Question 1

Military spending is a good example of an automatic stabilizer.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following will not increase when net taxes decrease?

Accepted Answer

A)  Saving
B)  Disposable income
C)  Consumption
D)  Government expenditure
E)  GDPF) A) and D)
G) A) and E)

Question 3

An increase in government purchases must always be accompanied by an increase in autonomous net taxes to boost aggregate demand.

Accepted Answer

A) True 
 B)False

Question 4

Recent studies on the effectiveness of fiscal policy tend to suggest that increases in government spending are more effective than tax cuts in stimulating real GDP.

Accepted Answer

A) True 
 B)False

Question 5

At a level of output equal to the economy's potential,the simple spending multiplier in the long run equals one.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is not a weakness of fiscal policy?

Accepted Answer

A)  Implementation of policy is difficult.
B)  Time lags in fiscal policy are long and variable.
C)  Fiscal policy works only during periods of stagflation.
D)  Fiscal policy often affects only current income,but many economic decisions are made on the basis of permanent income.
E)  Fiscal policy might have undesirable long-term effects on short-run aggregate supply.F) A) and E)
G) A) and B)

Question 7

During an election year,the federal government would mostly likely increase _____.

Accepted Answer

A)  tax rates
B)  interest rates
C)  the discount rate charged to commercial banks
D)  the minimum reserve requirement of commercial banks
E)  government purchases of goods and servicesF) C) and E)
G) None of the above

Question 8

Economists and policy makers questioned the effectiveness of discretionary fiscal policy during the 1970s for all the following reasons except:

Accepted Answer

A)  the difficulty of estimating the natural rate of unemployment.
B)  the time lags involved in implementing fiscal policy.
C)  the existence of possible feedback effects of fiscal policy on aggregate supply.
D)  the distinction between current and permanent income.
E)  the possible feedback effects of fiscal policy on aggregate demand.F) A) and E)
G) A) and B)

Question 9

Which of the following best illustrates the use of discretionary fiscal policy?

Accepted Answer

A)  Congress providing $1 billion in relief aid for hurricane victims
B)  Congress appropriating $400 million to help the needy and the appropriation being financed by a tax on wealth
C)  Income tax receipts being smaller because of a decline in real GDP during a recession
D)  The Federal Reserve tightening credit when it receives news of accelerating inflation
E)  Congress passing a bill authorizing $2 billion in additional spending when it receives news of a deepening recessionF) A) and C)
G) C) and D)

Question 10

Keynes thought that one macroeconomic problem is that an economy:

Accepted Answer

A)  can tend toward an equilibrium level of output that is below the potential level.
B)  will move back to its potential after a business cycle on its own.
C)  always operates at the potential and business cycles are created by government intervention.
D)  can be pushed below the equilibrium level of output by fiscal policy.
E)  can be pushed away from the potential if prices and wages are flexible.F) A) and E)
G) A) and B)

Question 11

Fiscal policy:

Accepted Answer

A)  uses the federal government's powers of spending and taxation to affect employment,the price level,and GDP.
B)  uses the federal government's control over the money supply and interest rates to affect employment,the price level,and GDP.
C)  can affect employment and prices,but not the level of GDP.
D)  can affect employment and the level of GDP,but not the price level.
E)  is most effective when employed by state governments rather than by the federal government.F) C) and D)
G) A) and E)

Question 12

Which of the following is an automatic stabilizer?

Accepted Answer

A)  Unemployment insurance
B)  Government spending
C)  Net taxes
D)  The interest rate
E)  The minimum wage set by the governmentF) A) and B)
G) A) and C)

Question 13

Suppose an initial increase in government expenditure increases output by $50,000.If the size of the multiplier is 2.5,the size of the initial increase in government expenditure was:

Accepted Answer

A)  $25,000.
B)  $20,000.
C)  $12,5000.
D)  $1250.
E)  $30,000.F) C) and E)
G) A) and D)

Question 14

The effectiveness of any stimulus program depends on:

Accepted Answer

A)  the nature of the tax only
B)  the size of the tax and spending multipliers
C)  the nature of the tax and tax multipliers
D)  the income group targeted
E)  the marginal propensity to consume onlyF) None of the above
G) All of the above

Question 15

If the economy is already producing at its potential,_____.

Accepted Answer

A)  the spending multiplier equals 1/(1 - MP
C)  in the long run
B)  the spending multiplier is less than 1/(1 - MP
C)  in the long run
C)  the spending multiplier is more than 1/(1 - MP
C)  in the long run
D)  the spending multiplier equals zero in the long run
E)  the aggregate demand curve is horizontalF) A) and B)
G) C) and D)

Question 16

Which of the following assumptions is true of government spending and taxes?

Accepted Answer

A)  They do not depend upon on the level of GDP.
B)  They may be changed only through direct action by the Congress.
C)  They change only when the price level changes.
D)  They change only upon executive order by the president of the United States.
E)  They are autonomous at low levels of GDP but not at higher levels of GDP.F) A) and D)
G) B) and E)

Question 17

One drawback of fiscal policy is the time it takes to enact the legislation necessary to activate it.

Accepted Answer

A) True 
 B)False

Question 18

The existence of stagflation in the 1970s undermined the credibility of demand-management policies.

Accepted Answer

A) True 
 B)False

Question 19

Discretionary fiscal policy works by shifting the aggregate demand curve.

Accepted Answer

A) True 
 B)False

Question 20

The combined effect of changes in government purchases and net taxes can be determined by adding their individual effects.

Accepted Answer

A) True 
 B)False

Exam 11: Fiscal Policy

Which of the following is an automatic stabilizer?

Correct AnswerverifiedShow Answer

Fiscal policy:

Correct AnswerverifiedShow Answer

Economists and policy makers questioned the effectiveness of discretionary fiscal policy during the 1970s for all the following reasons except:

Correct AnswerverifiedShow Answer

The combined effect of changes in government purchases and net taxes can be determined by adding their individual effects.

Correct AnswerverifiedShow Answer

Military spending is a good example of an automatic stabilizer.

Correct AnswerverifiedShow Answer

Which of the following will not increase when net taxes decrease?

Correct AnswerverifiedShow Answer

During an election year,the federal government would mostly likely increase _____.

Correct AnswerverifiedShow Answer

Discretionary fiscal policy works by shifting the aggregate demand curve.

Correct AnswerverifiedShow Answer

Keynes thought that one macroeconomic problem is that an economy:

Correct AnswerverifiedShow Answer

Which of the following is not a weakness of fiscal policy?

Correct AnswerverifiedShow Answer

The existence of stagflation in the 1970s undermined the credibility of demand-management policies.

Correct AnswerverifiedShow Answer

An increase in government purchases must always be accompanied by an increase in autonomous net taxes to boost aggregate demand.

Correct AnswerverifiedShow Answer

Suppose an initial increase in government expenditure increases output by $50,000.If the size of the multiplier is 2.5,the size of the initial increase in government expenditure was:

Correct AnswerverifiedShow Answer

One drawback of fiscal policy is the time it takes to enact the legislation necessary to activate it.

Correct AnswerverifiedShow Answer

Recent studies on the effectiveness of fiscal policy tend to suggest that increases in government spending are more effective than tax cuts in stimulating real GDP.

Correct AnswerverifiedShow Answer

At a level of output equal to the economy's potential,the simple spending multiplier in the long run equals one.

Correct AnswerverifiedShow Answer

Which of the following assumptions is true of government spending and taxes?

Correct AnswerverifiedShow Answer

The effectiveness of any stimulus program depends on:

Correct AnswerverifiedShow Answer

Which of the following best illustrates the use of discretionary fiscal policy?

Correct AnswerverifiedShow Answer

If the economy is already producing at its potential,_____.

Correct AnswerverifiedShow 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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified