Chapter 13

A tax reduction of a specific amount will be more expansionary, the: A) smaller is the economy's MPC. C) smaller is the economy's multiplier. B) larger is the economy's MPC. D) less the economy's built-in stability.

B

An appropriate fiscal policy for a severe recession is: A) a decrease in government spending. C) appreciation of the dollar. B) a decrease in tax rates. D) an increase in interest rates.

B

An appropriate fiscal policy for severe demand-pull inflation is: A) an increase in government spending. C) a reduction in interest rates. B) depreciation of the dollar. D) a tax rate increase.

A

If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by: A) increasing government spending by $4 billion. C) decreasing taxes by $4 billion. B) increasing government spending by $40 billion. D) increasing taxes by $4 billion.

A

Countercyclical discretionary fiscal policy calls for: A) surpluses during recessions and deficits during periods of demand-pull inflation. B) deficits during recessions and surpluses during periods of demand-pull inflation. C) surpluses during both recessions and periods of demand-pull inflation. D) deficits during both recessions and periods of demand-pull inflation.

B

Fiscal policy is carried out primarily by: A) the Federal government. C) state governments alone. B) state and local governments working together. D) local governments alone.

A

Fiscal policy refers to the: A) manipulation of government spending and taxes to stabilize domestic output, employment, and the price level. B) manipulation of government spending and taxes to achieve greater equality in the distribution of income. C) altering of the interest rate to change aggregate demand. D) fact that equal increases in government spending and taxation will be contractionary.

A

An economist who favors smaller government would recommend: A) tax cuts during recession and reductions in government spending during inflation. B) tax increases during recession and tax cuts during inflation. C) tax cuts during recession and tax increases during inflation. D) increases in government spending during recession and tax increases during inflation.

A

Assume that aggregate demand in the economy is excessive, causing demand-pull inflation. Which of the following would be most in accord with appropriate government fiscal policy? A) an increase in Federal income tax rates B) an increase in the size of income tax exemptions for each dependent C) passage of legislation providing for the construction of 8,000 new school buildings D) an increase in soil conservation subsidies to farmers

A

Suppose that in an economy with a MPC of .8 the government wanted to shift the aggregate demand curve leftward by $40 billion at each price level to remedy demand-pull inflation. It could: A) increase taxes by $10 billion. C) reduce government spending by $5 billion. B) reduce government spending by $40 billion. D) increase taxes by $20 billion.

A

The effect of a government surplus on the equilibrium level of GDP is substantially the same as: A) a decrease in saving. C) an increase in consumption. B) an increase in saving. D) an increase in investment.

B

Discretionary fiscal policy will stabilize the economy most when: A) deficits are incurred during recessions and surpluses during inflations. B) the budget is balanced each year. C) deficits are incurred during inflations and surpluses during recessions. D) budget surpluses are continuously incurred.

A

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $120 billion. To obtain price level stability under these conditions the government should: A) increase tax rates and reduce government spending. B) discourage personal saving by reducing the interest rate on government bonds. C) increase government expenditures. D) encourage private investment by reducing corporate income taxes.

A

If the MPS in an economy is .4, government could shift the aggregate demand curve leftward by $50 billion by: A) reducing government expenditures by $125 billion. B) reducing government expenditures by $20 billion. C) increasing taxes by $50 billion. D) increasing taxes by $250 billion.

B

Which of the following represents the most expansionary fiscal policy? A) a $10 billion tax cut C) a $10 billion tax increase B) a $10 billion increase in government spending D) a $10 billion decrease in government spending

B

Assume the economy is at full employment and that investment spending declines dramatically. Under these conditions government fiscal policy should be directed toward: A) an equality of tax receipts and government expenditures. B) an excess of tax receipts over government expenditures. C) an excess of government expenditures over tax receipts. D) a reduction of subsidies and transfer payments and an increase in tax rates.

C

Contractionary fiscal policy is so named because it: A) involves a contraction of the nation's money supply. B) necessarily reduces the size of government. C) is aimed at reducing aggregate demand and thus achieving price stability. D) is expressly designed to contract real GDP.

C

Discretionary fiscal policy is so named because it: A) is undertaken at the option of the nation's central bank. B) occurs automatically as the nation's level of GDP changes. C) involves specific changes in T and G undertaken expressly for stabilization at the option of Congress. D) is invoked secretly by the Council of Economic Advisers.

C

Discretionary fiscal policy refers to: A) any change in government spending or taxes that destabilizes the economy. B) the authority that the President has to change personal income tax rates. C) changes in taxes and government expenditures made by Congress to stabilize the economy. D) the changes in taxes and transfers that occur as GDP changes.

C

If the MPC in an economy is .8, government could shift the aggregate demand curve rightward by $100 billion by: A) increasing government spending by $25 billion. C) decreasing taxes by $25 billion. B) increasing government spending by $80 billion. D) decreasing taxes by $100 billion.

C

An economist who favored expanded government would recommend: A) tax cuts during recession and reductions in government spending during inflation. B) tax increases during recession and tax cuts during inflation. C) tax cuts during recession and tax increases during inflation. D) increases in government spending during recession and tax increases during inflation.

D

Expansionary fiscal policy is so named because it: A) involves an expansion of the nation's money supply. B) necessarily expands the size of government. C) is aimed at achieving greater price stability. D) is designed to expand real GDP.

D

If the MPC in an economy is .75, government could shift the aggregate demand curve leftward by $60 billion by: A) reducing government expenditures by $12 billion. B) reducing government expenditures by $60 billion. C) increasing taxes by $15 billion. D) increasing taxes by $20 billion.

D

Suppose that in an economy with a MPC of .5 the government wanted to shift the aggregate demand curve rightward by $80 billion at each price level to expand real GDP. It could: A) reduce taxes by $160 billion. C) reduce taxes by $40 billion. B) increase government spending by $80 billion. D) increase government spending by $40 billion.

D

Which of the following represents the most contractionary fiscal policy? A) a $30 billion tax cut C) a $30 billion tax increase B) a $30 billion increase in government spending D) a $30 billion decrease in government spending

D