Chapter 30

_____________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation. A. Automatic stabilizers B. Budget expenditures C. Discretionary fiscal policies D. Standardized employment budgets

A. Automatic stabilizers

National debt refers to the total amount that the government has borrowed over time. A. True B. False

A. True

The stimulus package of 2009 is an example of discretionary fiscal policy. A. True B. False

A. True

When inflation begins to climb to unacceptable levels in the economy, the government should: A. use contractionary fiscal policy to shift aggregate demand to the left. B. use expansionary fiscal policy to shift aggregate demand to the right. C. use contractionary fiscal policy to shift aggregate demand to the right. D. use expansionary fiscal policy to shift aggregate demand to the left.

A. use contractionary fiscal policy to shift aggregate demand to the left.

A recognition lag is the time that it takes for the money related to fiscal policy to be dispersed to the appropriate agencies to implement the stimulus program. A. True B. False

B. False

If a government reduces taxes to increase the level of aggregate demand, what type of fiscal policy is being used? A. contractionary B. expansionary C. standardized D. discretionary

B. expansionary

The government can use _____________ in the form of ____________________ to increase the level of aggregate demand in the economy. A. a contractionary fiscal policy; a reduction in taxes B. an expansionary fiscal policy; an increase in corporate taxes C. an expansionary fiscal policy; an increase in government spending D. a contractionary fiscal policy; an increase in taxes

C. an expansionary fiscal policy; an increase in government spending

A __________________________ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes. A. proportional tax B. excise tax C. progressive tax D. regressive tax

C. progressive tax

During a recession, if a government uses an expansionary fiscal policy to increase GDP, the: A. aggregate demand curve will shift to the left. B. aggregate supply curve will shift to the left. C. aggregate supply curve will shift to the right. D. aggregate demand curve will shift to the right.

D. aggregate demand curve will shift to the right.

A ______________________ is created each time the federal government spends more than it collects in taxes in each year. A. budget surplus B. regressive tax C. corporate tax D. budget deficit

D. budget deficit

Assume that laws have been passed that require the federal government to run a balanced budget. During a recession, the government will want to implement _____________________, but may be unable to do so because such a policy would ____________________________. A. contractionary fiscal policy; lead to a budget stalemate B. discretionary fiscal policy; lead to a budget surplus C. contractionary fiscal policy; lead to a budget deficit D. expansionary fiscal policy; lead to a budget deficit

D. expansionary fiscal policy; lead to a budget deficit

In 2009, the Fed reduced the target federal funds rate from 2% to almost 0%. What impact did that have on the Fed's ability to make monetary policy in the future? a. It made the Fed unable to use traditional monetary policy tools to fight further rises in unemployment. b. It shifted the Fed from an expansionary to a contractionary policy leaning. c. It allowed the Fed to begin using fiscal policy tools to supplement its traditional monetary policy tools. d. It moved the Fed from neoclassical analysis to Keynesian analysis.

a. It made the Fed unable to use traditional monetary policy tools to fight further rises in unemployment.

Which of these changes would have a bigger impact on state and local government budgets than on the federal budget? a. an increase in the size of the public school population b. an increase in the number of veterans using government benefits c. an increase in the number of people receiving Social Security benefits d. an increase in prices charged by doctors and hospitals

a. an increase in the size of the public school population

As federal debt increases, ________ also rise, so that the deficit grows even if other government spending is held constant. a. interest payments b. entitlements c. personal expenditures d. exchange rates

a. interest payments

Suppose the government enacts an economic stimulus plan that increases the size of the money supply by $1 trillion, but the velocity of money remains unchanged. The stimulus has also increased _____. a. unemployment b. interest rates c. GDP d. aggregate supply

c. GDP

The use of expansionary fiscal policy during a recession is likely to result in _____. a. high inflation b. a budget surplus c. decreased unemployment d. an asset bubble

c. decreased unemployment

Politicians tend to favor expansionary fiscal policies over contractionary fiscal policies because _____. a. spending increases can be paid for without raising taxes b. spending decisions have more economic impact than adjusting interest rates c. tax cuts and spending increases are popular with voters d. the government has more impact on the economy during crises than during boom times

c. tax cuts and spending increases are popular with voters

Which of these is the best argument against passing a balanced budget amendment? a. It would lead to a short-term increase in interest rates. b. It would prevent the money supply from growing as the economy grew. c. It would raise wages and create inflationary pressures. d. It would severely limit the government's ability to fight a recession.

d. It would severely limit the government's ability to fight a recession.

Suppose the government wanted to address the problem of runaway inflation with discretionary fiscal policy. It would use some combination of ____________. a. lower taxes and a higher discount rates b. lower interest rates and lower spending c. higher taxes and reduced bond sales d. higher taxes and lower spending

d. higher taxes and lower spending

Suppose Congress is pursuing an expansionary fiscal policy. A coordinated monetary policy would require the Fed to _____. a. sell a large amount of bonds b. increase the required reserve ratio c. loan money to the government d. keep interest rates low

d. keep interest rates low

If South Dakota's governor reports a budget surplus in 2011, that state government likely: A. increased the corporate income tax rate. B. equalized spending and taxes in that year. C. increased the proportional tax level. D. received more in taxes than it spent in that year.

D. received more in taxes than it spent in that year.

A factory that makes 1,000 widgets can do so at an average cost of $20 per widget. A factory that makes 2,000 widgets can do so at an average cost of $45 per widget. In this case, the market likely experiences ______. a. diseconomies of scale b. constant returns to scale c. economies of scale d. falling labor costs

a. diseconomies of scale

Which of these conditions is most likely to push the government to employ a contractionary fiscal policy? a. a sharp increase in unemployment b. a high inflation rate c. rising national debt d. rising asset prices

b. a high inflation rate

Suppose there is currently no gap between the standardized employment budget deficit and the actual budget deficit. In this case, the economy is not being impacted by _____. a. consumer confidence b. automatic stabilizers c. the inflation rate d. monetary policy

b. automatic stabilizers

Which of these policy recommendations by an economist is likely to involve the largest time lag? a. reduce the size of the money supply b. cut corporate income tax rates c. lower interest rates d. slow foreign investment

b. cut corporate income tax rates

Federal tax revenue increased from 18.1% of GDP in 1994 to 20.8% in 2000. This was largely a result of _____. a. high inflation b. economic growth c. budget cuts d. contractionary fiscal policy

b. economic growth

Unemployment rates in France tend to be ____________ compared with unemployment rates in the United States. a. about the same b. higher c. a little lower d. substantially lower

b. higher

The CEO of a large company believes that if he raises wages for his workers by 5%, this will lead to a smaller-than-5% increase in worker hours. The CEO believes that wage elasticity of labor supply at his company is ________. a. negative b. inelastic c. unit elastic d. elastic

b. inelastic

Understanding the determinants of long-run economic growth is an example of a ________ problem. a. microeconomic b. macroeconomic c. fiscal policy d. monetary policy

b. macroeconomic

Suppose a firm wants to calculate its total revenue. In addition to quantity, it would need to know _____. a. cost b. price c. profit d. implicit cost

b. price

The federal government gets the LEAST amount of revenue from which of these sources? a. payroll taxes b. tariffs c. individual income taxes d. corporate income taxes

b. tariffs

A perfectly inelastic demand curve has an elasticity equal to ______ and is a _______ line. a. zero, horizontal b. zero, vertical c. infinity, horizontal d. infinity, vertical

b. zero, vertical

Which of these is an example of an automatic stabilizer? a. guaranteed student loans b. Social Security payments c. unemployment insurance d. the required reserve ratio

c. unemployment insurance

Between 1960 and 2000, U.S. government expenditures have represented about what portion of GDP? a. one-tenth b. one-half c. one-third d. one-fifth

d. one-fifth

Suppose that gifts were taxed at a rate of 10% for amounts up to $100,000 and 20% for anything over that amount. This tax would be a ________ tax. a. flat b. regressive c. consumption d. progressive

d. progressive

Suppose an economy is operating close to potential GDP, and Congress cuts taxes without making an equivalent cut in spending. This will have which effect in the short run? a. a major reduction in unemployment b. a decrease in interest rates c. reduced productivity d. severe inflation

d. severe inflation