Question 1

Raising the federal funds rate shifts the aggregate demand curve ________ so that real GDP ________ and the price level ________.

Accepted Answer

A)  rightward; increases; rises
B)  leftward; decreases; rises
C)  rightward; increases; falls
D)  leftward; decreases; falls
E)  leftward; increases; rises

Question 2

A tax hike ________ aggregate demand and ________ aggregate supply.

Accepted Answer

A)  increases; increases
B)  increases; decreases
C)  decreases; increases
D)  decreases; decreases
E)  does not change;increases

Question 3

The magnitude of the tax multiplier is smaller than the magnitude of the government expenditure multiplier because

Accepted Answer

A)  a change in taxes does not change expenditures.
B)  an increase in taxes decreases expenditures.
C)  a decrease in government expenditure decreases tax revenue.
D)  a change in taxes does not change expenditures by as much as the same size change in government expenditure.
E)  a change in taxes creates additional induced taxes.

Question 4

The government expenditure multiplier is the magnification effect of a change in government expenditure on

Accepted Answer

A)  aggregate demand.
B)  the budget deficit.
C)  tax receipts.
D)  aggregate supply.
E)  potential GDP.

Question 5

To eliminate a recessionary gap, the government can ________ government expenditures on goods and services or ________ taxes.

Accepted Answer

A)  increase; increase
B)  increase; decrease
C)  decrease; increase
D)  decrease; decrease
E)  increase; not change

Question 6

When comparing a $100 billion increase in government expenditure to a $100 billion decrease in tax revenue, the effect of the increase in government expenditure on aggregate demand is

Accepted Answer

A)  greater than the effect of the tax decrease.
B)  equal to the effect of the tax decrease.
C)  less than the effect of the tax decrease.
D)  positive whereas the effect of the tax decrease is negative.
E)  negative whereas the effect of the tax decrease is positive.

Question 7

Ignoring any supply-side effects, suppose the government is considering cutting taxes by $100 billion or increasing government expenditures on goods and services by $100 billion. Then

Accepted Answer

A)  both policies would increase aggregate demand by the same amount.
B)  both policies would increase aggregate demand but the tax cut has a smaller effect.
C)  both policies would increase aggregate demand but the increase in government expenditure has a smaller effect.
D)  the tax cut would decrease aggregate demand and the increase in government expenditure would increase aggregate demand.
E)  the tax cut would increase aggregate demand and the increase in government expenditure would decrease aggregate demand.

Question 8

An example of automatic fiscal policy is

Accepted Answer

A)  Congress passing a tax rate reduction package.
B)  the federal government expanding spending at the Department of Education.
C)  expenditure for unemployment compensation increasing as economic growth slows.
D)  the Federal Reserve reducing interest rates as economic growth slows.
E)  a change in taxes that has no multiplier effect.

Question 9

When the government's outlays exceed its tax revenue, the national debt

Accepted Answer

A)  shrinks thanks to the budget surplus.
B)  grows to finance the budget deficit.
C)  shrinks thanks to the budget deficit.
D)  grows to finance the budget surplus.
E)  does not change because it has nothing to do with government outlays and tax revenue.

Question 10

If a tax cut increases aggregate demand more than aggregate supply, real GDP ________ and the price level ________.

Accepted Answer

A)  increases; rises
B)  increases; falls
C)  decreases; rises
D)  decreases; falls
E)  increases; does not change

Question 11

-In the above figure, is the Fed likely to be afraid that inflation will occur or that a recession will occur?
 Discuss the appropriate monetary policy that should be made to restore the economy to potential GDP.

Accepted Answer

The Fed will fear inflation. The economy...

Question 12

Which of the following statements are correct?
I. The Federal Reserve's monetary policy must be approved by the President of the United States .
Ii. The Federal Reserve Board of Directors meets approximately every six months to review the state of the economy and determine monetary policy.
Iii. The Federal Reserve has determined it will use the monetary base as its policy instrument.

Accepted Answer

A)  i and ii
B)  ii only
C)  i only
D)  iii only
E)  None of the above answers is correct.

Question 13

An increase in income taxes ________ employment and ________ potential GDP.

Accepted Answer

A)  increases; increases
B)  increases; does not change
C)  decreases; decreases
D)  does not change; does not change
E)  increases; decreases

Question 14

The steps in the transmission of monetary policy are

Accepted Answer

A)  Congress increases government expenditures on goods and services, leading to an increase in aggregate demand.
B)  Congress increases the money supply, which lowers the interest rate, and leads to an increase in aggregate demand.
C)  the Federal Reserve increases government expenditures on goods and services, leading to an increase in aggregate demand.
D)  the Federal Reserve lowers the federal funds rate, which lowers the real interest rate and leads to an increase in aggregate demand.
E)  Congress increases the budget deficit, which increases the money supply, which increases aggregate supply.

Question 15

Describe the difference between discretionary and automatic fiscal policy.

Accepted Answer

Discretionary fiscal policy is...

Question 16

"The Federal Open Market Committee (FOMC)is the group within the Federal Reserve that makes monetary policy decisions. The FOMC meets twice a year and each meeting lasts eight days." Are these two statements correct or incorrect?
 Why?

Accepted Answer

The first statement is correct. The seco...

Question 17

When the Fed lowers the federal funds rate and the real interest rate falls, what happens to the opportunity cost of investment?
 What happens to investment?

Accepted Answer

The opportunity cost of investment is th...

Question 18

$$\begin{array} { c c c } 
& \begin{array} { c } 
\text { Government } \
\text { outlays } \
\text { (trillions of }
\end{array} & \begin{array} { c } 
\text { Tax revenues } \
\text { (trillions of }
\end{array} \
\text { Year } & \text { 2005 dollars) } & \text { 2005 dollars) } \
\hline 2008 & 0.75 & 0.80 \
2009 & 0.80 & 0.83 \
2010 & 0.87 & 0.86 \
2011 & 0.95 & 0.95 \
2012 & 1.06 & 1.02 \
\hline
\end{array}$$
-The above table gives a country's government outlays and tax revenue for 2008 through 2012. During which years did the country have a balanced budget, budget surplus, and budget deficit?

Accepted Answer

The country had a balanced budget in 201...

Question 19

The tax multiplier is the

Accepted Answer

A)  magnification effect of a change in taxes on aggregate demand.
B)  magnification effect of a change in taxes on the budget deficit.
C)  magnification effect of a change in taxes on government expenditures.
D)  magnification effect of a change in taxes on aggregate supply.
E)  magnification effect of a change in taxes on the national debt.

Question 20

Ignoring any supply-side effects, to close a recessionary gap of $100 billion with a government expenditure multiplier of 5, the government could

Accepted Answer

A)  increase government expenditure on goods and services by $100 billion.
B)  increase government expenditure on goods and services by $20 billion.
C)  raise taxes by $100 billion.
D)  raise taxes by more than $20 billion.
E)  decrease government expenditure on goods and services by $20 billion.

Exam 20: Fiscal Policy and Monetary Policy

"The Federal Open Market Committee (FOMC)is the group within the Federal Reserve that makes monetary policy decisions. The FOMC meets twice a year and each meeting lasts eight days." Are these two statements correct or incorrect? Why?

Correct Answer
verified
The first statement is correct. The seco...
View Answer

Ignoring any supply-side effects, to close a recessionary gap of $100 billion with a government expenditure multiplier of 5, the government could

Correct Answer
verified

The magnitude of the tax multiplier is smaller than the magnitude of the government expenditure multiplier because

Correct Answer
verified

Ignoring any supply-side effects, suppose the government is considering cutting taxes by $100 billion or increasing government expenditures on goods and services by $100 billion. Then

Correct Answer
verified

-In the above figure, is the Fed likely to be afraid that inflation will occur or that a recession will occur? Discuss the appropriate monetary policy that should be made to restore the economy to potential GDP.

Correct Answer
verified
The Fed will fear inflation. The economy...
View Answer

Describe the difference between discretionary and automatic fiscal policy.

Correct Answer
verified
Discretionary fiscal policy is...
View Answer

The tax multiplier is the

Correct Answer
verified

Raising the federal funds rate shifts the aggregate demand curve so that real GDP and the price level .

Correct Answer
verified

To eliminate a recessionary gap, the government can government expenditures on goods and services or taxes.

Correct Answer
verified

Correct Answer
verified
The country had a balanced budget in 201...
View Answer

Correct Answer
verified

When the Fed lowers the federal funds rate and the real interest rate falls, what happens to the opportunity cost of investment? What happens to investment?

Correct Answer
verified
The opportunity cost of investment is th...
View Answer

When the government's outlays exceed its tax revenue, the national debt

Correct Answer
verified

An example of automatic fiscal policy is

Correct Answer
verified

The government expenditure multiplier is the magnification effect of a change in government expenditure on

Correct Answer
verified

When comparing a $100 billion increase in government expenditure to a $100 billion decrease in tax revenue, the effect of the increase in government expenditure on aggregate demand is

Correct Answer
verified

The steps in the transmission of monetary policy are

Correct Answer
verified

A tax hike aggregate demand and aggregate supply.

Correct Answer
verified

An increase in income taxes employment and potential GDP.

Correct Answer
verified

If a tax cut increases aggregate demand more than aggregate supply, real GDP and the price level .

Correct Answer
verified

Exam 20: Fiscal Policy and Monetary Policy

"The Federal Open Market Committee (FOMC)is the group within the Federal Reserve that makes monetary policy decisions. The FOMC meets twice a year and each meeting lasts eight days." Are these two statements correct or incorrect? Why?

Correct AnswerverifiedThe first statement is correct. The seco...View AnswerShow Answer

Ignoring any supply-side effects, to close a recessionary gap of $100 billion with a government expenditure multiplier of 5, the government could

Correct AnswerverifiedShow Answer

The magnitude of the tax multiplier is smaller than the magnitude of the government expenditure multiplier because

Correct AnswerverifiedShow Answer

Ignoring any supply-side effects, suppose the government is considering cutting taxes by $100 billion or increasing government expenditures on goods and services by $100 billion. Then

Correct AnswerverifiedShow Answer

-In the above figure, is the Fed likely to be afraid that inflation will occur or that a recession will occur? Discuss the appropriate monetary policy that should be made to restore the economy to potential GDP.

Correct AnswerverifiedThe Fed will fear inflation. The economy...View AnswerShow Answer

Describe the difference between discretionary and automatic fiscal policy.

Correct AnswerverifiedDiscretionary fiscal policy is...View AnswerShow Answer

The tax multiplier is the

Correct AnswerverifiedShow Answer

Raising the federal funds rate shifts the aggregate demand curve ________ so that real GDP ________ and the price level ________.

Correct AnswerverifiedShow Answer

To eliminate a recessionary gap, the government can ________ government expenditures on goods and services or ________ taxes.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe country had a balanced budget in 201...View AnswerShow Answer

Correct AnswerverifiedShow Answer

When the Fed lowers the federal funds rate and the real interest rate falls, what happens to the opportunity cost of investment? What happens to investment?

Correct AnswerverifiedThe opportunity cost of investment is th...View AnswerShow Answer

When the government's outlays exceed its tax revenue, the national debt

Correct AnswerverifiedShow Answer

An example of automatic fiscal policy is

Correct AnswerverifiedShow Answer

The government expenditure multiplier is the magnification effect of a change in government expenditure on

Correct AnswerverifiedShow Answer

When comparing a $100 billion increase in government expenditure to a $100 billion decrease in tax revenue, the effect of the increase in government expenditure on aggregate demand is

Correct AnswerverifiedShow Answer

The steps in the transmission of monetary policy are

Correct AnswerverifiedShow Answer

A tax hike ________ aggregate demand and ________ aggregate supply.

Correct AnswerverifiedShow Answer

An increase in income taxes ________ employment and ________ potential GDP.

Correct AnswerverifiedShow Answer

If a tax cut increases aggregate demand more than aggregate supply, real GDP ________ and the price level ________.

Correct AnswerverifiedShow Answer

Correct Answer
verified
The first statement is correct. The seco...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The Fed will fear inflation. The economy...
View Answer

Correct Answer
verified
Discretionary fiscal policy is...
View Answer

Correct Answer
verified

Raising the federal funds rate shifts the aggregate demand curve so that real GDP and the price level .

Correct Answer
verified

To eliminate a recessionary gap, the government can government expenditures on goods and services or taxes.

Correct Answer
verified

Correct Answer
verified
The country had a balanced budget in 201...
View Answer

Correct Answer
verified

Correct Answer
verified
The opportunity cost of investment is th...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

A tax hike aggregate demand and aggregate supply.

Correct Answer
verified

An increase in income taxes employment and potential GDP.

Correct Answer
verified

If a tax cut increases aggregate demand more than aggregate supply, real GDP and the price level .

Correct Answer
verified