Question 1

The multiplier effect of changes in government transfers is:

Accepted Answer

A)  greater than the multiplier effect of a change in government spending.
B)  zero because transfer payments do not affect aggregate demand.
C)  less than the multiplier effect of a change in government spending.
D)  impossible to determine.E) None of the above
F) A) and C)

Question 2

Medicaid, food stamps, and sales taxes are all automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 3

Time lags make:

Accepted Answer

A)  fiscal policy more effective than monetary policy.
B)  monetary policy more effective than fiscal policy.
C)  correct use of both fiscal and monetary policy challenging.
D)  both fiscal and monetary policy more effective.E) A) and D)
F) A) and C)

Question 4

If the marginal propensity to consume is 0.9, then the government spending multiplier is:

Accepted Answer

A)  0.1.
B)  1.11.
C)  9.
D)  10.E) B) and C)
F) A) and B)

Question 5

The government has a budget deficit if:

Accepted Answer

A)  its total revenues are equal to its total expenditures.
B)  its total revenues are less than its total expenditures.
C)  its total revenues are greater than its total expenditures.
D)  the money supply is less than total expenditures.E) B) and C)
F) A) and D)

Question 6

Suppose the government increases taxes by more than is necessary to close an inflationary gap. Which of the following is the most likely result?

Accepted Answer

A)  Equilibrium real GDP will be more than anticipated.
B)  The economy will move into a recession.
C)  The economy will generate a larger inflationary gap than anticipated.
D)  This will not have any adverse effects on the economy, since inflation has been abated.E) B) and D)
F) A) and C)

Question 7

When the government borrows funds to pay for budget deficits:

Accepted Answer

A)  planned aggregate spending decreases rather than increases.
B)  the multiplier effect of government purchases increases.
C)  private investment spending may be crowded out.
D)  the interest rate and savings decrease.E) A) and D)
F) B) and C)

Question 8

If legislation required the budget to be balanced at all times, _____ as an automatic stabilizer of the business cycle.

Accepted Answer

A)  fiscal policy could not operate
B)  it would reduce the effectiveness of monetary policy
C)  it would increase the effectiveness of discretionary fiscal policy
D)  monetary policy could not operateE) A) and C)
F) B) and C)

Question 9

The largest source of federal tax revenues is:

Accepted Answer

A)  property taxes.
B)  personal income taxes.
C)  corporate income taxes.
D)  sales taxes.E) A) and D)
F) A) and B)

Question 10

Use the following to answer questions :
Scenario: Fiscal Policy
Consider the economy of Arcadia. Its households spend 75% of increases in their income. There are no taxes and no foreign trade. Its currency is the arc. Potential output is 600 billion arcs.
-(Scenario: Fiscal Policy)  Look at the scenario Fiscal Policy. The government spending multiplier is:

Accepted Answer

A)  5.
B)  0.75.
C)  4.
D)  3.E) All of the above
F) B) and C)

Question 11

Suppose that real GDP is $500, potential GDP is $1,000, and the marginal propensity to consume is 0.9. If the government is going to spend and does not impose taxes, what specific fiscal policy action should policy makers take?

Accepted Answer

The marginal propensity to con...

Question 12

Use the following to answer questions:
Figure: Fiscal Policy I 2. If there is a decrease in government purchases, _____ will shift to the _____, causing a(n)  _____ in the price level and a(n)  _____ in real GDP. A) AD2; left; increase; decrease B) AD2; left; decrease; decrease C) AD1; right; increase; increase D) AD1; right; decrease; increase" class="answers-bank-image d-inline" rel="preload" >
-(Figure: Fiscal Policy I)  Look at the figure Fiscal Policy I. Suppose that this economy is in equilibrium at E2. If there is a decrease in government purchases, _____ will shift to the _____, causing a(n)  _____ in the price level and a(n)  _____ in real GDP.

Accepted Answer

A)  AD2; left; increase; decrease
B)  AD2; left; decrease; decrease
C)  AD1; right; increase; increase
D)  AD1; right; decrease; increaseE) A) and B)
F) C) and D)

Question 13

If the economy exhibited an inflationary gap, the government should follow a(n)  _____ policy, which would shift the AD curve to the _____.

Accepted Answer

A)  expansionary; right
B)  contractionary; right
C)  expansionary; left
D)  contractionary; leftE) A) and B)
F) A) and C)

Question 14

Because the revenue from personal income taxes increases as disposable income increases:

Accepted Answer

A)  the multiplier effect decreases.
B)  the marginal propensity to consume decreases as income increases.
C)  the multiplier effect increases.
D)  the marginal propensity to save increases as income decreases.E) A) and B)
F) C) and D)

Question 15

As a country's public debt grows, the portion of its budget devoted to interest payments on the debt will decrease.

Accepted Answer

A) True 
 B)False

Question 16

The inclusion of a tax rate in the model results in a new multiplier that is:

Accepted Answer

A)  larger than the original multiplier.
B)  the same as the original multiplier if the economy is in a recession.
C)  smaller than the original multiplier.
D)  not affected by automatic stabilizers.E) B) and C)
F) None of the above

Question 17

A cut in taxes _____, shifting the aggregate demand curve to the _____.

Accepted Answer

A)  decreases government transfers and consumption; right
B)  increases disposable income and consumption; right
C)  decreases the marginal propensity to save, increasing consumption; left
D)  increases corporate profits and investment; leftE) C) and D)
F) B) and D)

Question 18

The ratio of debt to GDP is a way to assess the ability of a government to pay its debts because it is an indicator of the taxes that the government can collect to pay the debt.

Accepted Answer

A) True 
 B)False

Question 19

Government spending will NOT crowd out private spending if:

Accepted Answer

A)  all of the resources in the economy are employed.
B)  aggregate income is at its potential level.
C)  there is an inflationary gap.
D)  there is a recessionary gap.E) None of the above
F) All of the above

Question 20

When the economy expands, income tax receipts will:

Accepted Answer

A)  rise, but sales tax revenues will remain the same.
B)  fall, but sales tax revenues will rise.
C)  stay the same unless the government changes the tax rates.
D)  rise, and sales tax revenues will rise.E) A) and B)
F) A) and C)

Exam 13: Fiscal Policy Appendix Taxes and the Multiplier

Correct Answer
verified

Because the revenue from personal income taxes increases as disposable income increases:

Correct Answer
verified

Government spending will NOT crowd out private spending if:

Correct Answer
verified

A cut in taxes _, shifting the aggregate demand curve to the _.

Correct Answer
verified

The largest source of federal tax revenues is:

Correct Answer
verified

Suppose that real GDP is $500, potential GDP is $1,000, and the marginal propensity to consume is 0.9. If the government is going to spend and does not impose taxes, what specific fiscal policy action should policy makers take?

Correct Answer
verified
The marginal propensity to con...
View Answer

If legislation required the budget to be balanced at all times, _____ as an automatic stabilizer of the business cycle.

Correct Answer
verified

Medicaid, food stamps, and sales taxes are all automatic stabilizers.

Correct Answer
verified

If the economy exhibited an inflationary gap, the government should follow a(n) _ policy, which would shift the AD curve to the _.

Correct Answer
verified

When the economy expands, income tax receipts will:

Correct Answer
verified

The multiplier effect of changes in government transfers is:

Correct Answer
verified

As a country's public debt grows, the portion of its budget devoted to interest payments on the debt will decrease.

Correct Answer
verified

Correct Answer
verified

The inclusion of a tax rate in the model results in a new multiplier that is:

Correct Answer
verified

Suppose the government increases taxes by more than is necessary to close an inflationary gap. Which of the following is the most likely result?

Correct Answer
verified

Time lags make:

Correct Answer
verified

If the marginal propensity to consume is 0.9, then the government spending multiplier is:

Correct Answer
verified

The ratio of debt to GDP is a way to assess the ability of a government to pay its debts because it is an indicator of the taxes that the government can collect to pay the debt.

Correct Answer
verified

When the government borrows funds to pay for budget deficits:

Correct Answer
verified

The government has a budget deficit if:

Correct Answer
verified

Exam 13: Fiscal Policy Appendix Taxes and the Multiplier

Correct AnswerverifiedShow Answer

Because the revenue from personal income taxes increases as disposable income increases:

Correct AnswerverifiedShow Answer

Government spending will NOT crowd out private spending if:

Correct AnswerverifiedShow Answer

A cut in taxes _____, shifting the aggregate demand curve to the _____.

Correct AnswerverifiedShow Answer

The largest source of federal tax revenues is:

Correct AnswerverifiedShow Answer

Suppose that real GDP is $500, potential GDP is $1,000, and the marginal propensity to consume is 0.9. If the government is going to spend and does not impose taxes, what specific fiscal policy action should policy makers take?

Correct AnswerverifiedThe marginal propensity to con...View AnswerShow Answer

If legislation required the budget to be balanced at all times, _____ as an automatic stabilizer of the business cycle.

Correct AnswerverifiedShow Answer

Medicaid, food stamps, and sales taxes are all automatic stabilizers.

Correct AnswerverifiedShow Answer

If the economy exhibited an inflationary gap, the government should follow a(n) _____ policy, which would shift the AD curve to the _____.

Correct AnswerverifiedShow Answer

When the economy expands, income tax receipts will:

Correct AnswerverifiedShow Answer

The multiplier effect of changes in government transfers is:

Correct AnswerverifiedShow Answer

As a country's public debt grows, the portion of its budget devoted to interest payments on the debt will decrease.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The inclusion of a tax rate in the model results in a new multiplier that is:

Correct AnswerverifiedShow Answer

Suppose the government increases taxes by more than is necessary to close an inflationary gap. Which of the following is the most likely result?

Correct AnswerverifiedShow Answer

Time lags make:

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 0.9, then the government spending multiplier is:

Correct AnswerverifiedShow Answer

The ratio of debt to GDP is a way to assess the ability of a government to pay its debts because it is an indicator of the taxes that the government can collect to pay the debt.

Correct AnswerverifiedShow Answer

When the government borrows funds to pay for budget deficits:

Correct AnswerverifiedShow Answer

The government has a budget deficit if:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

A cut in taxes _, shifting the aggregate demand curve to the _.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The marginal propensity to con...
View Answer

Correct Answer
verified

Correct Answer
verified

If the economy exhibited an inflationary gap, the government should follow a(n) _ policy, which would shift the AD curve to the _.

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