Question 1

A cut in the income tax rate --------------------the tax wedge and employment, saving, and-------------------- investment.

Accepted Answer

A)  does not change; increases
B)  increases; increases
C)  decreases; increases
D)  decreases; does not change
E)  increases; decreasesF) C) and E)
G) A) and D)

Question 2

Needs-tested spending

Accepted Answer

A)  decreases in recessions and increases in expansions.
B)  increases in recessions and decreases in expansions.
C)  does not change with the level of economic activity.
D)  is always increasing regardless of whether we are in an expansion or a recession.
E)  cannot be changed unless the government changes the spending laws.F) All of the above
G) A) and B)

Question 3

The national debt is the amount

Accepted Answer

A)  by which government outlays exceed tax revenue in a given year.
B)  of all future entitlement spending.
C)  of debt outstanding that arises from past budget deficits.
D)  by which government tax revenue exceed outlays in a given year.
E)  of government outlays summed over time.F) D) and E)
G) B) and E)

Question 4

Needs-tested spending is defined as

Accepted Answer

A)  spending by the President on the White House.
B)  spending that increases in expansions and decreases in recessions.
C)  spending by Congress on its own perks of office.
D)  spending on programs for people qualified to receive benefits.
E)  taxes paid by those qualified by their income.F) A) and E)
G) A) and D)

Question 5

Mainstream economists believe that Keynesian economists overstate the effect of the multiplier effect. Which of the following statements would mainstream economists NOT consider to be accurate?

Accepted Answer

A)  A fiscals stimulus does not provide a 'free lunch' but does 'crowd out' private consumption expenditure and investment.
B)  A fiscal stimulus is a vital tool to fight recession and depression due to the multiplier effect.
C)  Effects of a fiscal stimulus are incapable of working fast enough to make a difference.
D)  A fiscal stimulus results in bigger government, lower potential GDP, and slower real GDP growth.
E)  Effects of a fiscal stimulus are small and short lived.F) A) and B)
G) A) and E)

Question 6

In order to reduce inflationary pressure on the economy, what fiscal policy can the government use?

Accepted Answer

A)  cut interest rates
B)  increase the quantity of money
C)  raise taxes
D)  increase government expenditure on goods and services
E)  cut taxesF) A) and E)
G) A) and D)

Question 7

The balanced budget multiplier is

Accepted Answer

A)  positive because the magnitude of government expenditure multiplier is smaller than the magnitude of tax multiplier.
B)  positive because the magnitude of government expenditure multiplier is larger than the magnitude of tax multiplier.
C)  equal to zero.
D)  negative because the magnitude of the tax multiplier is larger than the magnitude of the government expenditure multiplier.
E)  negative because the magnitude of government expenditure multiplier is larger than the magnitude of the tax multiplier.F) All of the above
G) B) and D)

Question 8

If the economy has a structural deficit of $25 billion and a cyclical deficit of $75, we can conclude that the current budget deficit is -------------------- billion.

Accepted Answer

A)  $50
B)  $75
C)  $0
D)  $25
E)  $100F) B) and C)
G) D) and E)

Question 9

If a tax cut increases aggregate demand more than aggregate supply, real GDP-------------------- and the price level --------------------.

Accepted Answer

A)  increases; falls
B)  decreases; rises
C)  increases; rises
D)  decreases; falls
E)  increases; does not changeF) B) and C)
G) A) and E)

Question 10

Induced taxes are defined as taxes

Accepted Answer

A)  that are avoided with the use of legal tax shelters.
B)  that vary with real GDP.
C)  we are forced to pay for services from the government.
D)  that rise in recessions and fall in expansions.
E)  enacted by Congress that explicitly state the amount to be paid.F) B) and D)
G) A) and E)

Question 11

Needs-tested spending

Accepted Answer

A)  is directing government spending and taxes to states that need the most help.
B)  is giving tax cuts to wealthy people so they will increase their spending.
C)  cannot be changed without changes in the laws.
D)  includes homeland defense spending.
E)  includes transfer payments such as food stamps and unemployment benefits.F) B) and C)
G) B) and E)

Question 12

To eliminate an inflationary gap using fiscal policy, the government could

Accepted Answer

A)  only decrease taxes.
B)  increase taxes.
C)  increase government expenditure on goods and services and simultaneously decrease taxes by an equal amount.
D)  increase government expenditure on goods and services and simultaneously increase taxes by an equal amount.
E)  decrease the quantity of money.F) B) and C)
G) A) and B)

Question 13

If we compare the United States to France, the U.S. tax wedge is--------------------the French tax wedge.

Accepted Answer

A)  equal to
B)  larger than
C)  smaller in the labor market and larger in the goods market than
D)  not comparable to
E)  smaller thanF) A) and E)
G) C) and D)

Question 14

If an economy is at the short-run equilibrium illustrated by the figure above, a discretionary fiscal
Policy to adjust the economy to full employment is to

Accepted Answer

A)  decrease taxes.
B)  increase taxes and decrease government spending simultaneously.
C)  increase government spending.
D)  decrease the quantity of money.
E)  increase the quantity of money.F) None of the above
G) C) and D)

Question 15

-------------------- 110 and real GDP would be --------------------$14 trillion. A) equal to; larger than B) higher than; larger than C) smaller than; less than D) smaller than; larger than E) equal to; equal to" class="answers-bank-image d-inline" rel="preload" >
-

Suppose the shift from AD0 to AD1 and from AS0 to AS1 is the result of fiscal policy. If the effect on aggregate demand was larger than the figure above shows, as a result the price level would be--------------------
110 and real GDP would be --------------------$14 trillion.

Accepted Answer

A)  equal to; larger than
B)  higher than; larger than
C)  smaller than; less than
D)  smaller than; larger than
E)  equal to; equal toF) A) and E)
G) A) and D)

Question 16

In the United States for the year 2012, the federal government had a-------------------- so the national debt was-------------------- .

Accepted Answer

A)  budget surplus; decreasing
B)  budget deficit; decreasing
C)  budget surplus; increasing
D)  budget deficit; increasing
E)  balanced budget; not changingF) A) and C)
G) C) and D)

Question 17

The government expenditure multiplier and the tax multiplier are

Accepted Answer

A)  identical in size.
B)  different in size and the government expenditure multiplier is larger.
C)  not comparable because the government expenditure multiplier applies to aggregate demand and the tax multiplier applies to aggregate supply.
D)  different in size and the tax multiplier is larger.
E)  not comparable because the government expenditure multiplier applies to aggregate supply and the tax multiplier applies to aggregate demand.F) A) and C)
G) C) and D)

Question 18

In 2009, Congress passed tax laws to reduce income tax rates for some taxpayers. This action is called

Accepted Answer

A)  an automatic fiscal policy.
B)  a discretionary revenue policy.
C)  an annual tax policy.
D)  a discretionary fiscal policy.
E)  induced tax policy.F) A) and C)
G) C) and E)

Question 19

If government expenditure increases by $200 billion and taxes simultaneously increase by $200 billion, then aggregate demand

Accepted Answer

A)  decreases no matter what happens to aggregate supply.
B)  remains the same.
C)  increases no matter what happens to aggregate supply.
D)  increases only if aggregate supply decreases.
E)  increases only if aggregate supply increases.F) B) and C)
G) A) and D)

Question 20

The supply-side effects show that a tax cut on labor income-------------------- employment and-------------------- potential GDP.

Accepted Answer

A)  increases; increases
B)  increases; decreases
C)  increases; does not change
D)  decreases; decreases
E)  decreases; increasesF) A) and E)
G) B) and D)

Exam 16: Fiscal Policy

In 2009, Congress passed tax laws to reduce income tax rates for some taxpayers. This action is called

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If we compare the United States to France, the U.S. tax wedge is--------------------the French tax wedge.

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Induced taxes are defined as taxes

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The supply-side effects show that a tax cut on labor income-------------------- employment and-------------------- potential GDP.

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To eliminate an inflationary gap using fiscal policy, the government could

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The government expenditure multiplier and the tax multiplier are

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If the economy has a structural deficit of $25 billion and a cyclical deficit of $75, we can conclude that the current budget deficit is -------------------- billion.

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The national debt is the amount

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In order to reduce inflationary pressure on the economy, what fiscal policy can the government use?

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A cut in the income tax rate --------------------the tax wedge and employment, saving, and-------------------- investment.

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If government expenditure increases by $200 billion and taxes simultaneously increase by $200 billion, then aggregate demand

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If a tax cut increases aggregate demand more than aggregate supply, real GDP-------------------- and the price level --------------------.

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Needs-tested spending

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If an economy is at the short-run equilibrium illustrated by the figure above, a discretionary fiscal Policy to adjust the economy to full employment is to

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The balanced budget multiplier is

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- Suppose the shift from AD0 to AD1 and from AS0 to AS1 is the result of fiscal policy. If the effect on aggregate demand was larger than the figure above shows, as a result the price level would be-------------------- 110 and real GDP would be --------------------$14 trillion.

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Needs-tested spending

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Needs-tested spending is defined as

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In the United States for the year 2012, the federal government had a-------------------- so the national debt was-------------------- .

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Mainstream economists believe that Keynesian economists overstate the effect of the multiplier effect. Which of the following statements would mainstream economists NOT consider to be accurate?

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If we compare the United States to France, the U.S. tax wedge is_{--------------------}the French tax wedge.

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The supply-side effects show that a tax cut on labor income_{--------------------} employment and_{--------------------} potential GDP.

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If the economy has a structural deficit of $25 billion and a cyclical deficit of $75, we can conclude that the current budget deficit is _{--------------------} billion.

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A cut in the income tax rate _{--------------------}the tax wedge and employment, saving, and_{--------------------} investment.

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If a tax cut increases aggregate demand more than aggregate supply, real GDP_{--------------------} and the price level _{--------------------}.

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- Suppose the shift from AD0 to AD1 and from AS0 to AS1 is the result of fiscal policy. If the effect on aggregate demand was larger than the figure above shows, as a result the price level would be_{--------------------} 110 and real GDP would be _{--------------------}$14 trillion.

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In the United States for the year 2012, the federal government had a_{--------------------} so the national debt was_{--------------------} .

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