Question 1

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 2

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 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

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.

Question 5

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 6

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 7

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 8

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 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

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 11

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 12

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 13

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 14

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 15

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 16

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 17

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 18

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 19

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 20

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.

Exam 13: Fiscal Policy

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

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

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Government decreasing taxes is an example of:

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An example of fiscal policy would be government:

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

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If the government enacts contractionary fiscal policy, it:

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Transfer payments:

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An example of an automatic stabilizer is:

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If the government undertakes expansionary fiscal policy, it might:

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

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

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If the government undertakes expansionary fiscal policy, it:

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Automatic stabilizers are the:

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

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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

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

Correct AnswerverifiedShow Answer

An indirect cost of government debt is:

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

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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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Two main reasons that the deficit may increase are:

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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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