Question 1

Refer to the following figure to answer the next three questions:
 
-Which of the following is an example of crowding-out?

Accepted Answer

A)   The government invests in education, shifting the long-run aggregate supply curve to the right.
B)   The government lowers taxes, but spending does not increase.
C)   The government buys elementary students new school uniforms, which decreases the amount of private spending on school uniforms.
D)   The government conducts countercyclical policy at the wrong time.
E)   The government spends more than it collects in taxes.F) D) and E)
G) A) and B)

Question 2

An example of expansionary fiscal policy is:

Accepted Answer

A)   lowering taxes.
B)   increasing taxes on everyone in the economy.
C)   decreasing the number of weeks an individual can receive unemployment.
D)   increasing taxes only on the top earners in the economy.
E)   increasing minimum wage.F) B) and D)
G) None of the above

Question 3

Depending on how fiscal policy is implemented,it can affect:

Accepted Answer

A)   only aggregate demand.
B)   only aggregate supply.
C)   both aggregate demand and aggregate supply.
D)   neither aggregate demand nor aggregate supply.
E)   monetary policy.F) C) and D)
G) A) and E)

Question 4

Congress and the president would conduct expansionary fiscal policy in order to:

Accepted Answer

A)   try to control inflation.
B)   prevent the economy from expanding past its long-run capabilities.
C)   control the money supply.
D)   raise tax revenues.
E)   try to stimulate the economy toward expansion.F) A) and B)
G) A) and C)

Question 5

When the economy falters,people often look to the government to help push the economy forward again.In fact,the government uses many different tools to try to affect the economy.Economists classify these tools on the basis of two different types of policy:

Accepted Answer

A)   tax policy and spending policy.
B)   monetary policy and fiscal policy.
C)   expansionary policy and countercyclical policy.
D)   tax policy and fiscal policy.
E)   monetary policy and spending policy.F) A) and B)
G) B) and E)

Question 6

___________ can eliminate recognition lags and implementation lags and thereby alleviate some concerns of destabilizing fiscal policy.

Accepted Answer

A)   Automatic stabilizers
B)   Discretionary fiscal policy
C)   Monetary policy
D)   Expansions
E)   RecessionF) A) and C)
G) A) and B)

Question 7

Refer to the following figure to answer the next three questions:
 
-According to the figure,private investment ___________ by ___________ billion,illustrating crowding-out.

Accepted Answer

A)   increased; $25
B)   decreased; $50
C)   increased; $50
D)   increased; $100
E)   decreased; $25F) D) and E)
G) B) and E)

Question 8

Congress and the president would conduct contractionary fiscal policy in order to:

Accepted Answer

A)   try to control inflation.
B)   prevent the economy from falling into a recession.
C)   control the money supply.
D)   raise the budget deficit.
E)   try to stimulate the economy toward expansion.F) D) and E)
G) C) and D)

Question 9

An implementation lag happens because:

Accepted Answer

A)   it is easy to implement fiscal policy.
B)   it is difficult to determine when the economy is turning up or down.
C)   in most nations, one or more governing bodies must approve government spending or new tax policies.
D)   it takes time for the complete effects of monetary and fiscal policy to materialize.
E)   it is impossible to implement fiscal policy with a divided House of Representatives and Senate.F) A) and B)
G) B) and D)

Question 10

Countercyclical fiscal policy consists of:

Accepted Answer

A)   using expansionary fiscal policy during times of expansion and contractionary fiscal policy during times of recession.
B)   using expansionary fiscal policy during times of recession and contractionary fiscal policy during times of recession.
C)   using expansionary fiscal policy during times of expansion and contractionary fiscal policy during times of expansion.
D)   using expansionary fiscal policy during times of recession and contractionary fiscal policy during times of expansion.
E)   using expansionary fiscal policy and contractionary fiscal policy at the same time.F) A) and B)
G) A) and D)

Question 11

Assume that the government is currently balancing the national budget so that outlays equal tax revenue.Then the economy slips into recession,and the government decides to increase government spending by $50 billion.The government must pay for this by borrowing; it must sell $50 billion worth of Treasury bonds.As a result:

Accepted Answer

A)   the federal budget will be in deficit by no more than $50 billion.
B)   the federal budget will be in surplus by at least $50 billion.
C)   the federal budget will remain balanced.
D)   the federal budget will be in surplus by $50 billion.
E)   the federal budget will be in deficit by at least $50 billion.F) B) and C)
G) A) and E)

Question 12

Where MPC is the marginal propensity to consume,the formula for the spending multiplier is:

Accepted Answer

A)   
B)   
C)   
D)   
E)   F) A) and B)
G) A) and C)

Question 13

If current savings increases the same amount as the federal stimulus:

Accepted Answer

A)   the budget deficit will not increase.
B)   the effects of the stimulus are negated.
C)   the government will continue to conduct fiscal policy.
D)   consumption must also increase.
E)   the effects of the stimulus are multiplied.F) B) and D)
G) C) and D)

Question 14

If your marginal propensity to consume is 0.75 and you get an additional $400 in income,you would spend ___________ on consumption.

Accepted Answer

A)   $400.00
B)   $200.00
C)   $533.33
D)   $300.00
E)   $1,600.00F) A) and E)
G) A) and C)

Question 15

Answer the following questions using an aggregate demand-aggregate supply model.
a. Represent an economy at long-run equilibrium.
b. Show what happens when aggregate demand decreases.
c. Is this economy currently in an expansion or recession?
d. What type of fiscal policy would you suggest be taken by Congress?
e. What will this policy do to your aggregate demand-aggregate supply model?

Accepted Answer

a.

b.

c.Because Y₁ 6 Y*,this econo...

Question 16

Give a detailed explanation of the new classical critique of fiscal policy.

Accepted Answer

By definition,the new classical critique...

Question 17

Where marginal propensity to consume is denoted as MPC,consider the following:
  
a. Assuming no crowding-out and MPC = 0.75, calculate the amount of government spending needed to bring this economy back to full-employment output.
b. Assuming no crowding-out and that $10 billion would be needed to bring this economy back to full-employment output, calculate the MPC in this economy.

Accepted Answer

a.When the MPC = 0.75,the spending multi...

Question 18

Assume the economy is in short-run equilibrium and there is less than full-employment output.Also assume that the marginal propensity to consume (MPC) is equal to 0.8.
a. What is the value of the government spending multiplier in this case?
b. Given the size of the multiplier, what would be the implied change in income (gross domestic product) from the stimulus spending of $500 billion?

Accepted Answer

a.The government spending multiplier in ...

Question 19

Refer to the following figure to answer the next four questions:
 
-According to the figure,which point(s)  would see tax revenues increase if the tax rate decreased?

Accepted Answer

A)   only A
B)   only B
C)   only C
D)   A and C
E)   B and CF) A) and B)
G) All of the above

Question 20

A marginal tax rate of 91% means that:

Accepted Answer

A)   total tax is calculated by taking 91% of income.
B)   total tax is calculated by taking 9% of income.
C)   for each additional dollar earned, only 91 cents can be used toward consumption.
D)   for each additional dollar earned, only 9 cents can be used toward consumption.
E)   for each additional dollar earned, 9 cents is taxed away.F) All of the above
G) B) and D)

Exam 16: Fiscal Policy

Correct Answer
verified
a.

b.

c.Because Y₁ 6 Y*,this econo...
View Answer

Correct Answer
verified
a.The government spending multiplier in ...
View Answer

A marginal tax rate of 91% means that:

Correct Answer
verified

Give a detailed explanation of the new classical critique of fiscal policy.

Correct Answer
verified
By definition,the new classical critique...
View Answer

If your marginal propensity to consume is 0.75 and you get an additional $400 in income,you would spend ___________ on consumption.

Correct Answer
verified

Congress and the president would conduct contractionary fiscal policy in order to:

Correct Answer
verified

Correct Answer
verified

Refer to the following figure to answer the next three questions: -Which of the following is an example of crowding-out?

Correct Answer
verified

When the economy falters,people often look to the government to help push the economy forward again.In fact,the government uses many different tools to try to affect the economy.Economists classify these tools on the basis of two different types of policy:

Correct Answer
verified

Depending on how fiscal policy is implemented,it can affect:

Correct Answer
verified

Countercyclical fiscal policy consists of:

Correct Answer
verified

Where MPC is the marginal propensity to consume,the formula for the spending multiplier is:

Correct Answer
verified

___________ can eliminate recognition lags and implementation lags and thereby alleviate some concerns of destabilizing fiscal policy.

Correct Answer
verified

Refer to the following figure to answer the next three questions: -According to the figure,private investment _ by _ billion,illustrating crowding-out.

Correct Answer
verified

If current savings increases the same amount as the federal stimulus:

Correct Answer
verified

Refer to the following figure to answer the next four questions: -According to the figure,which point(s) would see tax revenues increase if the tax rate decreased?

Correct Answer
verified

An implementation lag happens because:

Correct Answer
verified

An example of expansionary fiscal policy is:

Correct Answer
verified

Congress and the president would conduct expansionary fiscal policy in order to:

Correct Answer
verified

Correct Answer
verified
a.When the MPC = 0.75,the spending multi...
View Answer

Exam 16: Fiscal Policy

Correct Answerverifieda. b. c.Because Y₁ 6 Y*,this econo...View AnswerShow Answer

Correct Answerverifieda.The government spending multiplier in ...View AnswerShow Answer

A marginal tax rate of 91% means that:

Correct AnswerverifiedShow Answer

Give a detailed explanation of the new classical critique of fiscal policy.

Correct AnswerverifiedBy definition,the new classical critique...View AnswerShow Answer

If your marginal propensity to consume is 0.75 and you get an additional $400 in income,you would spend ___________ on consumption.

Correct AnswerverifiedShow Answer

Congress and the president would conduct contractionary fiscal policy in order to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Refer to the following figure to answer the next three questions: -Which of the following is an example of crowding-out?

Correct AnswerverifiedShow Answer

When the economy falters,people often look to the government to help push the economy forward again.In fact,the government uses many different tools to try to affect the economy.Economists classify these tools on the basis of two different types of policy:

Correct AnswerverifiedShow Answer

Depending on how fiscal policy is implemented,it can affect:

Correct AnswerverifiedShow Answer

Countercyclical fiscal policy consists of:

Correct AnswerverifiedShow Answer

Where MPC is the marginal propensity to consume,the formula for the spending multiplier is:

Correct AnswerverifiedShow Answer

___________ can eliminate recognition lags and implementation lags and thereby alleviate some concerns of destabilizing fiscal policy.

Correct AnswerverifiedShow Answer

Refer to the following figure to answer the next three questions: -According to the figure,private investment ___________ by ___________ billion,illustrating crowding-out.

Correct AnswerverifiedShow Answer

If current savings increases the same amount as the federal stimulus:

Correct AnswerverifiedShow Answer

Refer to the following figure to answer the next four questions: -According to the figure,which point(s) would see tax revenues increase if the tax rate decreased?

Correct AnswerverifiedShow Answer

An implementation lag happens because:

Correct AnswerverifiedShow Answer

An example of expansionary fiscal policy is:

Correct AnswerverifiedShow Answer

Congress and the president would conduct expansionary fiscal policy in order to:

Correct AnswerverifiedShow Answer

Correct Answerverifieda.When the MPC = 0.75,the spending multi...View AnswerShow Answer

Correct Answer
verified
a.

b.

c.Because Y₁ 6 Y*,this econo...
View Answer

Correct Answer
verified
a.The government spending multiplier in ...
View Answer

Correct Answer
verified

Correct Answer
verified
By definition,the new classical critique...
View Answer

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

Refer to the following figure to answer the next three questions: -According to the figure,private investment _ by _ billion,illustrating crowding-out.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a.When the MPC = 0.75,the spending multi...
View Answer