Question 1

If real GDP is $300 billion below potential GDP and the tax multiplier equals -1.5,then how much would the government need to change taxes to bring the economy to equilibrium at potential?

Accepted Answer

The government would need to c...

Question 2

For the federal deficit to be lowered

Accepted Answer

A)   the federal government must increase its spending and increase net exports.
B)   the federal government's expenditures must be lower than its tax revenue.
C)   the Federal Reserve must raise interest rates and lower the required reserve ratio.
D)   the Federal Reserve must reduce the money supply.

Question 3

Contractionary fiscal policy involves decreasing government purchases or increasing taxes.

Accepted Answer

A) True 
 B)False

Question 4

Included in government expenditures are government purchases and transfer payments.

Accepted Answer

A) True 
 B)False  True

Question 5

In 2017,the Congressional Budget Office forecast that real GDP would grow at an average annual rate of ________ for the years 2017-2027.

Accepted Answer

A)   0.4%
B)   0.7%
C)   1.5%
D)   1.9%

Question 6

Suppose the government spending multiplier is 2.The federal government cuts spending by $40 billion.What is the change in GDP if the price level is not held constant?

Accepted Answer

A)   an increase of less than $80 billion
B)   an increase equal to $80 billion
C)   an increase of greater than $80 billion
D)   a decrease of less than $80 billion
E)   a decrease of more than $80 billion

Question 7

Congress and the president carry out fiscal policy through changes in

Accepted Answer

A)   interest rates and the money supply.
B)   taxes and the interest rate.
C)   government purchases and the money supply.
D)   government purchases and taxes.

Question 8

The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was

Accepted Answer

A)   in a recession.
B)   in an expansion.
C)   at potential GDP.
D)   at potential tax revenue.

Question 9

Accumulating debt poses a problem for the U.S.federal government because

Accepted Answer

A)   it is currently in danger of defaulting on the debt.
B)   a large debt-to-GDP ratio causes crowding out.
C)   building roads and bridges do not yield enough benefits to justify their cost.
D)   the debt has to ultimately be paid off.

Question 10

Which of the following is considered contractionary fiscal policy?

Accepted Answer

A)   Congress increases the income tax rate.
B)   Congress increases defense spending.
C)   Legislation removes a college tuition deduction from federal income taxes.
D)   The New Jersey legislature cuts highway spending to balance its budget.

Question 11

Figure 18-5
 
-Refer to Figure 18-5.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,Congress and the president would most likely

Accepted Answer

A)   decrease government spending.
B)   increase government spending.
C)   increase oil prices.
D)   increase taxes.
E)   lower interest rates.

Question 12

Which of the following statements about the Social Security,Medicare,and Medicaid programs is true?

Accepted Answer

A)   Spending on these three programs will rise from 10.4% of GDP currently to 19.7% of GDP by 2040.
B)   Costs are being driven up by the fact that Americans are living longer and medical costs are rising substantially.
C)   Some economists have argued for decreasing taxes to help with these programs' funding problems.
D)   Some economists have argued for increasing benefits to help with these programs' funding problems.

Question 13

Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced.What will happen to real equilibrium GDP?

Accepted Answer

A)   Real equilibrium GDP will fall.
B)   Real equilibrium GDP will rise.
C)   There will be no change in real equilibrium GDP.
D)   Real equilibrium GDP will initially rise, but then fall below its previous equilibrium value. B

Question 14

Expansionary fiscal policy ________ the price level and ________ equilibrium real GDP.

Accepted Answer

A)   decreases; increases
B)   increases; decreases
C)   increases; increases
D)   decreases; decreases

Question 15

The government purchases multiplier equals the change in ________ divided by the change in ________.

Accepted Answer

A)   government purchases; equilibrium real GDP
B)   equilibrium real GDP; government purchases
C)   government purchases; consumption spending
D)   consumption spending; government purchases B

Question 16

Data indicates that recessions following financial crises ________ recessions which do not follow financial crises.

Accepted Answer

A)   are more severe than
B)   are less severe than
C)   are equally severe as
D)   Data does not show any link between the severity of recessions following financial crises.

Question 17

Reducing the marginal tax rate on income will

Accepted Answer

A)   reduce the tax wedge faced by workers and increase labor supplied.
B)   raise the return to entrepreneurship and encourage the opening of new businesses.
C)   increase the after-tax return on saving, and encourage saving.
D)   All of the above are correct.

Question 18

President Trump's proposed increase in spending on infrastructure projects is an example of discretionary fiscal policy aimed at increasing

Accepted Answer

A)   real GDP and employment.
B)   tax revenues and the federal budget surplus.
C)   disposable income and interest rates.
D)   the money supply and money demand.

Question 19

The three categories of federal government expenditures,in addition to government purchases,are

Accepted Answer

A)   interest on the national debt, grants to state and local governments, and transfer payments.
B)   interest on the national debt, defense spending, and transfer payments.
C)   defense spending, budgets of federal agencies, and transfer payments.
D)   defense spending, Social Security, and Medicare.

Question 20

The aggregate demand curve will shift to the left ________ the initial decrease in government purchases.

Accepted Answer

A)   by less than
B)   by more than
C)   by the same amount as
D)   sometimes by more than and other times by less than

Exam 18: Fiscal Policy

If real GDP is $300 billion below potential GDP and the tax multiplier equals -1.5,then how much would the government need to change taxes to bring the economy to equilibrium at potential?

Correct AnswerverifiedThe government would need to c...View AnswerShow Answer

For the federal deficit to be lowered

Correct AnswerverifiedShow Answer

Contractionary fiscal policy involves decreasing government purchases or increasing taxes.

Correct AnswerverifiedShow Answer

Included in government expenditures are government purchases and transfer payments.

Correct AnswerverifiedTrue

In 2017,the Congressional Budget Office forecast that real GDP would grow at an average annual rate of ________ for the years 2017-2027.

Correct AnswerverifiedShow Answer

Suppose the government spending multiplier is 2.The federal government cuts spending by $40 billion.What is the change in GDP if the price level is not held constant?

Correct AnswerverifiedShow Answer

Congress and the president carry out fiscal policy through changes in

Correct AnswerverifiedShow Answer

The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was

Correct AnswerverifiedShow Answer

Accumulating debt poses a problem for the U.S.federal government because

Correct AnswerverifiedShow Answer

Which of the following is considered contractionary fiscal policy?

Correct AnswerverifiedShow Answer

Figure 18-5 -Refer to Figure 18-5.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,Congress and the president would most likely

Correct AnswerverifiedShow Answer

Which of the following statements about the Social Security,Medicare,and Medicaid programs is true?

Correct AnswerverifiedShow Answer

Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced.What will happen to real equilibrium GDP?

Correct AnswerverifiedB

Expansionary fiscal policy ________ the price level and ________ equilibrium real GDP.

Correct AnswerverifiedShow Answer

The government purchases multiplier equals the change in ________ divided by the change in ________.

Correct AnswerverifiedB

Data indicates that recessions following financial crises ________ recessions which do not follow financial crises.

Correct AnswerverifiedShow Answer

Reducing the marginal tax rate on income will

Correct AnswerverifiedShow Answer

President Trump's proposed increase in spending on infrastructure projects is an example of discretionary fiscal policy aimed at increasing

Correct AnswerverifiedShow Answer

The three categories of federal government expenditures,in addition to government purchases,are

Correct AnswerverifiedShow Answer

The aggregate demand curve will shift to the left ________ the initial decrease in government purchases.

Correct AnswerverifiedShow Answer

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The government would need to c...
View Answer

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True

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B

Expansionary fiscal policy the price level and equilibrium real GDP.

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The government purchases multiplier equals the change in divided by the change in .

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B

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