Economics Chapter 16

Which of the following is an example of a fiscal stimulus? a) decrease in taxes b) decrease in government expenditure on goods and services c) increase in taxes d) decrease in transfer payments e) none of the above

a) decrease in taxes

The government expenditure multiplier and the tax multiplier are a) different in size and the government expenditure multiplier is larger. b) not comparable because the government c) expenditure multiplier applies to aggregate demand and the tax multiplier applies to aggregate supply. d) not comparable because the government expenditure multiplier applies to aggregate supply and the tax multiplier applies to aggregate demand. identical in size. e) different in size and the tax multiplier is larger.

a) different in size and the government expenditure multiplier is larger.

An economy is at a short-run equilibrium as illustrated in the above figure. An appropriate fiscal policy option to move the economy to full employment is to a) increase government expenditure and move the economy to a full-employment equilibrium at point b. b) lower the interest rate by increasing the quantity of money and move the economy to a full-employment equilibrium at point b. c) increase government expenditure and move the economy to a full-employment equilibrium at point c. d) increase tax rates and move the economy to a full-employment equilibrium at point c. e) increase tax rates and move the economy to a full-employment equilibrium at point b.

a) increase government expenditure and move the economy to a full-employment equilibrium at point b

The federal budget is defined as A) an annual statement of expenditures and tax revenues of the U.S. government B) an annual statement of U.S. government violations of international laws C) an annual statement of what policy actions the U.S. government has pursued D) a monthly statement of expenditure laws passed by the U.S. government E) a monthly statement of whether the U.S. government is in deficit or surplus

an annual statement of expenditures and tax revenues of the U.S. government

Discretionary fiscal policy is a fiscal policy action, such as a) an increase in payments to the unemployed, initiated by the state of the economy. b) a tax cut, initiated by an act of Congress. c) a decrease in tax receipts, initiated by the state of the economy. d) an interest rate cut, initiated by an act of Congress. e) an increase in the quantity of money

b) a tax cut, initiated by an act of Congress.

In the United States for the year 2012, the federal government had a ________ so the national debt was ________. A) budget surplus; increasing B) balanced budget; not changing C) budget deficit; decreasing D) budget deficit; increasing E) budget surplus; decreasing

budget deficit; increasing

The law-making time lag is best described as the time that it takes a) a jury to render a verdict. b) Congress to realize that new laws must be passed to change taxes or spending. c) the President to sign a bill sent from Congress. d) Congress to pass laws needed to change taxes or spending. e) a newly passed law to become the norm in daily lives.

d) Congress to pass laws needed to change taxes or spending.

If the government reduces expenditure on goods and services by $30 billion, then aggregate demand a) increases by more than $30 billion and real GDP increases. b) increases by $30 billion and real GDP increases. c) increases and potential GDP increases. d) decreases by more than $30 billion and real GDP decreases. e) decreases by $30 billion and real GDP decreases.

d) decreases by more than $30 billion and real GDP decreases

In a recession, needs-tested spending ________ and induced taxes ________. A) increases; decrease B) increase; do not change C) decreases; decrease D) decreases; increase E) increases; increase

increases; decrease

When the government's outlays equal its tax revenues, then the budget A) is in deficit B) is balanced C) could be either in surplus or deficit D) is legal only because expenditures equal tax revenues E) is in surplus

is balanced

When the government's outlays equal its tax revenue, the budget A) has a deficit and the national debt is decreasing B) has a surplus and the national debt is increasing C) has a surplus and the national debt is decreasing D) has a deficit and the national debt is increasing E) is balanced and the national debt is not changing

is balanced and the national debt is not changing

When tax revenues ________ outlays is negative, then the government has a budget ________. A) divided by; surplus B) minus; deficit C) plus; surplus D) plus; deficit E) minus; surplus

minus; deficit

Automatic stabilizers are defined as A) policy that stabilizes without the need for action by the government B) actions taken by the President without Congressional consent to stabilize the economy C) actions taken by an act of Congress to stabilize the economy D) policy that has no multiplier effects E) discretionary policy taken to stabilize the economy

policy that stabilizes without the need for action by the government

Needs-tested spending is defined as A) spending by Congress on its own perks of office B) taxes paid by those qualified by their income C) spending on programs for people qualified to receive benefits D) spending by the President on the White House E) spending that increases in expansions and decreases in recessions

spending on programs for people qualified to receive benefits

The last U.S. president to be in office when the government had a budget surplus was A) George W. Bush B) Ronald Reagan C) George H. Bush D) Dwight D. Eisenhower E) Bill Clinton

Bill Clinton

Ignoring any supply-side effects, if government expenditure on goods and services decrease by $10 billion and taxes decrease by $10 billion, then real GDP ________ and the price level ________. a) increases; falls b) increases; rises c) decreases; rises d) decreases; falls e) does not change; does not change

d) decreases; falls

Which of the following is a limitation of discretionary fiscal policy? i. law-making lags ii. estimating potential GDP iii. income gap a) i only b) ii only c) iii only d) i and ii e) i, ii, and iii

d) i and ii

Since 2000, the U.S. government has generally had a government budget ________ and so the national debt has ________. A) surplus; increased B) surplus; decreased C) deficit; not changed D) deficit; increased E) deficit; decreased

deficit; increased

The balanced budget multiplier is based on the point that the ________ multiplier is larger than the ________ multiplier so that an equal increase in government expenditure and taxes ________ aggregate demand. a) expenditure; tax; decreases b) expenditure; tax; does not change c) tax; expenditure; decreases d) tax; expenditure; does not change e) expenditure; tax; increases

e) expenditure; tax; increases

If a change in the tax laws leads to a $100 billion decrease in tax revenue, then aggregate demand a) decreases by more than $100 billion. b) decreases by $100 billion. c) increases by less than $100 billion. d) increases by $100 billion. e) increases by more than $100 billion.

e) increases by more than $100 billion.

An example of automatic fiscal policy is A) a change in taxes that has no multiplier effect B) Congress passing a tax rate reduction package C) expenditure for unemployment benefits increasing as economic growth slows D) the Federal Reserve reducing interest rates as economic growth slows E) the federal government expanding spending at the Department of Education

expenditure for unemployment benefits increasing as economic growth slows

When tax revenues exceed the government's outlays, the budget A) has a surplus and the national debt is decreasing B) has a surplus and the national debt is increasing C) has a deficit and the national debt is increasing D) is balanced and the national debt is decreasing E) None of the above because by law tax revenue cannot exceed the government's expenditures

has a surplus and the national debt is decreasing

If government expenditure on goods and services increase by $100 billion, then aggregate demand A) decreases by more than $100 billion B) remains unchanged C) increases by $100 billion D) increases by less than $100 billion E) increases by more than $100 billion

increases by more than $100 billion

Induced taxes are defined as taxes A) enacted by Congress that explicitly state the amount to be paid B) that vary with real GDP C) that rise in recessions and fall in expansions D) that are avoided with the use of legal tax shelters E) we are forced to pay for services from the government

that vary with real GDP

What two parts of the government determine the federal budget? A) the Congress and the President B) the President and the Federal Reserve C) the Congress and the Federal Reserve D) the Federal Reserve and the FOMC E) the U.S. Treasury and the Federal Reserve

the Congress and the President

The national debt is A) the amount lent by the government of past budget surpluses B) government outlays minus tax revenue C) the amount borrowed by the government to finance past budget deficits D) tax revenue minus government outlays E) the excess of this year's budget surplus minus this year's budget deficit

the amount borrowed by the government to finance past budget deficits

The national debt can only be reduced if A) there are no tax multiplier effects B) the economy has a deflationary gap C) the economy has an inflationary gap D) the federal budget is in surplus E) the federal budget is in deficit

the federal budget is in surplus