Question 1

A marginal tax rate of 91% means that:

Accepted Answer

A)   total tax is calculated by taking 91% of income.
B)   total tax is calculated by taking 9% of income.
C)   for each additional dollar earned, only 91 cents can be used toward consumption.
D)   for each additional dollar earned, only 9 cents can be used toward consumption.
E)   for each additional dollar earned, 9 cents is taxed away.

Question 2

The goal of expansionary fiscal policy is to shift the _________ curve to the _________.

Accepted Answer

A)   aggregate demand; left
B)   aggregate demand; right
C)   short-run aggregate supply; right
D)   short-run aggregate supply; left
E)   long-run aggregate supply; left

Question 3

A government might want to reduce aggregate demand if it believes that:

Accepted Answer

A)   the economy is in long-run equilibrium.
B)   the economy is above the natural rate of unemployment.
C)   the economy is producing below full-employment output.
D)   the economy is expanding past its long-run capabilities.
E)   the economy is in a recession.

Question 4

Refer to the following figure to answer the next questions: 
-According to the figure, which point(s)  would see tax revenues decrease if the tax rate increased?

Accepted Answer

A)   only A
B)   only B
C)   A and B
D)   A and C
E)   B and C

Question 5

Which of the following diagrams shows what supply-side fiscal policy initiatives try to do to the long-run aggregate supply curve?

Accepted Answer

A)   
B)   
C)   
D)   
E)

Question 6

Where marginal propensity to consume is denoted as MPC, consider the following:  
a. Assuming no crowding-out and MPC = 0.75, calculate the amount of government spending needed to bring this economy back to full-employment output.
b. Assuming no crowding-out and that $10 billion would be needed to bring this economy back to full-employment output, calculate the MPC in this economy.

Accepted Answer

a. When the MPC = 0.75, the spending mul...

Question 7

When aggregate demand is low enough to drive unemployment above the natural rate:

Accepted Answer

A)   there is downward pressure on the price level and the government may want to conduct contractionary fiscal policy.
B)   the economy is entering into an expansion and the government may want to conduct contractionary fiscal policy.
C)   there is upward pressure on the price level and the government may want to conduct contractionary fiscal policy.
D)   there is upward pressure on the price level and the government may want to conduct expansionary fiscal policy.
E)   there is downward pressure on the price level and the government may want to conduct expansionary fiscal policy.

Question 8

When the government increases spending or decreases taxes to stimulate the economy toward expansion, the government is conducting:

Accepted Answer

A)   expansionary monetary policy.
B)   expansionary fiscal policy.
C)   contractionary monetary policy
D)   contractionary fiscal policy.
E)   neither monetary policy nor fiscal policy.

Question 9

It takes time for the complete effects of monetary and fiscal policy to materialize. This is because there is ___________ between setting fiscal policy and seeing its effects.

Accepted Answer

A)   a recognition lag
B)   an implementation lag
C)   an impact lag
D)   a countercyclical lag
E)   an automatic lag

Question 10

Long-run aggregate supply shifts are caused by:

Accepted Answer

A)   changes in consumption, investment, government spending, and net exports.
B)   temporary changes in input prices.
C)   changes in expected future price levels.
D)   changes in resources, technology, and institutions.
E)   changes in consumption, investment, government spending, net exports, resources, technology, and institutions.

Question 11

Supply-side fiscal policy involves the use of:

Accepted Answer

A)   government spending and taxes to affect the consumption side of the economy.
B)   government spending and taxes to affect the production side of the economy.
C)   government spending and taxes to affect the net exports side of the economy.
D)   monetary policy to supplement traditional fiscal policy.
E)   government spending and taxes to affect the aggregate demand curve.

Question 12

Answer the following questions using an aggregate demand-aggregate supply model.
a. Represent an economy at long-run equilibrium.
b. Show what happens when aggregate demand increases.
c. Is this economy in an expansion or recession now?
d. What type of fiscal policy would you suggest be taken by Congress?
e. What will this policy do to your aggregate demand-aggregate supply model?

Accepted Answer

a.

b.

c. Because Y₁ 7 Y*, this economy ...

Question 13

The Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009 are both examples of:

Accepted Answer

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

Question 14

It is difficult to determine when the economy is turning up or down. This is because there is ___________ that delays the effects of changes in fiscal policy.

Accepted Answer

A)   a time lag
B)   an implementation lag
C)   an impact lag
D)   a countercyclical lag
E)   an automatic lag

Question 15

Fiscal policy that seeks to counteract business-cycle fluctuations is:

Accepted Answer

A)   pro-cyclical fiscal policy.
B)   expansionary fiscal policy.
C)   contractionary fiscal policy.
D)   discretionary fiscal policy.
E)   countercyclical fiscal policy.

Question 16

A technological advancement allows for:

Accepted Answer

A)   a reduction in structural unemployment.
B)   a greater multiplier effect.
C)   a lesser multiplier effect.
D)   production of a greater quantity of output using a greater quantity of inputs.
E)   production of a greater quantity of output using the same or fewer inputs.

Question 17

In 1962, the marginal tax rates were as high as:

Accepted Answer

A)   100%.
B)   80%.
C)   57%.
D)   26%.
E)   91%.

Question 18

Refer to the following figure to answer the next questions: 
-If the government starts a new program where it buys every family that lives in Florida a new air conditioner, one may argue this could lead to:

Accepted Answer

A)   a budget surplus.
B)   a shift in aggregate supply.
C)   supply-side fiscal policy.
D)   a savings shift.
E)   crowding-out.

Question 19

Income tax revenue is calculated by:

Accepted Answer

A)   tax rate × income.
B)   tax rate + income.
C)   income − tax rate.
D)   tax rate/income.
E)   income/tax rate.

Question 20

Assume that the government is currently balancing the national budget so that outlays equal tax revenue. Then the economy starts into an expansion, and the government decides to decrease government spending by $50 billion. As a result:

Accepted Answer

A)   the federal budget will be in deficit by $50 billion.
B)   the federal budget will be in surplus by at least $50 billion.
C)   the federal budget will remain balanced.
D)   the federal budget will be in surplus by no more than $50 billion.
E)   the federal budget will be in deficit by at least $50 billion.

Exam 16: Fiscal Policy

It is difficult to determine when the economy is turning up or down. This is because there is ___________ that delays the effects of changes in fiscal policy.

Correct Answer
verified

Fiscal policy that seeks to counteract business-cycle fluctuations is:

Correct Answer
verified

The goal of expansionary fiscal policy is to shift the _ curve to the _.

Correct Answer
verified

Correct Answer
verified
a. b. c. Because Y₁ 7 Y*, this economy ...
View Answer

Which of the following diagrams shows what supply-side fiscal policy initiatives try to do to the long-run aggregate supply curve?

Correct Answer
verified

Refer to the following figure to answer the next questions: -If the government starts a new program where it buys every family that lives in Florida a new air conditioner, one may argue this could lead to:

Correct Answer
verified

A government might want to reduce aggregate demand if it believes that:

Correct Answer
verified

Income tax revenue is calculated by:

Correct Answer
verified

Assume that the government is currently balancing the national budget so that outlays equal tax revenue. Then the economy starts into an expansion, and the government decides to decrease government spending by $50 billion. As a result:

Correct Answer
verified

Refer to the following figure to answer the next questions: -According to the figure, which point(s) would see tax revenues decrease if the tax rate increased?

Correct Answer
verified

When the government increases spending or decreases taxes to stimulate the economy toward expansion, the government is conducting:

Correct Answer
verified

A technological advancement allows for:

Correct Answer
verified

It takes time for the complete effects of monetary and fiscal policy to materialize. This is because there is ___________ between setting fiscal policy and seeing its effects.

Correct Answer
verified

When aggregate demand is low enough to drive unemployment above the natural rate:

Correct Answer
verified

A marginal tax rate of 91% means that:

Correct Answer
verified

Supply-side fiscal policy involves the use of:

Correct Answer
verified

In 1962, the marginal tax rates were as high as:

Correct Answer
verified

Correct Answer
verified
a. When the MPC = 0.75, the spending mul...
View Answer

The Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009 are both examples of:

Correct Answer
verified

Long-run aggregate supply shifts are caused by:

Correct Answer
verified

Exam 16: Fiscal Policy

It is difficult to determine when the economy is turning up or down. This is because there is ___________ that delays the effects of changes in fiscal policy.

Correct AnswerverifiedShow Answer

Fiscal policy that seeks to counteract business-cycle fluctuations is:

Correct AnswerverifiedShow Answer

The goal of expansionary fiscal policy is to shift the _________ curve to the _________.

Correct AnswerverifiedShow Answer

Correct Answerverifieda. b. c. Because Y1 7 Y*, this economy ...View AnswerShow Answer

Which of the following diagrams shows what supply-side fiscal policy initiatives try to do to the long-run aggregate supply curve?

Correct AnswerverifiedShow Answer

Refer to the following figure to answer the next questions: -If the government starts a new program where it buys every family that lives in Florida a new air conditioner, one may argue this could lead to:

Correct AnswerverifiedShow Answer

A government might want to reduce aggregate demand if it believes that:

Correct AnswerverifiedShow Answer

Income tax revenue is calculated by:

Correct AnswerverifiedShow Answer

Assume that the government is currently balancing the national budget so that outlays equal tax revenue. Then the economy starts into an expansion, and the government decides to decrease government spending by $50 billion. As a result:

Correct AnswerverifiedShow Answer

Refer to the following figure to answer the next questions: -According to the figure, which point(s) would see tax revenues decrease if the tax rate increased?

Correct AnswerverifiedShow Answer

When the government increases spending or decreases taxes to stimulate the economy toward expansion, the government is conducting:

Correct AnswerverifiedShow Answer

A technological advancement allows for:

Correct AnswerverifiedShow Answer

It takes time for the complete effects of monetary and fiscal policy to materialize. This is because there is ___________ between setting fiscal policy and seeing its effects.

Correct AnswerverifiedShow Answer

When aggregate demand is low enough to drive unemployment above the natural rate:

Correct AnswerverifiedShow Answer

A marginal tax rate of 91% means that:

Correct AnswerverifiedShow Answer

Supply-side fiscal policy involves the use of:

Correct AnswerverifiedShow Answer

In 1962, the marginal tax rates were as high as:

Correct AnswerverifiedShow Answer

Correct Answerverifieda. When the MPC = 0.75, the spending mul...View AnswerShow Answer

The Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009 are both examples of:

Correct AnswerverifiedShow Answer

Long-run aggregate supply shifts are caused by:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

The goal of expansionary fiscal policy is to shift the _ curve to the _.

Correct Answer
verified

Correct Answer
verified
a. b. c. Because Y₁ 7 Y*, this economy ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a. When the MPC = 0.75, the spending mul...
View Answer

Correct Answer
verified

Correct Answer
verified