Question 1

If the government were to increase taxes, it would be enacting:

Accepted Answer

A)   contractionary fiscal policy.
B)   expansionary fiscal policy.
C)   contractionary monetary policy
D)   expansionary budgetary policy.E) A) and B)
F) A) and D)

Question 2

If the economy in the graph shown is at point D, and the government wished to bring the economy back to its long-run equilibrium, it might:

Accepted Answer

A)   increase government spending.
B)   decrease income taxes.
C)   increase corporate income taxes.
D)   All of these would bring the economy back to potential GDP.E) A) and D)
F) A) and C)

Question 3

The US government generally finances its debt by:

Accepted Answer

A)   selling US securities.
B)   printing money.
C)   borrowing directly from the FED.
D)   borrowing directly from very large banks.E) B) and C)
F) B) and D)

Question 4

Contractionary fiscal policy is enacted when the overall effect of decisions about taxation and spending is to:

Accepted Answer

A)   reduce aggregate demand.
B)   increase aggregate demand.
C)   reduce aggregate supply.
D)   increase aggregate supply.E) B) and C)
F) C) and D)

Question 5

If the government decreases the income tax rate, then:

Accepted Answer

A)   GDP will decrease.
B)   aggregate demand will shift left.
C)   aggregate demand will shift right.
D)   aggregate supply curve with shift to the right.E) A) and D)
F) B) and D)

Question 6

According to the graph shown, the consequence of expansionary fiscal policy is:

Accepted Answer

A)   inflation.
B)   deflation.
C)   a greater level of potential output.
D)   a lower level of potential output.E) B) and C)
F) A) and B)

Question 7

A budget deficit is the:

Accepted Answer

A)   amount of money a government spends beyond the net revenue it brings in.
B)   amount of net revenue a government brings in beyond what it spends.
C)   total amount of money that a government owes.
D)   total amount of money that a government spends for discretionary policies.E) B) and C)
F) A) and C)

Question 8

A major distinction to be made is that deficits count government spending shortfalls ___________, and public debt counts _______________.

Accepted Answer

A)   in a year; the total amount owed from all years
B)   from all years; the total from a single year
C)   in real terms; in nominal terms
D)   as a percentage of GDP; in nominal termsE) A) and B)
F) None of the above A

Question 9

Government decisions about the level of taxation and public spending are called:

Accepted Answer

A)   fiscal policy.
B)   monetary policy.
C)   congressional policy.
D)   legislative budgeting policy.E) A) and D)
F) B) and C)

Question 10

Ricardian equivalence will fail to hold if:

Accepted Answer

A)   people increase their spending when they receive a tax rebate check.
B)   people save, and do not increase their spending when they receive a tax rebate check.
C)   intended expansionary effects of tax policy fail to occur.
D)   All of these.E) B) and D)
F) A) and C)

Question 11

One reason the government enacts fiscal policy instead of waiting for the economy to correct itself is the automatic adjustment:

Accepted Answer

A)   can take a very long time.
B)   means a lower level of potential GDP.
C)   will cause permanent inflation.
D)   is generally not supported by government officials.E) All of the above
F) B) and D)

Question 12

By 2016, the unemployment rate in the US had fallen from a peak of 10% in 2009 to:

Accepted Answer

A)   under 5%.
B)   7.8%.
C)   6.2%.
D)   under 3%.E) A) and B)
F) None of the above

Question 13

3 output with lower prices. B)  SRAS will shift left, and the economy will experience stagflation. C)  LRAS will shift left, until lower equilibrium output is reached with lower prices. D)  the entire economy will collapse." class="answers-bank-image d-inline" rel="preload" > Assuming the economy represented in the graph shown is currently at point B, if the government does nothing, then eventually:

Accepted Answer

A)   SRAS will shift to the right, and the economy will have Y3 output with lower prices.
B)   SRAS will shift left, and the economy will experience stagflation.
C)   LRAS will shift left, until lower equilibrium output is reached with lower prices.
D)   the entire economy will collapse.E) All of the above
F) B) and C)

Question 14

When the U.S. economy hits a recession, fiscal policy automatically becomes:

Accepted Answer

A)   expansionary because average tax rates go down and spending on welfare programs goes up.
B)   discretionary because the government is quick to react to changes in the business cycle.
C)   contractionary because average tax rates go up and spending on welfare programs goes down.
D)   contractionary because average tax rates go down and spending on welfare programs goes up.E) None of the above
F) C) and D) A

Question 15

Fiscal policy can:

Accepted Answer

A)   have real effects on the economy in the short run.
B)   bring the economy to its long run equilibrium faster than it can correct itself.
C)   cause inflation.
D)   All of these are true.E) B) and D)
F) C) and D)

Question 16

Disposable income is defined to be:

Accepted Answer

A)   total income minustaxes.
B)   total income plus taxes.
C)   total income minus depreciation.
D)   All of these are true.E) A) and B)
F) A) and C)

Question 17

The type of security that is protected against inflation are:

Accepted Answer

A)   Treasury bonds.
B)   Treasury notes.
C)   TIPS.
D)   Treasury bills.E) B) and C)
F) B) and D)

Question 18

Disposable income is not:

Accepted Answer

A)   total income minus taxes.
B)   what consumers base their buying decisions on.
C)   the amount consumers have to spend on goods and services.
D)   income before tax.E) A) and B)
F) None of the above

Question 19

If the government enacts contractionary fiscal policy, it is most likely at which of the following equilibria in the graph shown?

Accepted Answer

A)   A
B)   B
C)   C
D)   DE) All of the above
F) B) and C) D

Question 20

Economists usually suggest that the best way to examine the deficit is by expressing it:

Accepted Answer

A)   as a percentage of GDP.
B)   in real terms.
C)   in nominal terms.
D)   None of these is true.E) A) and B)
F) A) and C)

Exam 13: Fiscal Policy

If the government were to increase taxes, it would be enacting:

Correct AnswerverifiedShow Answer

If the economy in the graph shown is at point D, and the government wished to bring the economy back to its long-run equilibrium, it might:

Correct AnswerverifiedShow Answer

The US government generally finances its debt by:

Correct AnswerverifiedShow Answer

Contractionary fiscal policy is enacted when the overall effect of decisions about taxation and spending is to:

Correct AnswerverifiedShow Answer

If the government decreases the income tax rate, then:

Correct AnswerverifiedShow Answer

According to the graph shown, the consequence of expansionary fiscal policy is:

Correct AnswerverifiedShow Answer

A budget deficit is the:

Correct AnswerverifiedShow Answer

A major distinction to be made is that deficits count government spending shortfalls ___________, and public debt counts _______________.

Correct AnswerverifiedA

Government decisions about the level of taxation and public spending are called:

Correct AnswerverifiedShow Answer

Ricardian equivalence will fail to hold if:

Correct AnswerverifiedShow Answer

One reason the government enacts fiscal policy instead of waiting for the economy to correct itself is the automatic adjustment:

Correct AnswerverifiedShow Answer

By 2016, the unemployment rate in the US had fallen from a peak of 10% in 2009 to:

Correct AnswerverifiedShow Answer

Assuming the economy represented in the graph shown is currently at point B, if the government does nothing, then eventually:

Correct AnswerverifiedShow Answer

When the U.S. economy hits a recession, fiscal policy automatically becomes:

Correct AnswerverifiedA

Fiscal policy can:

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Disposable income is defined to be:

Correct AnswerverifiedShow Answer

The type of security that is protected against inflation are:

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Disposable income is not:

Correct AnswerverifiedShow Answer

If the government enacts contractionary fiscal policy, it is most likely at which of the following equilibria in the graph shown?

Correct AnswerverifiedD

Economists usually suggest that the best way to examine the deficit is by expressing it:

Correct AnswerverifiedShow Answer

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A major distinction to be made is that deficits count government spending shortfalls _, and public debt counts _____.

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A

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A

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D

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