1. When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:

Transcription

1 1. When the Federal government uses taxation and spending actions to stimulate the economy it is conducting: A. Fiscal policy B. Incomes policy C. Monetary policy D. Employment policy 2. When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is: A. Active Monetary Policy B. Automatic Fiscal Policy C. Discretionary Fiscal Policy D. Active Federal Policy 3. When changes in taxes and government spending occur in the economy without explicit action by Congress, such policy is called fiscal policy: A. Cyclical B. Implicit C. Discretionary D. Nondiscretionary 4. When the Federal government cuts taxes and increases spending to stimulate the economy during a period of recession, such actions are design to be: A. Passive B. Automatic C. Countercyclical D. Nondiscretionary 5. Fiscal policy is enacted through changes in: A. Interest rates and the price level B. The supply of money and foreign exchange C. Unemployment and inflation D. Taxation and government spending

2 6. If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n): A. Supply-side fiscal policy B. Expansionary fiscal policy C. Contractionary fiscal policy D. Nondiscretionary fiscal policy 7. If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n): A. Supply-side fiscal policy B. Expansionary fiscal policy C. Contractionary fiscal policy D. Nondiscretionary fiscal policy 8. The set of fiscal policies that would be most contractionary would be a(n): A. Increase in government spending and taxes B. Decrease in government spending and taxes C. Increase in government spending and a decrease in taxes D. Decrease in government spending and an increase in taxes 9. The intent of contractionary fiscal policy is to: A. Increase aggregate demand B. Decrease aggregate demand C. Increase aggregate supply D. Decrease aggregate supply 10. The goal of expansionary fiscal policy is to increase: A. The price level B. Aggregate supply C. Real GDP D. Unemployment

3 11. If the government wishes to increase the level of real GDP, it might reduce: A. Taxes B. Transfer payments C. The size of the budget deficit D. Its purchases of goods and services 12. Refer to the above graph. What combination would most likely cause a shift from AD1 to AD2? A. An increase in taxes and an increase in government spending B. A decrease in taxes and an increase in government spending C. An increase in taxes and no change in government spending D. A decrease in taxes and a decrease in government spending 13. Refer to the above graph. What combination would most likely cause a shift from AD1 to AD3? A. An increase in taxes and an increase in government spending B. A decrease in taxes and an increase in government spending C. An increase in taxes and a decrease in government spending D. A decrease in taxes and a decrease in government spending

4 14. Which combination of fiscal policy actions would most likely offset each other? A. Increase taxes and government spending B. Decrease taxes and increase government spending C. Increase taxes, but make no change in government spending D. Decrease government spending, but make no change in taxes 15. Refer to the figure above. The economy is at equilibrium at point A. What fiscal policy would be most appropriate to control demand-pull inflation? A. Shift aggregate demand by increasing taxes B. Shift aggregate demand by decreasing taxes C. Shift aggregate supply by increasing taxes D. Shift aggregate demand by increasing government spending 16. Refer to the figure above. The economy is at equilibrium at point B. What would expansionary fiscal policy do? A. Move the economy from point B towards point A B. Move the economy from point B towards point C C. Move the economy from point B downward along AD2 D. Move the economy from point B upward along AD2

5 17. The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a: A. Trade deficit B. Trade surplus C. Budget deficit D. Budget surplus 18. Contractionary fiscal policy would tend to make a budget deficit become: A. Bigger B. Smaller C. A trade deficit D. A trade surplus 19. Refer to the graph above. Assume that the economy is in a recession with a price level of P1 and output level Q1. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output? A. P2 and Q4 B. P1 and Q1 C. P2 and Q2 D. P1 and Q3

6 20. You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $500 billion; (2) investment = $50 billion; (3) government purchases = $100 billion; and (4) net export = $20 billion. If the full-employment level of GDP for this economy is $620 billion, then what combination of actions would be most consistent with closing the GDP-gap here? A. Increase government spending and taxes B. Decrease government spending and taxes C. Decrease government spending and increase taxes D. Increase government spending and decrease taxes 21. You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $400 billion; (2) investment = $40 billion; (3) government purchases = $90 billion; and (4) net export = $25 billion. If the full-employment level of GDP for this economy is $600 billion, then what combination of actions would be most consistent with closing the GDP-gap here? A. Increase government spending and taxes B. Decrease government spending and taxes C. Decrease government spending and increase taxes D. Increase government spending and decrease taxes 22. When government spending is increased, the amount of the increase in aggregate demand primarily depends on: A. The average propensity to consume B. The size of the multiplier C. Income taxes D. Exchange rates 23. If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary when the: A. Economy's MPS is small B. Economy's MPS is large C. Economy's MPC is small D. Unemployment rate is low

7 24. A given reduction in government spending will dampen demand-pull inflation by a greater amount when the: A. Economy's MPS is large B. Economy's aggregate supply curve is flat C. Economy's aggregate supply curve is steep D. Unemployment rate is high 25. Which of the following fiscal policy changes would be the most expansionary? A. A $40 billion increase in government spending B. A $20 billion tax cut and $20 billion increase in government spending C. A $10 billion tax cut and $30 billion increase in government spending D. A $40 billion tax cut 26. Which of the following expansionary fiscal policy changes would be most favored by those economists who think that the government is too large and inefficient? A. A $40 billion increase in government spending B. A $20 billion tax cut and $20 billion increase in government spending C. A $10 billion tax cut and $30 billion increase in government spending D. A $40 billion tax cut 27. Which of the following fiscal policy changes would be the most contractionary? A. A $40 billion increase in taxes B. A $10 billion increase in taxes and a $30 billion cut in government spending C. A $20 billion increase in taxes and a $20 billion cut in government spending D. A $30 billion increase in taxes and a $10 billion cut in government spending 28. An economy is experiencing a high rate of inflation. The government wants to reduce consumption by $36 billion to reduce inflationary pressure. The MPC is By how much should the government raise taxes to achieve its objective? A. $6 billion B. $9 billion C. $12 billion D. $16 billion

8 29. In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by: A. $10 billion B. $20 billion C. $31.25 billion D. $40.50 billion 30. In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could: A. Increase taxes by $16 billion B. Increase taxes by $24 billion C. Decrease government spending by $10 billion D. Decrease government spending by $16 billion 31. As the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system: A. Increases crowding out in the economy B. Decreases real interest rates in the economy C. Offsets the timing problem for fiscal policy D. Serves as an automatic stabilizer for the economy 32. Which of the following is an example of built-in stability? As real GDP decreases, income tax revenues: A. Increase and transfer payments decrease B. Decrease and transfer payments increase C. And transfer payments both decrease D. And transfer payments both increase 33. The so-called "negative taxes" are better known as: A. Government spending B. Transfer payments C. Built-in stabilizers D. Fiscal multipliers

9 34. Due to automatic stabilizers, when the nation's total income rises, government transfer spending: A. Increases and tax revenues decrease B. Decreases and tax revenues increase C. And tax revenues decrease D. And tax revenues increase 35. Refer to the graph above. A budget surplus would be associated with GDP level: A. H B. J C. K D. L 36. In the graph above, tax revenues vary: A. Directly with the level of GDP B. Inversely with the level of GDP C. Directly with the level of government spending D. Inversely with the level of government spending

10 37. Refer to the graph above. Automatic stability in this economy could be enhanced by: A. Changing the tax system so that the tax line has a steeper slope B. Changing the tax system so that the tax line is shifted upward but parallel to its present position C. Changing the government expenditures line so that it has a positive slope D. Changing the tax system so that the tax line has a flatter slope 38. The more progressive the tax system, the: A. Less is the built-in stability for the economy B. Greater is the built-in stability for the economy C. Less is the effect of crowding-out on the economy D. Greater is the severity of business fluctuations on the economy 39. The crowding-out effect suggests that: A. Increases in consumption are always at the expense of saving B. Increases in government spending will close a recessionary expenditure gap C. Increases in government spending may reduce private investment D. High taxes reduce both consumption and saving 40. The crowding-out effect arises when: A. Government lends in the money market, thus decreasing interest rates B. Government borrows in the money market, thus decreasing interest rates C. Government lends in the money market, thus increasing interest rates D. Government borrows in the money market, thus causing an increase in interest rates

11 41. A Federal budget deficit exists when: A. Federal government assets are less than liabilities in a given year B. Federal government spending exceeds tax revenues in a given year C. Federal government spending is increasing in a given year D. Federal government taxation is decreasing in a given year 42. The public debt is the: A. Amount of U.S. paper currency in circulation B. Ratio of all past deficits to all past surpluses C. Accumulation of all past deficits minus all past surpluses D. Difference between current government expenditures and current tax revenues 43. A Federal budget deficit is financed by the: A. Government purchase of Treasury securities B. Government issuance or sale of Treasury securities C. Nation's exports D. Private sector's investment spending 44. To track the public debt over time and understand its significance to the economy, it is best: A. Examined relative to budget surpluses B. Calculated relative to the money supply C. Measured relative to the gross domestic product D. To compare it to imports, exports, and the trade deficit 45. A major reason that the public debt cannot bankrupt the Federal government is because: A. The public debt is mostly held by foreigners B. The Federal government has the Social Security Trust Fund C. The public debt can be easily refinanced by issuing new bonds D. The Federal government can draw on its gold reserves

12 46. One important reason why the United States government is not likely to go bankrupt even with a large public debt is that it has: A. The power to print money to finance the debt B. A strong military to protect it from creditors C. The capacity to pay off its outstanding debt with gold D. The ability to decrease interest rates and increase investment spending 47. Which of the following is an important real consequence of the public debt of the United States? A. It will threaten to bankrupt the Federal government B. It discourages saving among the general public C. It decreases the inequality in the distribution of income in the U.S. D. Its consequent higher interest rates lead to fewer incentives to bear risk and innovate 48. One of the potential consequences of the public debt is that it may: A. Make income distribution more equitable B. Increase the debt burden of foreign creditors C. Lead to additional future taxes that reduce economic incentives D. Decrease interest rates and increase investment spending 49. The following are important problems associated with the public debt, except: A. Payments of interest on the debt lead to greater income inequality B. Interest payments on the debt tend to reduce economic incentives to work and invest C. Government borrowing to finance the debt may lead to too much private investment D. Payment of interest on the debt held by foreigners would send real resources abroad 50. Crowding out is a decrease in private investment caused by: A. Increased taxation by the government B. Increased borrowing by the government C. Increased consumer spending by households D. Increased exports to buyers in other nations