Ch 30
B
12. Refer to the above diagram. The equilibrium level of GDP is: A. Y5. B. Y4. C. Y3. D. Y2.
A
8. 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/or 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.
B
9. An appropriate fiscal policy for a severe recession is: A. a decrease in government spending. B. a decrease in tax rates. C. appreciation of the dollar. D. an increase in interest rates.
A
Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Congress; (4) The tax cut is passed by Congress and signed by the President; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. 23. Refer to the above information. The recognition lag of fiscal policy is reflected in events: A. 1 and 2. B. 2 and 3. C. 3 and 4. D. 4 and 5.
C
Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Congress; (4) The tax cut is passed by Congress and signed by the President; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. 24. Refer to the above information. The administrative lag of fiscal policy is reflected in events: A. 1 and 2. B. 2 and 3. C. 3 and 4. D. 4 and 5.
A
1. The group of three economists appointed by the President to provide fiscal policy recommendations is the: A. Council of Economic Advisers. B. Joint Economic Committee. C. Bureau of Economic Analysis. D. Federal Reserve Board of Governors.
D
10. Which of the following represents the most contractionary fiscal policy? A. a $30 billion tax cut B. a $30 billion increase in government spending C. a $30 billion tax increase D. a $30 billion decrease in government spending
B
11. In the above diagram it is assumed that investment, net exports, and government purchases: A. are leakages from the circular flow. B. are independent of the level of GDP. C. vary inversely with GDP. D. vary directly with GDP.
C
13. Refer to the above diagram. If the full-employment GDP is Y5, government should: A. incur neither a deficit nor a surplus. B. cut taxes and government spending by equal amounts. C. reduce taxes and increase government spending.
D
14. Refer to the above diagram. If the full-employment GDP is Y3, government should: A. incur neither a deficit nor a surplus. B. increase taxes and government spending by equal amounts. C. reduce taxes and increase government spending. D. increase taxes and reduce government spending.
C
15. A major advantage of the built-in or automatic stabilizers is that they: A. simultaneously stabilize the economy and reduce the absolute size of the public debt. B. automatically produce surpluses during recessions and deficits during inflations. C. require no legislative action by Congress to be made effective. D. guarantee that the Federal budget will be balanced over the course of the business cycle
C
16. The cyclically-adjusted budget refers to: A. the inflationary impact that the automatic stabilizers have in a full-employment economy. B. that portion of a full-employment GDP that is not consumed in the year it is produced. C. the size of the Federal government's budgetary surplus or deficit when the economy is operating at full employment. D. the number of workers who are underemployed when the level of unemployment is 4 to 5 percent.
A
17. When current government expenditures equal current tax revenues and the economy is achieving full employment: A. the cyclically-adjusted budget has neither a deficit nor a surplus. B. the cyclically-adjusted budget may have either a deficit or a surplus. C. fiscal policy is contractionary. D. nominal GDP and real GDP are equal.
D
18. Suppose the government cuts taxes to keep the economy's cyclically-adjusted budget in balance when the economy is expanding. The government is engaging in a(n): A. contractionary fiscal policy. B. expansionary fiscal policy. C. low-interest rate policy. D. neutral fiscal policy.
B
19. Economists refer to a budget deficit that exists when the economy is achieving full employment as a: A. cyclical deficit. B. cyclically-adjusted deficit. C. natural deficit. D. nonrecurring deficit.
C
2. 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. intentional 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.
B
20. The Federal budget deficit is found by: A. subtracting government tax revenues plus government borrowing from government spending in a particular year. B. subtracting government tax revenues from government spending in a particular year. C. cumulating the differences between government spending and tax revenues over all years since the nation's founding. D. subtracting government revenues from the noninvestment-type government spending in a particular year.
D
21. The American Recovery and Reinvestment Act of 2009 was implemented primarily to: A. reduce inflationary pressure caused by oil price increases. B. curb the overspending by households that contributed to the Great Recession. C. bring the Federal budget back into balance. D. stimulate aggregate demand and employment.
B
25. The political business cycle refers to the possibility that: A. incumbent politicians will be reelected regardless of the state of the economy. B. politicians will manipulate the economy to enhance their chances of being reelected. C. there is more inflation during Democratic administrations than during Republican administrations. D. recessions coincide with election years.
D
26. The U.S. public debt: A. refers to the debts of all units of government—Federal, state, and local. B. consists of the total debt of U.S. households, businesses, and government. C. refers to the collective amount that U.S. citizens and businesses owe to foreigners. D. consists of the historical accumulation of all past Federal deficits and surpluses.
C
27. The public debt is the amount of money that: A. state and local governments owe to the Federal government. B. Americans owe to foreigners. C. the Federal government owes to holders of U.S. securities. D. the Federal government owes to taxpayers.
A
28. Recessions have contributed to the public debt by: A. reducing national income and therefore tax revenues. B. increasing real interest rates. C. increasing the international value of the dollar. D. increasing national saving.
D
29. Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions? A. 56 percent B. 71 percent C. 43 percent D. 29 percent
D
3. 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.
A
30. The largest proportion of the U.S. public debt is held by: A. the U.S. public (individuals, businesses, financial institutions, etc.) and state and local governments. B. foreign individuals and institutions. C. the Federal Reserve System. D. U.S. government agencies.
B
31. The crowding-out effect suggests that: A. tax increases are paid primarily out of saving and therefore are not an effective fiscal device. B. government borrowing to finance the public debt increases the real interest rate and reduces private investment. C. it is very difficult to have excessive aggregate spending in a capitalist economy. D. consumer and investment spending always vary inversely.
C
32. Which of the following is the best example of public investment? A. salaries of Senators and Representatives B. government expenditures on food stamps C. construction of highways D. funding of regulatory agencies
A
33. Which of the following is not considered a legitimate concern of a large public debt? A. Bankruptcy of the Federal government B. Disincentives created by higher taxes C. Crowding-out of private investment D. Increased income inequality
C
4. 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 expand real GDP.
A
5. 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
6. 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. B. increasing government spending by $40 billion. C. decreasing taxes by $4 billion.
D
7. Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth? A. A Congressional proposal to incur a Federal surplus to be used for the retirement of public debt. B. Reductions in agricultural subsidies and veterans' benefits. C. Postponement of a highway construction program. D. Reductions in Federal tax rates on personal and corporate income.
D
Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Congress; (4) The tax cut is passed by Congress and signed by the President; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. 22. Refer to the above information. The operational lag of fiscal policy is reflected in event(s): A. 1 and 2. B. 2 and 3. C. 3 and 4. D. 5.
