Question 1

Fiscal policy actions that are intended to have long-run effects on real GDP attempt to increase ________ through changing ________.

Accepted Answer

A)   aggregate demand; government spending
B)   aggregate supply; taxes
C)   aggregate demand; taxes
D)   aggregate supply; government spending

Question 2

Economists refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the ________ effect.

Accepted Answer

A)   multiplier
B)   expenditure
C)   consumption
D)   aggregate demand

Question 3

For the years 2017-2027, the Congressional Budget Office expects that population growth will be much slower than growth in hours worked.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is considered expansionary fiscal policy?

Accepted Answer

A)   Congress decreases the income tax rate.
B)   Congress increases defense spending.
C)   Legislation increases a college tuition deduction from federal income taxes.
D)   The Arizona legislature cuts highway spending to balance its budget.

Question 5

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009, approximately one-third took the form of ________ and two-thirds took the form of increases in ________.

Accepted Answer

A)   discretionary government spending; transfer payments
B)   tax rebates; tax cuts
C)   treasury bond purchases; the money supply
D)   tax cuts; government expenditures

Question 6

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 7

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

Accepted Answer

A)   have a moderately 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 8

Compared to the averages for post World War II recessions, the recession of 2007-2009 was ________ in duration and the decline in real GDP was ________.

Accepted Answer

A)   longer; greater
B)   longer; smaller
C)   shorter; greater
D)   shorter; smaller

Question 9

Show the impact of tax reduction and simplification using the dynamic aggregate demand and aggregate supply model. Clearly show and identify the impact of the tax change. Assume that aggregate demand and short-run aggregate supply shift as they typically do in the dynamic model. Show what happens to the price level and real GDP because of the tax change.

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 10

The double taxation problem occurs because households pay taxes on dividends and capital gains from stock and corporations pay taxes on corporate profits.

Accepted Answer

A) True 
 B)False

Question 11

In the long run, most economists agree that a permanent increase in government spending leads to

Accepted Answer

A)   no decrease in private spending.
B)   a decrease in private spending by less than the amount that government spending increased.
C)   a decrease in private spending by the same amount that government spending increased.
D)   a decrease in private spending by more than the amount that government spending increased.

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

What is the difference between federal purchases and federal expenditures?

Accepted Answer

Federal purchases refer to federal spend...

Question 14

Reducing the marginal tax rate on income will

Accepted Answer

A)   reduce the tax wedge faced by workers and increase labor supplied.
B)   raise the return to entrepreneurship and encourage the opening of new businesses.
C)   increase the after-tax return on saving, and encourage saving.
D)   All of the above are correct.

Question 15

Tax reduction and simplification should ________ long-run aggregate supply and ________ aggregate demand.

Accepted Answer

A)   increase; increase
B)   increase; decrease
C)   decrease; increase
D)   decrease; decrease

Question 16

The multiplier effect is the series of ________ increases in ________ expenditures that result from an initial increase in ________ expenditures.

Accepted Answer

A)   induced; investment; autonomous
B)   induced; consumption; autonomous
C)   autonomous; consumption; induced
D)   autonomous; investment; induced

Question 17

Suppose real GDP is $14 trillion and potential real GDP is $14.4 trillion. An increase in government purchases of $400 billion would cause real GDP to ________ potential real GDP (assuming a constant price level) .

Accepted Answer

A)   equal
B)   be less than
C)   be more than
D)   There is insufficient information given here to draw a conclusion.

Question 18

If the absolute value of the tax multiplier equals 1.6, real GDP is $13 trillion, and potential real GDP is $13.4 trillion, then taxes would need to be cut by ________ to restore the economy to potential real GDP.

Accepted Answer

A)   $250 billion
B)   $400 billion
C)   $640 billion
D)   None of the above are correct. Taxes should be increased in this case.

Question 19

The cyclically adjusted budget is calculated at potential GDP.

Accepted Answer

A) True 
 B)False

Question 20

During the Great Depression, what appeared to be ________ fiscal policy was actually not when the ________ budget deficit or surplus is examined.

Accepted Answer

A)   expansionary; actual
B)   expansionary; cyclically adjusted
C)   contractionary; actual
D)   contractionary; cyclically adjusted

Exam 27: Fiscal Policy

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

Correct Answer
verified

The multiplier effect is the series of increases in expenditures that result from an initial increase in expenditures.

Correct Answer
verified

Compared to the averages for post World War II recessions, the recession of 2007-2009 was in duration and the decline in real GDP was .

Correct Answer
verified

Economists refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the ________ effect.

Correct Answer
verified

Fiscal policy actions that are intended to have long-run effects on real GDP attempt to increase through changing .

Correct Answer
verified

Reducing the marginal tax rate on income will

Correct Answer
verified

The double taxation problem occurs because households pay taxes on dividends and capital gains from stock and corporations pay taxes on corporate profits.

Correct Answer
verified

What is the difference between federal purchases and federal expenditures?

Correct Answer
verified
Federal purchases refer to federal spend...
View Answer

If the absolute value of the tax multiplier equals 1.6, real GDP is $13 trillion, and potential real GDP is $13.4 trillion, then taxes would need to be cut by ________ to restore the economy to potential real GDP.

Correct Answer
verified

Which of the following is considered expansionary fiscal policy?

Correct Answer
verified

In the long run, most economists agree that a permanent increase in government spending leads to

Correct Answer
verified

Suppose real GDP is $14 trillion and potential real GDP is $14.4 trillion. An increase in government purchases of $400 billion would cause real GDP to ________ potential real GDP (assuming a constant price level) .

Correct Answer
verified

The cyclically adjusted budget is calculated at potential GDP.

Correct Answer
verified

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

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

During the Great Depression, what appeared to be fiscal policy was actually not when the budget deficit or surplus is examined.

Correct Answer
verified

For the years 2017-2027, the Congressional Budget Office expects that population growth will be much slower than growth in hours worked.

Correct Answer
verified

Tax reduction and simplification should long-run aggregate supply and aggregate demand.

Correct Answer
verified

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009, approximately one-third took the form of and two-thirds took the form of increases in .

Correct Answer
verified

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

Exam 27: Fiscal Policy

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

Correct AnswerverifiedShow Answer

The multiplier effect is the series of ________ increases in ________ expenditures that result from an initial increase in ________ expenditures.

Correct AnswerverifiedShow Answer

Compared to the averages for post World War II recessions, the recession of 2007-2009 was ________ in duration and the decline in real GDP was ________.

Correct AnswerverifiedShow Answer

Economists refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the ________ effect.

Correct AnswerverifiedShow Answer

Fiscal policy actions that are intended to have long-run effects on real GDP attempt to increase ________ through changing ________.

Correct AnswerverifiedShow Answer

Reducing the marginal tax rate on income will

Correct AnswerverifiedShow Answer

The double taxation problem occurs because households pay taxes on dividends and capital gains from stock and corporations pay taxes on corporate profits.

Correct AnswerverifiedShow Answer

What is the difference between federal purchases and federal expenditures?

Correct AnswerverifiedFederal purchases refer to federal spend...View AnswerShow Answer

If the absolute value of the tax multiplier equals 1.6, real GDP is $13 trillion, and potential real GDP is $13.4 trillion, then taxes would need to be cut by ________ to restore the economy to potential real GDP.

Correct AnswerverifiedShow Answer

Which of the following is considered expansionary fiscal policy?

Correct AnswerverifiedShow Answer

In the long run, most economists agree that a permanent increase in government spending leads to

Correct AnswerverifiedShow Answer

Suppose real GDP is $14 trillion and potential real GDP is $14.4 trillion. An increase in government purchases of $400 billion would cause real GDP to ________ potential real GDP (assuming a constant price level) .

Correct AnswerverifiedShow Answer

The cyclically adjusted budget is calculated at potential GDP.

Correct AnswerverifiedShow Answer

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

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

During the Great Depression, what appeared to be ________ fiscal policy was actually not when the ________ budget deficit or surplus is examined.

Correct AnswerverifiedShow Answer

For the years 2017-2027, the Congressional Budget Office expects that population growth will be much slower than growth in hours worked.

Correct AnswerverifiedShow Answer

Tax reduction and simplification should ________ long-run aggregate supply and ________ aggregate demand.

Correct AnswerverifiedShow Answer

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009, approximately one-third took the form of ________ and two-thirds took the form of increases in ________.

Correct AnswerverifiedShow Answer

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

Correct Answer
verified

The multiplier effect is the series of increases in expenditures that result from an initial increase in expenditures.

Correct Answer
verified

Compared to the averages for post World War II recessions, the recession of 2007-2009 was in duration and the decline in real GDP was .

Correct Answer
verified

Correct Answer
verified

Fiscal policy actions that are intended to have long-run effects on real GDP attempt to increase through changing .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Federal purchases refer to federal spend...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

During the Great Depression, what appeared to be fiscal policy was actually not when the budget deficit or surplus is examined.

Correct Answer
verified

Correct Answer
verified

Tax reduction and simplification should long-run aggregate supply and aggregate demand.

Correct Answer
verified

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009, approximately one-third took the form of and two-thirds took the form of increases in .

Correct Answer
verified

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