Question 1

Figure 27-6 
-Refer to Figure 27-6.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 pursue

Accepted Answer

A)  expansionary fiscal policy.
B)  contractionary fiscal policy.
C)  expansionary monetary policy.
D)  contractionary monetary policy.
E)  expansionary automatic stabilizers.F) None of the above
G) A) and B)

Question 2

Calculate the value of the government purchases multiplier if the marginal propensity to consume equals 0.8,the tax rate equals 0.2,and the marginal propensity to import equals 0.05.

Accepted Answer

Government purchases...

Question 3

Consider the following statement,"The Federal Reserve fights recessions by increasing the money supply so people will have more money to spend." What is wrong with the statement and how can it be corrected?

Accepted Answer

The Federal Reserve fights recessions by...

Question 4

Included in government expenditures are government purchases and transfer payments.

Accepted Answer

A) True 
 B)False

Question 5

What is the government purchases multiplier if the tax rate is 0.1 and the marginal propensity to consume is 0.9? Assume the economy is closed.

Accepted Answer

A)  5.3
B)  10
C)  11.1
D)  100E) C) and D)
F) B) and C)

Question 6

What are the key differences between how we illustrate an expansionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

Accepted Answer

In the basic aggregate demand and aggreg...

Question 7

Fiscal policy refers to changes in

Accepted Answer

A)  state and local taxes and purchases that are intended to achieve macroeconomic policy objectives.
B)  federal taxes and purchases that are intended to achieve macroeconomic policy objectives.
C)  federal taxes and purchases that are intended to fund the war on terrorism.
D)  the money supply and interest rates that are intended to achieve macroeconomic policy objectives.E) A) and C)
F) A) and D)

Question 8

The aggregate demand curve will shift to the right ________ the initial decrease in taxes.

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 thanE) B) and C)
F) None of the above

Question 9

To evaluate the size of the federal budget deficit or surplus over time,it would be best to look at the

Accepted Answer

A)  absolute size of the budget deficit or surplus.
B)  budget deficit or surplus as a percentage of GDP.
C)  budget deficit or surplus as a percentage of tax revenues.
D)  budget deficit or surplus as a percentage of government spending.E) A) and D)
F) None of the above

Question 10

Suppose that Congress allocates $5 billion to an "energy-efficient appliance rebate" program.It also raises taxes by $5 billion to keep the deficit from growing.If the marginal propensity to consume is 0.8,what is the effect on equilibrium GDP?

Accepted Answer

A)  GDP does not change.
B)  GDP increases by $25 billion.
C)  GDP increases by $4 billion.
D)  GDP increases by $5 billion.E) B) and C)
F) None of the above

Question 11

Suppose the president is successful in passing a $5 billion tax increase.Assume that taxes are fixed,the economy is closed,and the marginal propensity to consume is 0.75.What happens to equilibrium GDP?

Accepted Answer

A)  There is a $20 billion increase in equilibrium GDP.
B)  There is a $20 billion decrease in equilibrium GDP.
C)  There is a $15 billion increase in equilibrium GDP.
D)  There is a $15 billion decrease in equilibrium GDP.E) A) and B)
F) A) and C)

Question 12

Compared to the averages for post World War II recessions,the recession of 2007-2009 was ________ in duration and the decline in real GDP was ________.

Accepted Answer

A)  longer;greater
B)  longer;smaller
C)  shorter;greater
D)  shorter;smallerE) A) and B)
F) A) and D)

Question 13

Historically,the largest U.S.federal budget deficits as a percentage of GDP in the 20th century occurred during

Accepted Answer

A)  World War I and World War II.
B)  the Great Depression.
C)  1970-1997.
D)  the Vietnam war.
E)  1998-1999.F) B) and E)
G) A) and 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;decreasesE) A) and B)
F) A) and C)

Question 15

What are the key differences between how we illustrate a contractionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

Accepted Answer

In the basic aggregate demand and aggreg...

Question 16

Figure 27-6 
-Refer to Figure 27-6.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)  increase the money supply and decrease the interest rate.
B)  increase taxes.
C)  increase government spending.
D)  increase oil prices.
E)  raise interest rates.F) B) and D)
G) A) and E)

Question 17

If the federal government's expenditures are less than its tax revenues,then

Accepted Answer

A)  a budget surplus results.
B)  a budget deficit results.
C)  the budget is balanced.
D)  No conclusion can be drawn here regarding the budget surplus or deficit without information regarding government purchases versus other outlays.E) A) and C)
F) A) and B)

Question 18

Contractionary fiscal policy involves decreasing government purchases or increasing taxes.

Accepted Answer

A) True 
 B)False

Question 19

Figure 27-9 
-Refer to Figure 27-9.Given that the economy has moved from point A to point B in the graph above,which of the following would be the appropriate fiscal policy to achieve potential GDP?

Accepted Answer

A)  increase taxes
B)  increase government spending
C)  decrease the money supply
D)  increase interest ratesE) None of the above
F) C) and D)

Question 20

If Congress passed a one-time tax cut in order to stimulate the economy in 2014,and tax rate levels returned to their pre-2014 level in 2015,how should this tax cut affect the economy?

Accepted Answer

A)  The tax cut would increase consumption spending less than would a permanent tax cut.
B)  The tax cut would increase consumption spending more than would a permanent tax cut.
C)  The tax cut would increase consumption spending by the same amount as would a permanent tax cut.
D)  The tax cut would lower the price level in 2014.E) B) and D)
F) C) and D)

Exam 27: Fiscal Policy

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

Correct AnswerverifiedShow Answer

Figure 27-6 -Refer to Figure 27-6.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 pursue

Correct AnswerverifiedShow Answer

Compared to the averages for post World War II recessions,the recession of 2007-2009 was ________ in duration and the decline in real GDP was ________.

Correct AnswerverifiedShow Answer

Calculate the value of the government purchases multiplier if the marginal propensity to consume equals 0.8,the tax rate equals 0.2,and the marginal propensity to import equals 0.05.

Correct AnswerverifiedGovernment purchases...View AnswerShow Answer

Figure 27-9 -Refer to Figure 27-9.Given that the economy has moved from point A to point B in the graph above,which of the following would be the appropriate fiscal policy to achieve potential GDP?

Correct AnswerverifiedShow Answer

Included in government expenditures are government purchases and transfer payments.

Correct AnswerverifiedShow Answer

To evaluate the size of the federal budget deficit or surplus over time,it would be best to look at the

Correct AnswerverifiedShow Answer

What are the key differences between how we illustrate a contractionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

Correct AnswerverifiedIn the basic aggregate demand and aggreg...View AnswerShow Answer

If Congress passed a one-time tax cut in order to stimulate the economy in 2014,and tax rate levels returned to their pre-2014 level in 2015,how should this tax cut affect the economy?

Correct AnswerverifiedShow Answer

Contractionary fiscal policy involves decreasing government purchases or increasing taxes.

Correct AnswerverifiedShow Answer

What are the key differences between how we illustrate an expansionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

Correct AnswerverifiedIn the basic aggregate demand and aggreg...View AnswerShow Answer

Figure 27-6 -Refer to Figure 27-6.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

Consider the following statement,"The Federal Reserve fights recessions by increasing the money supply so people will have more money to spend." What is wrong with the statement and how can it be corrected?

Correct AnswerverifiedThe Federal Reserve fights recessions by...View AnswerShow Answer

Suppose that Congress allocates $5 billion to an "energy-efficient appliance rebate" program.It also raises taxes by $5 billion to keep the deficit from growing.If the marginal propensity to consume is 0.8,what is the effect on equilibrium GDP?

Correct AnswerverifiedShow Answer

If the federal government's expenditures are less than its tax revenues,then

Correct AnswerverifiedShow Answer

The aggregate demand curve will shift to the right ________ the initial decrease in taxes.

Correct AnswerverifiedShow Answer

What is the government purchases multiplier if the tax rate is 0.1 and the marginal propensity to consume is 0.9? Assume the economy is closed.

Correct AnswerverifiedShow Answer

Fiscal policy refers to changes in

Correct AnswerverifiedShow Answer

Historically,the largest U.S.federal budget deficits as a percentage of GDP in the 20th century occurred during

Correct AnswerverifiedShow Answer

Suppose the president is successful in passing a $5 billion tax increase.Assume that taxes are fixed,the economy is closed,and the marginal propensity to consume is 0.75.What happens to equilibrium GDP?

Correct AnswerverifiedShow Answer

Expansionary fiscal policy the price level and equilibrium real GDP.

Correct Answer
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Compared to the averages for post World War II recessions,the recession of 2007-2009 was in duration and the decline in real GDP was .

Correct Answer
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Correct Answer
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Government purchases...
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In the basic aggregate demand and aggreg...
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In the basic aggregate demand and aggreg...
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Correct Answer
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The Federal Reserve fights recessions by...
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