Question 1

When government purchases increase, the spending multiplier tells us the

Accepted Answer

A)  amount of movement along the aggregate demand curve
B)  amount of movement along the aggregate supply curve
C)  size of the rightward shift of the aggregate demand curve at a given price level
D)  size of the rightward shift of the aggregate supply curve at a given price level
E)  size of the expansionary gapF) A) and B)
G) A) and C)

Question 2

According to Keynes,

Accepted Answer

A)  fiscal policy should not be used to influence the economy
B)  the economy eventually tends toward the potential output
C)  to get the economy to potential output, the SRAS curve must shift to the right
D)  the economy could be stuck at equilibrium below the potential output for a prolonged period
E)  deviations from potential output are short-livedF) A) and B)
G) A) and C)

Question 3

Suppose that instead of using discretionary fiscal policy to close an expansionary gap, policy makers left the economy alone. What would probably happen?

Accepted Answer

A)  depression would result
B)  the economy would be stuck in an expansionary gap
C)  the aggregate demand curve would shift, eliminating the problem
D)  the gap would close after a spurt of inflation
E)  the short-run aggregate supply curve would shift to the rightF) C) and D)
G) A) and B)

Question 4

Which of the following had the greatest impact in pulling the U.S. economy out of the Great Depression?

Accepted Answer

A)  the economy's natural tendency to contract toward potential output
B)  the federal government's aggressive policy of tax cuts
C)  the federal government's aggressive policy of monetary stimulus
D)  a precipitous drop in aggregate demand
E)  the increased spending brought on by World War IIF) C) and D)
G) B) and C)

Question 5

All of the following are variables that can be manipulated to affect fiscal policy except one. Which is the exception?

Accepted Answer

A)  personal income taxes
B)  government expenditures on goods and services
C)  government expenditures on unemployment benefits
D)  the interest rate
E)  corporate income taxesF) B) and E)
G) A) and D)

Question 6

By how much would government purchases have to change if the government wanted to increase income by $1,000 and the MPC were 0.9?

Accepted Answer

A)  $100
B)  $900
C)  $1,000
D)  $10,000/9
E)  $10,000F) A) and B)
G) B) and D)

Question 7

Because the income tax is progressive, the amount of taxes paid is a

Accepted Answer

A)  constant fraction of income throughout the business cycle (i.e., as the economy experiences considerable fluctuation) 
B)  larger fraction of income in expansions than in contractions
C)  smaller fraction of income in expansions than in contractions
D)  decreasing function of income in both expansions and contractions
E)  constant amountF) A) and D)
G) All of the above

Question 8

Which of the following was a successful application of fiscal policy in the United States?

Accepted Answer

A)  Roosevelt's strategy in combating the Great Depression
B)  the tax cut of 1964
C)  the temporary tax surcharge of 1968
D)  the battle against stagflation during the 1970s
E)  the large tax cut of 1981F) B) and D)
G) C) and E)

Question 9

The simple tax multiplier must always be smaller than the simple spending multiplier, regardless of the value of the MPC.

Accepted Answer

A) True 
 B)False

Question 10

A temporary tax cut would not be effective in stimulating aggregate demand if

Accepted Answer

A)  the tax cut were large
B)  the MPC were relatively high
C)  the economy were in a contractionary gap
D)  the short-run aggregate supply curve were relatively flat
E)  people based consumption decisions on their level of permanent incomeF) None of the above
G) A) and E)

Question 11

The U.S. federal income tax is progressive, which means that

Accepted Answer

A)  tax receipts grow at the same rate that income does
B)  tax receipts grow at the same rate that government spending does
C)  middle income individuals pay more total taxes than either high or low-income individuals
D)  high-income individuals are generally able to pay fewer taxes
E)  high-income individuals are taxed at a higher rate than low-income individualsF) C) and D)
G) A) and B)

Question 12

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) All of the above
G) A) and B)

Question 13

Given the desire of politicians to get reelected, they might try in the short run to use the economic tool of

Accepted Answer

A)  monetary policy
B)  fiscal policy
C)  dirty tricks
D)  tax increases
E)  increases in the price levelF) A) and E)
G) C) and D)

Question 14

The simple tax multiplier is

Accepted Answer

A)  1/MPC
B)  1
C)  1/(1 - MP
C)  
D)  MPC/(1 - MP
C)  
E)  -MPC/(1 - MP
C)  F) C) and D)
G) B) and D)

Question 15

The natural rate of unemployment is that rate at which the economy achieves its potential real GDP.

Accepted Answer

A) True 
 B)False

Question 16

Supply-side economics emphasized government policies to

Accepted Answer

A)  stimulate aggregate demand
B)  increase minimum wage to improve labor productivity
C)  stimulate real GDP by improving incentives to work
D)  lower interest rates
E)  increase tax revenues of government in order to increase government purchasesF) A) and B)
G) A) and C)

Question 17

Assume that initially G is $100 and equilibrium real GDP demanded is $1,000. If the multiplier is 4 and G increases to $200, real GDP demanded will increase

Accepted Answer

A)  by $100
B)  by $2,000
C)  by $1,000
D)  to $1,400
E)  to $2,000F) A) and E)
G) A) and C)

Question 18

The flatter the short-run aggregate supply curve,

Accepted Answer

A)  the flatter the aggregate demand curve
B)  the larger the value of the spending multiplier
C)  the smaller the value of the spending multiplier
D)  the larger the impact of a shift in aggregate demand on the equilibrium price level
E)  the larger the impact of a shift in aggregate demand on the equilibrium output levelF) B) and C)
G) A) and E)

Question 19

Of the following fiscal programs, which has the smallest effect, per dollar, on aggregate demand?

Accepted Answer

A)  defense spending
B)  road construction
C)  grants for scientific research and development
D)  Social Security
E)  government purchases of laborF) B) and D)
G) B) and C)

Question 20

One thing that policy makers often overlook is

Accepted Answer

A)  how quickly fiscal policy can respond to changes in economic conditions
B)  how fiscal policies unintentionally affect individual incentive to work, spend, save and invest
C)  how fiscal policy affects the price level
D)  how fiscal policy affects the economy's output
E)  how voters might respond to a policy that increases taxesF) C) and E)
G) A) and B)

Exam 13: Fiscal Policy

The flatter the short-run aggregate supply curve,

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Of the following fiscal programs, which has the smallest effect, per dollar, on aggregate demand?

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The natural rate of unemployment is that rate at which the economy achieves its potential real GDP.

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Because the income tax is progressive, the amount of taxes paid is a

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If the economy is already producing at its potential,

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According to Keynes,

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Assume that initially G is $100 and equilibrium real GDP demanded is $1,000. If the multiplier is 4 and G increases to $200, real GDP demanded will increase

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A temporary tax cut would not be effective in stimulating aggregate demand if

Correct AnswerverifiedShow Answer

The U.S. federal income tax is progressive, which means that

Correct AnswerverifiedShow Answer

Which of the following had the greatest impact in pulling the U.S. economy out of the Great Depression?

Correct AnswerverifiedShow Answer

Which of the following was a successful application of fiscal policy in the United States?

Correct AnswerverifiedShow Answer

Given the desire of politicians to get reelected, they might try in the short run to use the economic tool of

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All of the following are variables that can be manipulated to affect fiscal policy except one. Which is the exception?

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One thing that policy makers often overlook is

Correct AnswerverifiedShow Answer

Suppose that instead of using discretionary fiscal policy to close an expansionary gap, policy makers left the economy alone. What would probably happen?

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The simple tax multiplier is

Correct AnswerverifiedShow Answer

By how much would government purchases have to change if the government wanted to increase income by $1,000 and the MPC were 0.9?

Correct AnswerverifiedShow Answer

Supply-side economics emphasized government policies to

Correct AnswerverifiedShow Answer

When government purchases increase, the spending multiplier tells us the

Correct AnswerverifiedShow Answer

The simple tax multiplier must always be smaller than the simple spending multiplier, regardless of the value of the MPC.

Correct AnswerverifiedShow Answer

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