Question 1

President Bush favored increases in government spending as a way to stimulate the economy, while President Obama favors tax cuts.

Accepted Answer

A) True 
 B)False

Question 2

Fiscal policy is a good option to stimulate an economy when

Accepted Answer

A)   unemployment is very high.
B)   the economy is very close to the long-run Solow growth curve.
C)   a real shock occurs.
D)   Each of these answers is correct.

Question 3

When the government sells bonds, some of the funds that would have gone to private investments go to the government. This situation is called

Accepted Answer

A)   overcrowding.
B)   funneling.
C)   crowding out.
D)   under bidding.

Question 4

The primary tools of fiscal policy are

Accepted Answer

A)   money supply and money demand.
B)   government expenditure and money supply.
C)   government expenditure and taxation.
D)   taxation and interest rates.

Question 5

In 2008, tax rebates were an effective means of fiscal policy since almost all of the money was spent immediately.

Accepted Answer

A) True 
 B)False

Question 6

If consumption decreases, the existence of the government spending multiplier effect means that in order to counter the recession

Accepted Answer

A)   the government cannot use fiscal policy.
B)   the government is forced to use both tax cuts and increases in . 
C)   fiscal policy needs to raise by less than the decrease in   .
D)   fiscal policy needs to raise by more than the decrease in  .

Question 7

A decrease in consumption growth will cause inflation to fall in

Accepted Answer

A)   the short run only.
B)   the long run only.
C)   both the short run and the long run.
D)   neither the short run nor the long run.

Question 8

Expansionary fiscal policy today might mean

Accepted Answer

A)   increased taxes in the future.
B)   contractionary fiscal policy in the future.
C)   increased public borrowing in the future.
D)   Each of these answers is correct.

Question 9

Which of the following is NOT an automatic stabilizer?

Accepted Answer

A)   greater access to credit
B)   defense spending
C)   progressive tax system
D)   welfare program

Question 10

The time necessary for a fiscal policy plan to have an impact is called a(n)

Accepted Answer

A)   legislative lag.
B)   recognition lag.
C)   implementation lag.
D)   None of these answers is correct.

Question 11

Which of the following is NOT a major limit to the effectiveness of fiscal policy?

Accepted Answer

A)   A single increase in government spending is rarely enough to stimulate the economy.
B)   The crowding out effect is transmitted through financial markets.
C)   Fiscal policy is not very effective in combating supply side shocks.
D)   A multiplier effect is associated with changes in spending and taxation.

Question 12

An increase in government spending growth will cause inflation to fall in

Accepted Answer

A)   the short run only.
B)   the long run only.
C)   both the short run and the long run.
D)   neither the short run nor the long run.

Question 13

A tax cut causes the dynamic AD curve to shift to the right.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is TRUE of the difference between a tax cut and a tax rebate?

Accepted Answer

A)   A tax cut only increases the incentive to spend, while a tax rebate only increases the incentive to work.
B)   A tax cut only increases the incentive to work, while a tax rebate only increases spending.
C)   A tax cut increases the incentive to work and the incentive to spend, while a tax rebate only increases the incentive to spend.
D)   A tax cut only increases the incentive to spend, but a tax rebate increases the incentive to work and the incentive to spend.

Question 15

Fiscal policy involving ____________ is designed to influence business cycle fluctuations.

Accepted Answer

A)   the taxation of income
B)   government spending
C)   government borrowing
D)   Each of these answers is correct.

Question 16

Is fiscal policy effective in reducing both inflation and unemployment at the same time?

Accepted Answer

Generally not. Fiscal policy is primaril...

Question 17

Which of these is a form of fiscal policy?

Accepted Answer

A)   changes in government spending.
B)   tax rebates.
C)   tax cuts.
D)   Each of these answers is correct.

Question 18

The largest component of GDP is

Accepted Answer

A)   consumption spending.
B)   investment spending.
C)   government spending.
D)   imports.

Question 19

When an increase in government spending leads to a decrease in private spending it is called

Accepted Answer

A)   crowding out.
B)   a drop in the bucket.
C)   bad timing.
D)   None of the answers is correct.

Question 20

If Ricardian equivalence holds, then an expansionary fiscal policy will

Accepted Answer

A)   decrease aggregate demand in the short run.
B)   increase aggregate demand in the short run but not in the long run.
C)   increase aggregate demand in both the short run and in the long run.
D)   have no effect on aggregate demand either in the short or in the long run.

Exam 35: Monetary Policy

Fiscal policy is a good option to stimulate an economy when

Correct AnswerverifiedShow Answer

Which of the following is NOT an automatic stabilizer?

Correct AnswerverifiedShow Answer

If Ricardian equivalence holds, then an expansionary fiscal policy will

Correct AnswerverifiedShow Answer

Fiscal policy involving ____________ is designed to influence business cycle fluctuations.

Correct AnswerverifiedShow Answer

Is fiscal policy effective in reducing both inflation and unemployment at the same time?

Correct AnswerverifiedGenerally not. Fiscal policy is primaril...View AnswerShow Answer

An increase in government spending growth will cause inflation to fall in

Correct AnswerverifiedShow Answer

When an increase in government spending leads to a decrease in private spending it is called

Correct AnswerverifiedShow Answer

The primary tools of fiscal policy are

Correct AnswerverifiedShow Answer

Expansionary fiscal policy today might mean

Correct AnswerverifiedShow Answer

Which of the following is TRUE of the difference between a tax cut and a tax rebate?

Correct AnswerverifiedShow Answer

A tax cut causes the dynamic AD curve to shift to the right.

Correct AnswerverifiedShow Answer

If consumption decreases, the existence of the government spending multiplier effect means that in order to counter the recession

Correct AnswerverifiedShow Answer

A decrease in consumption growth will cause inflation to fall in

Correct AnswerverifiedShow Answer

The time necessary for a fiscal policy plan to have an impact is called a(n)

Correct AnswerverifiedShow Answer

Which of these is a form of fiscal policy?

Correct AnswerverifiedShow Answer

In 2008, tax rebates were an effective means of fiscal policy since almost all of the money was spent immediately.

Correct AnswerverifiedShow Answer

When the government sells bonds, some of the funds that would have gone to private investments go to the government. This situation is called

Correct AnswerverifiedShow Answer

Which of the following is NOT a major limit to the effectiveness of fiscal policy?

Correct AnswerverifiedShow Answer

The largest component of GDP is

Correct AnswerverifiedShow Answer

President Bush favored increases in government spending as a way to stimulate the economy, while President Obama favors tax cuts.

Correct AnswerverifiedShow Answer

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Generally not. Fiscal policy is primaril...
View Answer

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