Question 1

Automatic stabilizers combine changes in discretionary fiscal policy with changes in government spending and taxes influenced by the business cycle in order to stabilize the economy.

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 15-6 Aggregate demand and supply model
 
-In Exhibit 15-6,if the aggregate demand curve is at AD₁ ,the government should:

Accepted Answer

A)   raise taxes to move to AD₂.
B)   cut taxes to move to AD₂.
C)   cut taxes to move to AD₃.
D)   cut spending to move to AD₂.
E)   not change its behavior.

Question 3

Fiscal policy is concerned with:

Accepted Answer

A)   encouraging businesses to invest.
B)   regulation of net exports.
C)   changes in government spending and/or tax revenues.
D)   expanding and contracting the money supply.

Question 4

Exhibit 15-3 Aggregate demand and supply model
 
-Suppose the economy in Exhibit 15-3 is in equilibrium at point E₁,and the marginal propensity to consume (MPC) is 0.75.Following Keynesian economics,to restore full employment,the government should cut taxes by:

Accepted Answer

A)   $0.20 trillion.
B)   $1 trillion.
C)   $0.5 trillion.
D)   $0.25 trillion.

Question 5

If the economy is experiencing inflation,then the most appropriate government policy would be to:

Accepted Answer

A)   shift the aggregate demand curve by using a tax increase coupled with spending cuts.
B)   shift the aggregate demand curve by using a tax increase coupled with more spending.
C)   shift the aggregate demand curve by using a tax cut coupled with spending cuts.
D)   shift the aggregate demand curve by using a tax cut coupled with more spending.
E)   shift the aggregate supply curve by using a tax cut coupled with spending cuts.

Question 6

If the marginal propensity to save (MPS) is 0.25,the value of the spending multiplier is:

Accepted Answer

A)   1.
B)   2.
C)   4.
D)   9.

Question 7

If the marginal propensity to save (MPS) is 0.50,the value of the spending multiplier is:

Accepted Answer

A)   1.
B)   2.
C)   4.
D)   9.

Question 8

According to Keynesian economics,fiscal policy should create a deficit during economic contractions.

Accepted Answer

A) True 
 B)False

Question 9

Supply-side economic policies are designed to shift the aggregate supply curve to the right,whereas Keynesian economic policies focus on shifting the aggregate demand curve to the right during recessions and to the left during an economic expansion.

Accepted Answer

A) True 
 B)False

Question 10

Exhibit 15-5 Aggregate demand and supply model
 
-Suppose the economy in Exhibit 15-5 is in equilibrium at point E₁ and the marginal propensity to consume (MPC) is 0.75.Following Keynesian economics,the federal government can move the economy to point E₂ and reduce inflation by:

Accepted Answer

A)   increasing government spending by $50 billion.
B)   decreasing government spending by $6 billion.
C)   decreasing government spending by $100 billion.
D)   decreasing government spending by $50 billion.

Question 11

The tax multiplier is equal to the spending multiplier.

Accepted Answer

A) True 
 B)False

Question 12

Exhibit 15-8 Aggregate demand and supply curves
 
-In Exhibit 15-8,supply-siders claimed that the shift from AS₁ to AS₂ would occur if the government:

Accepted Answer

A)   increased tax rates and increased the amount of government regulation.
B)   increased tax rates and decreased the amount of government regulation
C)   increased tax rates and decreased the amount of government regulation,
D)   decreased tax rates and decreased the amount of government regulation..
E)   decreased tax rates and decreased the amount of government regulation.,

Question 13

If the marginal propensity to consume (MPC)is 0.90,the value of the spending multiplier is 90.

Accepted Answer

A) True 
 B)False

Question 14

Find the tax multiplier if the MPC is 0.75.

Accepted Answer

A)   -4.
B)   -3.
C)   0.33.
D)   3.
E)   4.

Question 15

If the marginal propensity to consume (MPC) is 0.75,and if the goal is to increase real GDP by $400 million,then by how much would government spending have to change to generate this increase in real GDP?

Accepted Answer

A)   $140 million.
B)   $100 million.
C)   $200 million.
D)   $400 million.

Question 16

Exhibit 15-6 Aggregate demand and supply model
 
-In Exhibit 15-6,if the aggregate demand curve is at AD₂ ,the government should:

Accepted Answer

A)   raise taxes to move to AD₁.
B)   cut taxes to move to AD₃
C)   cut taxes to move to AD₃.
D)   cut spending to move to AD₃..
E)   not change its policy.

Question 17

Automatic stabilizers "lean against the prevailing wind" of the business cycle because:

Accepted Answer

A)   wages are controlled by the minimum wage law.
B)   federal expenditures and tax revenues change as the level of real GDP changes.
C)   the spending and tax multipliers are constant.
D)   they include the power of special interests.

Question 18

If no fiscal policy changes are made,suppose the current aggregate demand curve will increase horizontally by $1,000 billion and cause inflation.If the marginal propensity to consume (MPC) is 0.80,federal policymakers could follow Keynesian economics and restrain inflation by decreasing:

Accepted Answer

A)   government spending by $200 billion.
B)   taxes by $100 billion.
C)   taxes by $1,000 billion.
D)   government spending by $1,000 billion.

Question 19

Assume the marginal propensity to consume (MPC) is 0.75 and the government increases taxes by $250 billion.The aggregate demand curve will shift to the:

Accepted Answer

A)   left by $1,000 billion.
B)   right by $1,000 billion.
C)   left by $750 billion.
D)   right by $750 billion.

Question 20

If the marginal propensity to consume (MPC) is 0.80,the value of the spending multiplier is:

Accepted Answer

A)   2.
B)   5.
C)   8.
D)   10.

Exam 15: Fiscal Policy

Find the tax multiplier if the MPC is 0.75.

Correct AnswerverifiedShow Answer

Assume the marginal propensity to consume (MPC) is 0.75 and the government increases taxes by $250 billion.The aggregate demand curve will shift to the:

Correct AnswerverifiedShow Answer

Exhibit 15-6 Aggregate demand and supply model -In Exhibit 15-6,if the aggregate demand curve is at AD₁ ,the government should:

Correct AnswerverifiedShow Answer

If no fiscal policy changes are made,suppose the current aggregate demand curve will increase horizontally by $1,000 billion and cause inflation.If the marginal propensity to consume (MPC) is 0.80,federal policymakers could follow Keynesian economics and restrain inflation by decreasing:

Correct AnswerverifiedShow Answer

Automatic stabilizers combine changes in discretionary fiscal policy with changes in government spending and taxes influenced by the business cycle in order to stabilize the economy.

Correct AnswerverifiedShow Answer

If the marginal propensity to consume (MPC) is 0.80,the value of the spending multiplier is:

Correct AnswerverifiedShow Answer

Exhibit 15-6 Aggregate demand and supply model -In Exhibit 15-6,if the aggregate demand curve is at AD₂ ,the government should:

Correct AnswerverifiedShow Answer

The tax multiplier is equal to the spending multiplier.

Correct AnswerverifiedShow Answer

If the marginal propensity to consume (MPC) is 0.75,and if the goal is to increase real GDP by $400 million,then by how much would government spending have to change to generate this increase in real GDP?

Correct AnswerverifiedShow Answer

Exhibit 15-3 Aggregate demand and supply model -Suppose the economy in Exhibit 15-3 is in equilibrium at point E₁,and the marginal propensity to consume (MPC) is 0.75.Following Keynesian economics,to restore full employment,the government should cut taxes by:

Correct AnswerverifiedShow Answer

If the economy is experiencing inflation,then the most appropriate government policy would be to:

Correct AnswerverifiedShow Answer

Exhibit 15-8 Aggregate demand and supply curves -In Exhibit 15-8,supply-siders claimed that the shift from AS₁ to AS₂ would occur if the government:

Correct AnswerverifiedShow Answer

Supply-side economic policies are designed to shift the aggregate supply curve to the right,whereas Keynesian economic policies focus on shifting the aggregate demand curve to the right during recessions and to the left during an economic expansion.

Correct AnswerverifiedShow Answer

Fiscal policy is concerned with:

Correct AnswerverifiedShow Answer

Automatic stabilizers "lean against the prevailing wind" of the business cycle because:

Correct AnswerverifiedShow Answer

According to Keynesian economics,fiscal policy should create a deficit during economic contractions.

Correct AnswerverifiedShow Answer

If the marginal propensity to consume (MPC)is 0.90,the value of the spending multiplier is 90.

Correct AnswerverifiedShow Answer

If the marginal propensity to save (MPS) is 0.50,the value of the spending multiplier is:

Correct AnswerverifiedShow Answer

If the marginal propensity to save (MPS) is 0.25,the value of the spending multiplier is:

Correct AnswerverifiedShow Answer

Exhibit 15-5 Aggregate demand and supply model -Suppose the economy in Exhibit 15-5 is in equilibrium at point E₁ and the marginal propensity to consume (MPC) is 0.75.Following Keynesian economics,the federal government can move the economy to point E₂ and reduce inflation by:

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