Question 1

Republicans often argue in favor of what to push the economy toward economic recovery, as they did during the recession that began in 2008?

Accepted Answer

A)   Tax cuts
B)   Increase government spending
C)   Decrease government spending
D)   Encourage the public to save moreE) A) and C)
F) A) and B)

Question 2

The model of aggregate demand and aggregate supply can NOT be used to:

Accepted Answer

A)   discuss the pros and cons of income tax cuts.
B)   evaluate a tax cut's effect on short run economic fluctuations.
C)   assess a tax cut's effect on longer run issues such as the national debt.
D)   to discuss income distribution.E) B) and C)
F) A) and B)

Question 3

If the government increases the income tax rate they likely intend for:

Accepted Answer

A)   C to decrease, shifting aggregate demand to the left.
B)   C to increase, shifting aggregate demand to the right.
C)   I to increase, shifting aggregate demand to the right.
D)   G to increase, shifting aggregate demand to the right.E) A) and C)
F) A) and B)

Question 4

In 2008, consumers were mailed a stimulus check in response to the recession. The result showed that Ricardian equivalence:

Accepted Answer

A)   held, as most people spent a substantial share of the money.
B)   failed to hold, as most people spent a substantial share of the money.
C)   held, as most people saved the money.
D)   failed to hold, as most people saved the money.E) A) and B)
F) A) and C)

Question 5

The idea that if governments cut taxes but not spending, people will not change their behavior, and expansionary policy will have little expansionary effect is known as:

Accepted Answer

A)   Ricardian equivalence.
B)   Keynesian policy.
C)   the invisible hand.
D)   Stimulus policy.E) A) and D)
F) A) and B)

Question 6

The goal of expansionary fiscal policy with respect to output is to:

Accepted Answer

A)   increase spending and shift aggregate demand to the right in an effort to reach full employment output.
B)   increase spending and aggregate demand to get back to an output level the government is comfortable with.
C)   decrease government spending in an attempt to get the private economy back on track.
D)   increase spending and shift aggregate demand to the left in an effort to reach full employment output.E) None of the above
F) B) and C)

Question 7

If the government were to reduce its spending, it would be enacting:

Accepted Answer

A)   contractionary fiscal policy.
B)   expansionary fiscal policy.
C)   a budgetary crisis intervention.
D)   expansionary budgetary policy.E) All of the above
F) A) and B)

Question 8

With the economy booming, the government starts to worry about the increasing rate of inflation, and decides to cut its spending on highway maintenance and defer it to sometime in the future. This is an example of:

Accepted Answer

A)   an automatic stabilizer.
B)   discretionary fiscal policy.
C)   expansionary fiscal policy.
D)   None of these is true.E) B) and C)
F) C) and D)

Question 9

A lack of understanding regarding the current state of the economy creates:

Accepted Answer

A)   an information lag.
B)   a formulation lag.
C)   an implementation lag.
D)   a direction lag.E) B) and D)
F) None of the above

Question 10

Johnny has been working a lot of overtime during the most current economic boom. As a result, his income is high enough for him to move from the 10 percent tax bracket to the 15 percent tax bracket. So, Johnny pays a higher percentage of a higher income to the government this year. The increased amount paid to the government is an example of:

Accepted Answer

A)   discretionary fiscal policy slowing the economy.
B)   automatic stabilizers slowing the economy.
C)   discretionary fiscal policy encouraging economic activity.
D)   automatic stabilizers encouraging economic activity.E) C) and D)
F) A) and D)

Question 11

In a booming economy, fiscal policy automatically becomes:

Accepted Answer

A)   contractionary as tax rates rise and welfare payments fall.
B)   expansionary as tax rates rise and welfare payments fall.
C)   contractionary as tax rates fall and welfare payments rise.
D)   expansionary as tax rates fall and welfare payments rise.E) B) and D)
F) None of the above

Question 12

If the government wished to shift aggregate demand to the right, it might:

Accepted Answer

A)   increase government spending.
B)   increase income taxes.
C)   pressure the Fed to decrease the money supply.
D)   Any of these things might cause aggregate demand to shift to the right.E) All of the above
F) C) and D)

Question 13

Ricardian equivalence predicts:

Accepted Answer

A)   that if governments cut taxes but not spending, people will not change their behavior.
B)   if people perceive current tax cuts to mean higher tax payments in the future, the cuts will have little expansionary effect.
C)   the consumers need to feel as though they will not have to pay in the future for current spending to make current tax cuts effective expansionary policy.
D)   All of these are true.E) A) and B)
F) C) and D)

Question 14

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

Accepted Answer

A)   increase government spending.
B)   increase income tax.
C)   decrease tax credits.
D)   All of these would move the economy to its potential GDP from point BE) A) and B)
F) All of the above

Question 15

If the economy in the graph shown is currently at point B, and the government increases its spending, the likely outcome will be that the:

Accepted Answer

A)   economy will increase its level of output.
B)   economy will experience deflation.
C)   economy's unemployment rate will increase.
D)   All of these are likely to be true.E) A) and B)
F) All of the above

Question 16

If the government increases the income tax rate:

Accepted Answer

A)   disposable income decreases.
B)   disposable income increases.
C)   disposable income remains unaffected.
D)   total income increases.E) B) and D)
F) All of the above

Question 17

The direct cost of debt depends on:

Accepted Answer

A)   the interest rate.
B)   fiscal policy.
C)   the implementation lag.
D)   the amount of the deficit.E) B) and C)
F) C) and D)

Question 18

Economist John Maynard Keynes is famous for saying, "In the long run, we are all dead." He is referring to the:

Accepted Answer

A)   length of time it can take the economy to recover to potential GDP without policy intervention.
B)   permanent inflation that results in long-run adjustments.
C)   fact that no policy can affect the long-run equilibrium.
D)   notion the economy is sure to collapse in the long run.E) B) and C)
F) A) and D)

Question 19

Lags in the policy-making process come from:

Accepted Answer

A)   lack of understanding the current state of the economy.
B)   the process of deciding on and passing legislation.
C)   the time it takes for policy to have an impact on the economy.
D)   All of these are true.E) B) and C)
F) C) and D)

Question 20

A direct cost of public debt is:

Accepted Answer

A)   the interest the government has to pay to the people it has borrowed from.
B)   it allows the government to be flexible when something unexpected happens.
C)   it can pay for investments that will lead to economic growth in the long run.
D)   All of these are costs to holding public debt.E) C) and D)
F) None of the above

Exam 13: Fiscal Policy

Republicans often argue in favor of what to push the economy toward economic recovery, as they did during the recession that began in 2008?

Correct Answer
verified

If the government were to reduce its spending, it would be enacting:

Correct Answer
verified

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

Correct Answer
verified

Lags in the policy-making process come from:

Correct Answer
verified

If the economy in the graph shown is currently at point B, and the government increases its spending, the likely outcome will be that the:

Correct Answer
verified

The idea that if governments cut taxes but not spending, people will not change their behavior, and expansionary policy will have little expansionary effect is known as:

Correct Answer
verified

Economist John Maynard Keynes is famous for saying, "In the long run, we are all dead." He is referring to the:

Correct Answer
verified

The goal of expansionary fiscal policy with respect to output is to:

Correct Answer
verified

Correct Answer
verified

The model of aggregate demand and aggregate supply can NOT be used to:

Correct Answer
verified

If the government increases the income tax rate they likely intend for:

Correct Answer
verified

Ricardian equivalence predicts:

Correct Answer
verified

In 2008, consumers were mailed a stimulus check in response to the recession. The result showed that Ricardian equivalence:

Correct Answer
verified

If the government increases the income tax rate:

Correct Answer
verified

In a booming economy, fiscal policy automatically becomes:

Correct Answer
verified

The direct cost of debt depends on:

Correct Answer
verified

A direct cost of public debt is:

Correct Answer
verified

If the government wished to shift aggregate demand to the right, it might:

Correct Answer
verified

With the economy booming, the government starts to worry about the increasing rate of inflation, and decides to cut its spending on highway maintenance and defer it to sometime in the future. This is an example of:

Correct Answer
verified

A lack of understanding regarding the current state of the economy creates:

Correct Answer
verified

Exam 13: Fiscal Policy

Republicans often argue in favor of what to push the economy toward economic recovery, as they did during the recession that began in 2008?

Correct AnswerverifiedShow Answer

If the government were to reduce its spending, it would be enacting:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Lags in the policy-making process come from:

Correct AnswerverifiedShow Answer

If the economy in the graph shown is currently at point B, and the government increases its spending, the likely outcome will be that the:

Correct AnswerverifiedShow Answer

The idea that if governments cut taxes but not spending, people will not change their behavior, and expansionary policy will have little expansionary effect is known as:

Correct AnswerverifiedShow Answer

Economist John Maynard Keynes is famous for saying, "In the long run, we are all dead." He is referring to the:

Correct AnswerverifiedShow Answer

The goal of expansionary fiscal policy with respect to output is to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The model of aggregate demand and aggregate supply can NOT be used to:

Correct AnswerverifiedShow Answer

If the government increases the income tax rate they likely intend for:

Correct AnswerverifiedShow Answer

Ricardian equivalence predicts:

Correct AnswerverifiedShow Answer

In 2008, consumers were mailed a stimulus check in response to the recession. The result showed that Ricardian equivalence:

Correct AnswerverifiedShow Answer

If the government increases the income tax rate:

Correct AnswerverifiedShow Answer

In a booming economy, fiscal policy automatically becomes:

Correct AnswerverifiedShow Answer

The direct cost of debt depends on:

Correct AnswerverifiedShow Answer

A direct cost of public debt is:

Correct AnswerverifiedShow Answer

If the government wished to shift aggregate demand to the right, it might:

Correct AnswerverifiedShow Answer

With the economy booming, the government starts to worry about the increasing rate of inflation, and decides to cut its spending on highway maintenance and defer it to sometime in the future. This is an example of:

Correct AnswerverifiedShow Answer

A lack of understanding regarding the current state of the economy creates:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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