrium A, if the government wanted to enact a policy it would likely enact:

Correct AnswerverifiedShow Answer

Taxes and government spending that affect fiscal policy without specific action from policymakers are called:

Correct AnswerverifiedShow Answer

Which of the following is not true about The American Recovery and Reinvestment Act of 2009:

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Automatic stabilizers are the:

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When an economy is in a recession, discretionary fiscal policy would call for , and the automatic stabilizers would ____.

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