AP Macro Chapter 12 Multiple Choice

If the full-employment budget shows a deficit of about $200 billion and the actual budget shows a deficit about $250 billion over a several-year period, it can be concluded that there is a a. cyclical deficit b. net export effect c. recognition lag d. political business deficit

a. cyclical deficit

Suppose the United States pursued an expansionary fiscal policy to stimulate its economy and eliminate a recession. The net export effect suggests that net exports would a. decrease, thus decreasing aggregate demand and partially offsetting the fiscal policy b. decrease, thus increasing aggregate demand and partially offsetting the fiscal policy c. increase, thus decreasing aggregate demand and partially offsetting the fiscal policy d. increase, thus increasing aggregate demand and partially reinforcing the fiscal policy

a. decrease, thus decreasing aggregate demand and partially offsetting the fiscal policy

If the government wishes to increase the level of real GDP, it might reduce a. taxes b. transfer payments c. the size of the budget deficit d. its purchases of goods and services

a. taxes

Which of the following was instrumental in assigning to the Federal government the basic responsibility for promoting economic stability in the U.S. economy? a. the Employment Act of 1946 b. the Tax Reform Act of 1986 c. Say's law d. Okun's law

a. the Employment Act of 1946

Current thinking about discretionary fiscal policy among mainstream economists is that it should be designed to a. counteract the effects of monetary policy b. contribute to long-run economic growth c. "fine-tune" the economy in the short run, but not in the long run d. control inflationary pressure, but not be used to flight recession

b. contribute to long-run economic growth

If the full-employment deficit as a percentage of GDP is zero one year, and there is a full-employment budget surplus the next year, it can be concluded that a. fiscal policy is expansionary b. fiscal policy is contractionary c. the federal government is borrowing money d. the federal government is lending money

b. fiscal policy is contractionary

Which would be the most contractionary use of funds from a budget surplus? a. cutting tax rates b. impounding the funds c. using the funds to retire outstanding government debt d. increasing government spending on social programs

b. impounding the funds

The crowding-out effect of an expansionary (deficit) fiscal policy is the result of government borrowing in the money market which a. increases interest rates and net investment spending in the economy b. increases interest rates and decreases net investment spending c. decreases interest rates and increases net investment spending d. decreases interest rates and net investment spending

b. increases interest rates and decreases net investment spending

When government tax revenues change automatically and in a countercyclical direction over the course of the business cycle, this is an example of a. the political business cycle b. nondiscretionary fiscal policy c. the full-employment budget d. crowding out

b. nondiscretionary fiscal policy

The length of time involved for the fiscal action taken by Congress to affect output, employment, or the price level is referred to as the a. administrative lag b. operational lag c. recognition lag d. fiscal lag

b. operational lag

When the actual budget deficit us greater than the full-employment deficit, it can be concluded that a. discretionary fiscal policy is contractionary b. the economy is at less than full employment c. the tax system for the economy is regressive d. the budget surplus has increased

b. the economy is at less than full employment

The effect of an expansionary fiscal policy on the real GDP of an economy is a. strengthened by the crowding-out effect b. weakened by the crowding-out effect c. reinforced by raising tax rates d. offset by lowering tax rates

b. weakened by the crowding-out effect

Which combination of policies would be the most expansionary? a. an increase in government spending and taxes b. a decrease in government spending and taxes c. an increase in government spending and a decrease in taxes d. a decrease in government spending and an increase in taxes

c. an increase in government spending and a decrease in taxes

Which is a more expansionary way for government to finance a budget deficit? a. borrowing money in the money market b. decreasing government spending c. creating new money d. increasing taxes

c. creating new money

If Congress passes legislation to make a substantial increase in government spending to counter the effects of a severe recession, this would be an example of a a. supply-side fiscal policy b. contractionary fiscal policy c. discretionary fiscal policy d. nondiscretionary fiscal policy

c. discretionary fiscal policy

With a proportional tax system, as the level of income increases in an economy, the average tax rates will a. increase b. decrease c. remain the same d. either increase or decrease

c. remain the same

If the economy is to have built-in stability, when real GDP falls, a. tax revenues and government transfer payments both should fall b. tax revenues and government transfer payments both should rise c. tax revenues should fall and government transfer payments should rise d. tax revenues should rise and government transfer payments should fall

c. tax revenues should fall and government transfer payments should rise

An economy is in a recession and the government decides to increase spending by $4 billion. The MPC is .8. What would be the full increase in real GDP from the change in government spending? a. $3.2 billion b. $4 billion c. $16 billion d. $20 billion

d. $20 billion

Which combination of fiscal policies would be the most contractionary? a. an increase in government spending and taxes b. a decrease in government spending and taxes c. an increase in government spending and a decrease in taxes d. a decrease in government spending and an increase in taxes

d. a decrease in government spending and an increase in taxes

The crowding-out effect may be a. counteracted by decreasing the supply of money to offset a decrease in the demand for money b. reinforced by decreasing the supply of money to offset a decrease in the demand for money c. reinforced by increasing the supply of money to offset an increase in the demand for money d. counteracted by increasing the supply of money to offset an increase in the demand for money

d. counteracted by increasing the supply of money to offset an increase in the demand for money

Suppose the United States pursued a contractionary fiscal policy to reduce the level of inflation. The net export effect suggests that net exports would a. decrease, thus decreasing aggregate demand and partially reinforcing the fiscal policy b. decrease, thus increasing aggregate demand and partially offsetting the fiscal policy c. increase, thus decreasing aggregate demand and partially reinforcing the fiscal policy d. increase, thus increasing aggregate demand and partially offsetting the fiscal policy

d. increase, thus increasing aggregate demand and partially offsetting the fiscal policy