question

In 2009, Congress passed a substantial cut in income taxes. The Federal Reserve also lowered interest rates. How can these two actions be categorized? A.Both actions can be categorized as fiscal policy. B.Both actions can be categorized as monetary policy. C.The tax cut can be categorized as monetary policy and the lowering of interest rates can be categorized as fiscal policy. D.The tax cut can be categorized as fiscal policy and the lowering of interest rates can be categorized as monetary policy.

answer

The tax cut can be categorized as fiscal policy and the lowering of interest rates can be categorized as monetary policy.

question

In the United States, government purchases, as a percentage of real GDP, have generally declined since the 1960s. A. True B. False

answer

true

question

For the following model, if output is 1000 is the economy in equilibrium? Consumption=100+.5Y Investment =100 Gov't Spending =0 Net Exports = 0 A.yes, because D = Y B.yes, because S=I C.no, because D<Y D.no, because S<I

answer

no, because D<Y

question

The bulk of aggregate demand in the United States consists of A.consumption. B.investment. C.government spending. D.net exports.

answer

consumption.

question

Taxes assessed on firms and employees on wages and salaries earned are called A.dividend taxes. B.payroll taxes. C.corporate profits taxes. D.earned income taxes.

answer

payroll taxes.

question

What is an automatic stabilizer? A.It refers to a discretionary policy that is triggered when actual output is not equal to potential output to improve the economy's performance. B.It refers to a stabilization program that keeps inflation in check automatically. C.It refers to any government program that tends to reduce fluctuations in GDP automatically. D.It refers to a government program that is automatically triggered when the economy enters a recession.

answer

It refers to any government program that tends to reduce fluctuations in GDP automatically.

question

Automatic stabilizers tend to exaggerate the severity of business cycles. A. True B. False

answer

false

question

The use of government expenditures and taxes to influence the level of economic activity is called A.deficit management policy. B.debt management policy. C.financial policy. D.fiscal policy.

answer

fiscal policy.

question

A change in government purchases shifts the aggregate demand curve by an amount equal to the A.change in consumption x marginal propensity to consume. B.change in government purchases x money multiplier. C.change in government purchases x spending multiplier. D.change in the spending multiplier x change in government purchases.

answer

change in government purchases x spending multiplier.

question

Federal government spending as a percent of GDP has increases dramatically since 1960 True False

answer

false

question

An increase in business taxes is likely to reduce aggregate demand because of a decrease in private investment. A. True B. False

answer

true

question

During an economic downturn, households respond to a decline in income by A.reducing taxes. B.reducing consumption. C.increasing the quantity of labor supplied. D.negotiating higher wages.

answer

reducing consumption.

question

The national debt A.is the difference between total government revenues and government expenditures. B.is the sum of all past federal deficits plus any surpluses. C.is the sum of all past federal deficits less any surpluses. D.grows when government spending increases.

answer

is the sum of all past federal deficits less any surpluses.

question

If consumers spend 90 cents ($.90) out of each additional dollar of income, then the mpc is .1 and the government spending multiplier is 9 True False

answer

false

question

During a recession, rising transfer payments and falling tax collections 1. help cushion households from the impact of the recession. 2. buffers the fall in real GDP (relative to a situation where transfer payments do not rise and tax revenues do not fall). 3. tend to increase our budget deficit or reduce a budget surplus. A.I only B.I and II only C.II and III only D.I, II, and III

answer

I, II, and III

question

The immediate impact of instituting investment tax credits is A.to stimulate private sector investments and increase aggregate demand. B.to stimulate private production and increase aggregate supply. C.to encourage individuals to save in an effort to increase funds available for investment. D.to curtail in excessive lending by financial institutions.

answer

to stimulate private sector investments and increase aggregate demand.

question

Payments to households that do not require anything in exchange are called A.transfer payments. B.government purchases. C.consumption expenditures. D.investment expenditures.

answer

transfer payments.

question

Which of the following statements is true about fiscal policy lags? A.Automatic stabilizers have a much shorter impact lag than discretionary fiscal policy. B.Although the recognition lag is equally long for discretionary fiscal policy and for automatic stabilizers, the latter avoid implementation lag because automatic stabilizers are triggered automatically. C.Unlike discretionary fiscal policy, automatic stabilizers respond automatically to changes in the economy, thus avoiding the recognition and implementation lags. D.Although automatic stabilizers have a much shorter lag, discretionary fiscal policy instruments have a more potent impact on the economy because they are more precise.

answer

Unlike discretionary fiscal policy, automatic stabilizers respond automatically to changes in the economy, thus avoiding the recognition and implementation lags.

question

According to Mankiw, What would Keynes have done in the recession of 2007-09? A.reduce interest rates B.increase the money supply C.balance the budget D.increase government spending

answer

increase government spending

question

Your marginal tax rate is the percent of your income you pay in taxes. True False

answer

false

question

Suppose the consumption function is C = $500 + 0.8Y. If Y = $1,000, what is the amount of consumption? A.$300 B.$500 C.$1,000 D.$1,300

answer

$1,300

question

tion 23 of 60 0.0/ 1.0 Points What is equilibrium output and the multiplier in the following model? Consumption=100+.9Y Investment =100 Gov't Spending =100 Net Exports = 0 A.300,.9 B.2000,1 C.3000,10 D.30,000,.1

answer

3000,10

question

Some economists argue that A.discretionary monetary policy is ineffective because of its long identification lag. B.discretionary fiscal policy is ineffective because of its long recognition lag. C.discretionary monetary policy is ineffective because of its long implementation lag. D.discretionary fiscal policy is ineffective because of its long implementation lag.

answer

discretionary fiscal policy is ineffective because of its long implementation lag.

question

Contractionary fiscal policy includes A.increasing taxes and increasing government purchases. B.raising interest rates, increasing taxes, and decreasing transfer payments. C.increasing taxes and decreasing government expenditures. D.raising interest rates, decreasing taxes, and decreasing government spending.

answer

increasing taxes and decreasing government expenditures.

question

Which of the following is an advantage of automatic stabilizers? A.There is no implementation lag for automatic stabilizers B.Only congress has to act to implement automatic stabilizers C.There is virtually no administrative cost to implementing automatic stabilizers. D.They affect only businesses

answer

There is no implementation lag for automatic stabilizers

question

The sum of all past federal deficits minus any surpluses is called the A.transfer balance. B.national deficit. C.national debt. D.national budget.

answer

national debt.

question

Which of the following is considered investment? A.the individual who is innovative, takes risks, raises capital and organizes production B.the hiring of a college graduate to work in a firm's "Investment" division C.$200 million of financial capital owned by Bethlehem Steel D.a brand new robot purchased for use on an automobile assembly line

answer

a brand new robot purchased for use on an automobile assembly line

question

Personal income and payroll taxes are the largest sources of revenue for the federal government. A. True B. False

answer

true

question

Transfer payments tend to rise automatically during a recession and fall automatically during an expansion. A. True B. False

answer

true

question

An expansionary fiscal policy is likely to A.increase borrowing by the Treasury through the sale of bonds. B.decrease borrowing by the Treasury through the purchase of bonds. C.increase borrowing by the Treasury through the purchase of bonds. D.decrease borrowing by the Treasury through the sale of bonds.

answer

increase borrowing by the Treasury through the sale of bonds.

question

Government tax and expenditure policies put in place by the Federal government to stabilize the economy are called A.monetary policy B.fiscal policy. C.supply-side policy D.interest rate policy

answer

fiscal policy.

question

Higher interest rates encourage investment. A. True B. False

answer

false

question

In the United States, most of the government's taxing and spending is A.to stabilize the economy and move it to its potential output. B.to bring about greater income equality. C.to keep inflation at a moderate level. D.for purposes other than economic stabilization.

answer

for purposes other than economic stabilization.

question

The government has a budget deficit if 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.

answer

its total revenues are less than its total expenditures.

question

The national debt is the difference between current government expenditures and taxes. A. True B. False

answer

false

question

Medicaid, welfare payments, and Temporary Assistance to Needy Families are classified as A.unilateral payments. B.transfer payments. C.gifts. D.income redistribution payments.

answer

transfer payments.

question

The term "crowding out" refers to the phenomenon that occurs when increased government spending A.raises the price level and reduces consumption. B.leads to higher interest rates which reduces private investments. C.leads to higher bond prices which decreases the demand for Treasury bonds. D.leads to increased budget deficits that ultimately warrant increases in income taxes.

answer

leads to higher interest rates which reduces private investments.

question

Which of the following describes a discretionary fiscal policy action/program? A.the progressive income tax system B.The government increases funding for the Dislocated Worker Program, a federal initiative that provides retraining and career counseling. C.the unemployment compensation program D.the system of welfare programs

answer

The government increases funding for the Dislocated Worker Program, a federal initiative that provides retraining and career counseling.

question

A decrease in interest rates will cause A.an increase in investment B.a decrease in consumption C.an increase in government expenditures D.a decline in aggregate demand

answer

an increase in investment

question

Net investment adds to the nation's capital stock. A. True B. False

answer

true

question

All of the following are instruments of fiscal policy except A.rebate on payroll taxes. B.education tax credits. C.unemployment insurance benefits. D.an interest rate cut.

answer

an interest rate cut.

question

All of the following are examples of transfer payments except A.welfare benefits to the poor. B.dividend payments to the wealthy. C.Social Security payments to the elderly. D.unemployment compensation to the unemployed.

answer

dividend payments to the wealthy.

question

If private sector investment does not respond much to interest rate changes, then A.there will be more crowding out when expansionary policies are undertaken. B.there will be less crowding out when expansionary policies are undertaken. C.fiscal policy will be less effective than monetary policy. D.monetary policy will be more effective than fiscal policy.

answer

there will be less crowding out when expansionary policies are undertaken.

question

The impact of fiscal policy is A.magnified because of crowding out and weakened because of the multiplier B.magnified because of the multiplier and weakened because of crowding out. C.magnified because of crowding out and the multiplier. D.weakened because of crowding out and the multiplier

answer

magnified because of the multiplier and weakened because of crowding out.

question

An increase in aggregate demand causes an increase in _______, which in turn induces an increase in _______. A.income, consumption B.investment, consumption C.government spending, net exports D.consumption, price

answer

income, consumption

question

In the short run, the most important consequence of a decrease in investment is a(n) A.increase in the capital stock. B.decrease in the capital stock. C.increase in aggregate demand. D.decrease in aggregate demand.

answer

decrease in aggregate demand.

question

Which of the following contributes to implementation lag for discretionary fiscal policy? A.the time it takes to secure bureaucratic approval for policy actions B.the time it takes for economic agents to respond to policy actions C.the difficulty of collecting economic data in a timely manner D.the time it takes to borrow funds to finance the fiscal policy

answer

the time it takes to secure bureaucratic approval for policy actions

question

Disposable personal income is A.the income households receive after paying personal taxes and personal debt. B.the income households receive after paying personal taxes and saving. C.the income households receive after paying personal taxes and purchasing necessities. D.the income households receive that is available for consumption and saving.

answer

the income households receive that is available for consumption and saving.

question

An expansionary fiscal policy shifts the aggregate demand curve A.to the right and is used to reduce inflation B.to the right and is used to increase output C.to the left and is used to reduce inflation D.to the left and is used to increase output

answer

to the right and is used to increase output

question

Public investment expenditure for highways, schools, and national defense is included in which component of GDP? A.consumption B.gross private investment C.government purchases D.public investment

answer

government purchases

question

Which of the following best explains why a $10 billion tax cut is likely to have a smaller impact on aggregate demand than a $10 billion increase in government purchases? A.tax cuts reduce aggregate demand B.tax cuts increase disposable income, some of which may be saved while all of the increased government spending is spent C.tax cuts are a leakage while government spending is an injection D.both tax cuts and government spending increases have the same effect

answer

tax cuts increase disposable income, some of which may be saved while all of the increased government spending is spent

question

The hypothetical government budget deficit that would occur if the economy was at full employment is called the structural (full employment) budget deficit True False

answer

true

question

Discretionary fiscal policy refers to A.deliberate government efforts to stabilize the economy through government spending and taxes. B.the use of automatic stabilizers and intervention policies to stabilize the economy. C.any government policy that requires a lag period of at least three months. D.the deliberate use of government spending and taxes to complement the effects of monetary policy in an effort to stabilize the economy.

answer

deliberate government efforts to stabilize the economy through government spending and taxes.

question

The bulk of federal receipts come from A.property taxes and personal income tax. B.personal income tax and from payroll taxes. C.corporate income taxes and personal income tax. D.personal income tax and property taxes.

answer

personal income tax and from payroll taxes.

question

All of the following are examples of automatic stabilizers except A.personal income taxes. B.means-tested federal transfer payments. C.welfare benefits. D.government emergency spending.

answer

government emergency spending.

question

Suppose when disposable personal income increases from $10,000 to $15,000, consumption increases from $9,000 to $12,000. What is the marginal propensity to consume? A.0.2 B.0.4 C.0.6 D.0.8

answer

0.6

question

The smaller the marginal propensity to consume, A.the greater the value of the multiplier. B.the lower the value of the multiplier. C.the greater the initial change in real GDP. D.the greater the initial change in aggregate expenditures.

answer

the greater the value of the multiplier.

question

Fiscal policy has a short implementation lag compared to monetary policy. A. True B. False

answer

false

question

Suppose that income taxes are increased by $600 billion. If the marginal propensity to consume is 0.75 and the spending multiplier is 4, by how much will the aggregate demand curve shift at a given price level? A.$2,400 billion B.$1,800 billion C.$600 billion D.$450 billion

answer

$1,800 billion

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