Chapter 16 Macro

The federal government debt as a percentage of GDP did not rise A. During the 1960s B. During the 1980s C. During World War II D. During the Great Depression

A

Accumulating debt poses a problem for the U.S. federal government because A. A large debt-to-GDP ratio causes crowding out B. Building roads and bridges do not yield enough benefits to justify their cost C. The debt has to ultimately be paid off D. It is currently in danger of defaulting on the debt

A

Expansionary fiscal policy will A. Shift the aggregate demand curve to the right B. Shift the short-run aggregate supply curve to the left C. Not shift the aggregate demand curve D. Shift the aggregate demand curve to the left

A

Refer to Figure 15-1. In the graph above, if the economy is at point A, an appropriate fiscal policy by the Congress and the president would be to A. Increase government expenditures B. Sell government securities C. Decrease transfer payments D. Decrease the require reserve ratio

A

The fastest growing category of government expenditure is A. Transfer payments B. Grants to state and local governments C. Defense spending D. Government purchases

A

Double taxation refers to A. Individual paying taxes on wage income and individuals paying taxes on dividends B. Corporations paying taxes on capital gains and individuals paying taxes on wage income C. Corporations paying taxes on profits and individuals paying taxes on wage income D. Corporations paying taxes on profits and individuals paying taxes on dividends

D

Expansionary fiscal policy ___________ the price level and __________ equilibrium real GDP. A. Increase; decreases B. Decreases; decreases C. Decreases; increases D. Increases, increases

D

If Congress wanted to counteract the effect of a recession it could A. Increase tax rates B. Increase government purchases C. Increase taxes by a fixed amount D. Decrease defense spending

B

Poorly timed discretionary policy can do more harm than good. Getting the timing right with fiscal policy is generally: A. Far less difficult than with monetary policy B. More difficult than with monetary policy C. About the same difficulty as with monetary policy D. Less difficult than with monetary policy

B

The government purchase multiplier is defined as A. (Change in government purchase) / (Change in induced consumption) B. (Change in equilibrium real GDP) / (Change in government purchase) C. (Change in equilibrium real GDP) / (Change in autonomous consumption) D. (Change in government purchase) / (Change in equilibrium real GDP)

B

Which of the following is a government expenditure, but is not a government purchase? A. The federal government pays the salary of an FBI agent B. The federal government pays out an unemployment insurance claim C. The federal government buys a Humvee D. The federal government pays to support research on Aids

B

Which of the following would be considered an active fiscal policy? A. Spending on the war in Afghanistan is increased to promote homeland security B. A tax cut is designed to stimulate spending passed during a recession C. Tax incentives are offered to encourage the purchase of fuel efficient cars D. The Fed increases the money supply

B

A tax rebate by the government would A. Decrease your disposable income, but not your pretax income. B. Decrease your pretax income, but not your disposable income. C. Increase your disposable income, but not your pretax income. D. Increase your pretax income, but not your disposable income.

C

Consider a tax cut which affects not only consumer disposable income, but also after-tax earnings from labor supplied to labor markets and from financial assets acquired through saving. In the long run we would expect this tax cut to A. Increase the price level B. Increase both the price level and the level of real GDP C. Increase the level of real GDP D. Decrease both the price level and increase real GDP

C

If the federal government's expenditures are less than its tax revenues, then A. A budget deficit results B. The budget is balanced C. A budget surplus results D. No conclusion can be drawn here regarding the budget surplus or deficit without information regarding government versus other outlays

C

One of the positive effects of the flat tax is that A. It enables legislators to more effectively target tax breaks for favored constituents B. It decreases labor supply, increasing real wages earned by workers in the labor force C. It reduces compliance costs in payments of taxes D. It will increase interest rates earned by lenders in financial markets

C

Reducing the marginal tax rate on income will A. Raise the return to entrepreneurship and encourage the opening of new businesses B. Increase the after-tax return on saving, and encourage saving C. Reduce the tax wedge faced by workers and increase labor supplied D. All of the above are correct

C

An argument advanced against the flat tax is that A. It would decrease the supply of labor, raising the real wage that employers would have to pay to attract and retain quality employees B. Its adoption would put a large number of accountants and lawyers out of work C. It would raise the costs of compliance with tax law D. It may make the distribution of after-tax income more unequal than it is under current tax law

D

Crowding out will be greater A. The less sensitive consumption spending is to changes in the interest rates B. If the economy is in recession, rather than at full employment C. The further equilibrium GDP is below potential GDP D. The more sensitive investment is to changes in the interest rate

D

Crowding out, following an increase in government spending, results from (the exchange rate is the foreign exchange price of the domestic currency) A. Lower interest rates and a higher exchange rate B. Higher interest rates and a lower exchange rate C. Lower interest rates and a lower exchange rate D. Higher interest rates and a higher exchange rate

D

Cutting taxes A. Will raise disposable income and lower spending B. Will lower disposable income and lower spending C. Will lower disposable income and raise spending D. Will raise disposable income and raise spending

D

Fiscal policy actions that are intended to have long-run effects on real GDP attempt to increase ____________ through changing _____________: A. Aggregate demand; taxes B. Aggregate demand; government spending C. Aggregate supply; government spending D. Aggregate supply; taxes

D

Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability, high rates of economic growth, and high employment. A. Taxes; the money supply B. Interest rate; money supply C. Taxes; interest rates D. Taxes; expenditures

D

Government deficits tend to increase during A. Periods of below- or above-average growth B. Recessions and booms C. Periods of increased financial uncertainty D. Periods of war and recession

D

Refer to Figure 15-1. In the graph above, if the company is at point A, an appropriate fiscal policy by the Congress and the president would be to A. Increase marginal income tax rates B. Lower the discount rate of interest C. Execute an open market sale of government securities D. Increase government transfer payments

D

Refer to Figure 15-4. Given that the economy has moved from A to B in the graph above, which of the following would be the appropriate fiscal policy to achieve potential GDP? A. Increase taxes B. Contractionary fiscal policy C. Decrease interest rates D. Increase government spending

D

The multiplier effect is the series of ________ increases in ________ expenditures that result from an initial increase in ________ expenditures. A. Autonomous; consumption; induced B. Induced; investment; autonomous C. Autonomous; investment; induced D. Induced; consumption; autonomous

D

The total value of U.S. Treasury bonds outstanding equals A. The federal government surplus B. The federal government deficit C. The cyclically adjusted budget deficit D. The federal government debt

D

Which of the following is the largest category of federal government expenditures? A. Interest on the debt B. Grants to state and local governments C. Defense spending D. Transfer payments

D

_________ and _________ are the largest sources of revenue collected by the federal government A. Corporate income taxes; excise and other taxes B. Individual income taxes; corporate income taxes C. Excise and other taxes; individual income taxes D. Individual income taxes; social insurance taxes

D