Question 1

The aggregate demand-aggregate supply model shows that there is no need for government intervention to encourage the economy to move back toward full-employment output.Why then do we see active fiscal policy almost every time the economy is not experiencing full-employment output?

Accepted Answer

The aggregate demand-aggregate supply mo...

Question 2

Explain and use an aggregate demand diagram to show the total amount that spending in an economy increases when we see government spending increase.

Accepted Answer

When government spending increases by a ...

Question 3

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.F) A) and E)
G) B) and C)

Question 4

To determine the total impact on spending from an initial change of a given amount,you could use

Accepted Answer

A)   the Laffer curve.
B)   the spending multiplier.
C)   monetary policy.
D)   fiscal policy.
E)   automatic stabilizers.F) A) and E)
G) A) and B)

Question 5

During which of the following situations would the government most likely have an expansionary fiscal policy?

Accepted Answer

A)   when current output is above full-employment output
B)   when the economy is expanding at a rapid pace
C)   when inflation is at 10 percent per year
D)   when the current unemployment rate is below the natural rate of unemployment
E)   when the current unemployment rate is above the natural rate of unemploymentF) A) and E)
G) A) and D)

Question 6

Depending on how fiscal policy is implemented,it can affect

Accepted Answer

A)   only aggregate demand.
B)   only aggregate supply.
C)   both aggregate demand and aggregate supply.
D)   neither aggregate demand nor aggregate supply.
E)   monetary policy.F) All of the above
G) B) and D)

Question 7

Expansionary fiscal policy occurs when the ________ to stimulate the economy toward expansion.

Accepted Answer

A)   government decreases spending or increases taxes
B)   government decreases spending or decreases taxes
C)   government increases spending or increases taxes
D)   government increases spending or decreases taxes
E)   Federal Reserve increases money supplyF) B) and E)
G) A) and B)

Question 8

Give a detailed explanation of the new classical critique of fiscal policy.

Accepted Answer

By definition,the new classical critique...

Question 9

If your marginal propensity to consume is 0.75 and you get an additional $400 in income,you would spend ________ on consumption.

Accepted Answer

A)   $400.00
B)   $200.00
C)   $533.33
D)   $300.00
E)   $1,600.00F) B) and D)
G) All of the above

Question 10

Lowering marginal income tax rates for individuals

Accepted Answer

A)   will always lead to more tax revenue.
B)   will always lead to less tax revenue.
C)   creates incentives for individuals to work and produce less.
D)   creates incentives for individuals to work harder and produce more.
E)   increases the incentives for corporations to undertake activities that generate more profit.F) None of the above
G) A) and B)

Question 11

All else being equal,people generally prefer ________ in their financial affairs.

Accepted Answer

A)   volatility
B)   smoothness and predictability
C)   uncertainty
D)   government intervention
E)   ups and downsF) B) and D)
G) A) and E)

Question 12

The use of government spending and taxes to influence the economy is

Accepted Answer

A)   called fiscal policy.
B)   called countercyclical policy.
C)   called monetary policy.
D)   initiated through actions of the Federal Reserve.
E)   only done during times of recession.F) C) and E)
G) B) and D)

Question 13

The use of the money supply to influence the economy is

Accepted Answer

A)   called fiscal policy.
B)   called countercyclical policy.
C)   called monetary policy.
D)   initiated through actions of Congress.
E)   part of automatic stabilization.F) A) and C)
G) C) and E)

Question 14

If the spending multiplier is 5,what is the marginal propensity to consume in the economy?

Accepted Answer

A)   0.4
B)   -0.8
C)   0.5
D)   0.75
E)   0.8F) All of the above
G) A) and C)

Question 15

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

Accepted Answer

A)   expansionary monetary
B)   expansionary fiscal
C)   contractionary monetary
D)   contractionary fiscal
E)   neither monetary policy nor fiscalF) A) and B)
G) A) and C)

Question 16

It is difficult to determine when the economy is turning up or down.This is because there is a(n) ________ lag.

Accepted Answer

A)   recognition
B)   implementation
C)   impact
D)   countercyclical
E)   automaticF) B) and E)
G) C) and E)

Question 17

One argument for tax cuts when the government is running a budget deficit is that lower

Accepted Answer

A)   tax revenue will reduce the budget deficit.
B)   marginal tax rates will incentivize employers to hire more workers.
C)   corporate tax rates will incentivize people to work and thus increase the overall tax revenue.
D)   marginal tax rates will incentivize people to work and thus increase the overall tax revenue.
E)   marginal tax rates will decrease aggregate supply.F) C) and D)
G) All of the above

Question 18

Refer to the following figure to answer the following 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 CF) C) and D)
G) B) and E)

Question 19

Three issues that arise in the application of activist fiscal policy are

Accepted Answer

A)   time lags,outsourcing,and government debt.
B)   government debt,crowding-out,and savings shifts.
C)   time lags,crowding-out,and government debt.
D)   outsourcing,crowding-out,and government debt.
E)   time lags,crowding-out,and savings shifts.F) A) and B)
G) B) and E)

Question 20

If a government increases spending by $100 billion,then one can expect output in the economy to increase by

Accepted Answer

A)   exactly $100 billion.
B)   more than $100 billion.
C)   less than $100 billion.
D)   $200 billion.
E)   $400 billion.F) A) and D)
G) B) and C)

Exam 29: Fiscal Policy

All else being equal,people generally prefer ________ in their financial affairs.

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If a government increases spending by $100 billion,then one can expect output in the economy to increase by

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Lowering marginal income tax rates for individuals

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

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Three issues that arise in the application of activist fiscal policy are

Correct AnswerverifiedShow Answer

Explain and use an aggregate demand diagram to show the total amount that spending in an economy increases when we see government spending increase.

Correct AnswerverifiedWhen government spending increases by a ...View AnswerShow Answer

Give a detailed explanation of the new classical critique of fiscal policy.

Correct AnswerverifiedBy definition,the new classical critique...View AnswerShow Answer

To determine the total impact on spending from an initial change of a given amount,you could use

Correct AnswerverifiedShow Answer

The use of the money supply to influence the economy is

Correct AnswerverifiedShow Answer

During which of the following situations would the government most likely have an expansionary fiscal policy?

Correct AnswerverifiedShow Answer

Supply-side fiscal policy involves the use of

Correct AnswerverifiedShow Answer

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

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Expansionary fiscal policy occurs when the ________ to stimulate the economy toward expansion.

Correct AnswerverifiedShow Answer

The use of government spending and taxes to influence the economy is

Correct AnswerverifiedShow Answer

Depending on how fiscal policy is implemented,it can affect

Correct AnswerverifiedShow Answer

One argument for tax cuts when the government is running a budget deficit is that lower

Correct AnswerverifiedShow Answer

If your marginal propensity to consume is 0.75 and you get an additional $400 in income,you would spend ________ on consumption.

Correct AnswerverifiedShow Answer

The aggregate demand-aggregate supply model shows that there is no need for government intervention to encourage the economy to move back toward full-employment output.Why then do we see active fiscal policy almost every time the economy is not experiencing full-employment output?

Correct AnswerverifiedThe aggregate demand-aggregate supply mo...View AnswerShow Answer

If the spending multiplier is 5,what is the marginal propensity to consume in the economy?

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It is difficult to determine when the economy is turning up or down.This is because there is a(n) ________ lag.

Correct AnswerverifiedShow Answer

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When government spending increases by a ...
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By definition,the new classical critique...
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The aggregate demand-aggregate supply mo...
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