ENGL 2100
The government can use __________ in the form of ________ to increase the level of aggregate demand in the economy. a. An expansionary fiscal policy; an increase in government spending b. An contractionary fiscal policy; a reduction in taxes c. An contractionary fiscal policy; an increase in taxes d. An expansionary fiscal policy; an increase in corporate taxes e. A baseball rule; the ground rule double
a. An expansionary fiscal policy; an increase in government spending
If South Dakota's governor reports a budget surplus in 2011, that state government likely a. Received more in taxes than it spent in that year. b. Increased the proportional tax level. c. Built a new baseball stadium d. Equalized spending and taxes in that year. e. Increased the corporate income tax rate.
a. Received more in taxes than it spent in that year.
A cyclically balanced budget means that deficits during recessions are paid for by surpluses during expansions. a. True b. False
a. True
A widely accepted model of the public sector assumes that elected officials try to maximize their political support by passing budgets which favor spending, but de-emphasizes increasing taxes. a. True b. False
a. True
The debt ceiling is a limit on the total amount of money the federal government can legally borrow. a. True b. False
a. True
Fiscal policy focuses on manipulating a. aggregate demand to smooth out business fluctuations b. aggregate supply to smooth out business fluctuations c. both aggregate supply and aggregate demand to smooth out business fluctuations d. aggregate demand to stimulate the economy and aggregate supply to contract it e. short-run aggregate supply to stimulate the economy and aggregate demand to contract it
a. aggregate demand to smooth out business fluctuations
Fiscal policy is concerned with a. government spending and taxation only b. government spending and money only c. money and taxation only d. government spending, taxation, and money e. money only
a. government spending and taxation only
The spending multiplier is the reciprocal of the MPC. a. True b. False
b. False
If the MPC is 80%, then the spending multiplier is estimated to be: a. 5 b. 20% c. 80 d. Whatever the treasury department wants it to be e. A number determined by the Congress of the U.S.
a. 5
/A balanced budget means that government spending and taxes are equal. a. True b. False
a. True
Before, the 1930s, public policy was shaped by the view of classical economists who advocated a laissez-faire approach. a. True b. False
a. True
Discretionary fiscal policy works by shifting the aggregate demand curve. a. True b. False
a. True
During a recession, if a government uses an expansionary fiscal policy to increase GDP, the purpose is to shift the aggregate demand curve to the right a. True b. False
a. True
Either an increase in autonomous net taxes or a decrease in government purchases can close an expansionary gap. a. True b. False
a. True
If U.S. interest rates are higher than world rates, we would expect the U.S. dollar to appreciate. a. True b. False
a. True
If the MPC is 70%, then the MPS must be 30%.. a. True b. False
a. True
The Phillips Curve suggest a tradeoff between unemployment and inflation. a. True b. False
a. True
The marginal propensity to consume is the change in consumption divided by the change is income. a. True b. False
a. True
When the government passes a new law that explicitly changes overall tax or spending levels, it is enacting discretionary fiscal policy. a. True b. False
a. True
During a recession, higher welfare outlays a. increase the size of the budget deficit even if the government does not undertake discretionary fiscal policy b. decrease the size of the budget deficit regardless of the government's discretionary fiscal policy c. increase the size of the budget deficit only if the government undertakes discretionary fiscal policy d. decrease the size of the budget deficit only if the government undertakes discretionary fiscal policy e. have the same effect on the budget deficit as they do in times of expansion
a. increase the size of the budget deficit even if the government does not undertake discretionary fiscal policy
Until 1980, the national debt was mostly the result of a. wartime borrowing b. inflation c. bad monetary policy d. wasteful Congressional spending e. Social Security obligations
a. wartime borrowing
Approximately what proportion of the U.S. federal budget was spent on national defense in 2013? a. 15 percent b. 18 percent c. 21 percent d. 30 percent e. 50 percent
b. 18 percent
Approximately what percentage of the U.S. federal budget was used for Social Security and Medicare payments in 2013? a. 20 percent b. 35 percent c. 50 percent d. 25 percent e. 80 percent
b. 35 percent
If the state of Washington's government collects $75 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be a: a. Budget deficit b. Budget surplus c. A balanced budget d. Decrease in payroll tax e. Decrease in proportional taxes.
b. Budget surplus
A $100 billion increase in government purchases will have the same effect on real GDP as a $100 billion decrease in taxes. a. True b. False
b. False
An increase in government purchases must always be accompanied by an increase in autonomous net taxes. a. True b. False
b. False
If the functional finance approach to federal budgeting is used, the federal government's budget deficit should be zero every year. a. True b. False
b. False
The American Recovery and Reinvestment Act, enacted in February 2009 was the largest stimulus in US history and it casused a period of high growth in GDP and jobs, creating a very robust recovery. a. True b. False
b. False
The existing federal budgeting process is a very effective tool for stimulating the economy because the government can quickly determine when a recessionary gap is upon us and can pass the appropriate discretionary fiscal policy necessary to shift the aggregate demand curve. a. True b. False
b. False
The only way in which government can affect aggregate demand is through changes in its own purchases. a. True b. False
b. False
When there are large federal budget deficits, the trade deficit (i.e., exports minus imports) tends to shrink. a. True b. False
b. False
According to Keynesian fiscal multiplier theory, If the MPC is .8, and the spending multiplier is five, then a decrease in taxes of $5 billion would cause an increase in consumption of $4 billion and a. Would increase GDP by $5 billion b. Would increase nominal GDP by $20 billion c. Would decrease private consumption by $4 billion d. Would not have an effect if we are currently in a recession. e. Would cause an increase in the unemployment rate if we are in a recession.
b. Would increase nominal GDP by $20 billion
The President's budget is presented to Congress each year a. in the Economic Report of the President b. in a report followed shortly by the Economic Report of the President c. at the beginning of the fiscal year d. in a form that must be voted up or down within 60 days e. and requires a two-third vote for ratification
b. in a report followed shortly by the Economic Report of the President
Which component of aggregate expenditure is most subject to crowding out? a. consumption expenditures b. investment spending c. U.S. imports d. government purchases of goods and services e. saving
b. investment spending
Which of the following is the percentage of annual U.S. government spending allocated to foreign aid? a. 21% b. 31% c. 1% d. 50% e. 17%
c. 1%
If Canada's economy moves into an expansion while its economy is producing more than potential GDP, then, a. Government spending and tax revenue will increase because of automatic stabilizers. b. Government spending and tax revenue will increase because of automatic stabilizers. c. Automatic stabilizers will decrease government spending and increase tax revenue. d. Automatic stabilizers will increase government spending and decrease tax revenue.
c. Automatic stabilizers will decrease government spending and increase tax revenue.
Which of the following terms is used to describe the set of policies that relate to government spending, taxation and borrowing? a. Financial policies b. Monetary policies c. Fiscal policies d. Economic policies e. Philosophical polies
c. Fiscal policies
A ________policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes. a. Proportional tax b. Regressive tax c. Progressive tax d. Excise tax e. Sales tax
c. Progressive tax
When increasing oil prices cause aggregate supply to shift to the left, then: a. Unemployment and inflation decrease. b. Unemployment decreases and inflation increases. c. Unemployment and inflation increase. d. Unemployment increases and inflation decreases. e. Unemployment decreases and inflation is not affected.
c. Unemployment and inflation increase.
_1. The largest category of federal government expenditures is a. national defense b. interest on the federal debt c. direct benefit payments to individuals 46% in 2014 d. grants to states and localities e. capital expenditures
c. direct benefit payments to individuals 46% in 2014
All of the following are tools of fiscal policy except one. Which is the exception? a. taxes b. transfer payments c. interest rates d. government purchases of goods e. government purchases of service
c. interest rates
If fiscal policy is used to close an expansionary gap, the a. SRAS curve shifts leftward and the price level falls b. SRAS curve shifts rightward and the price level increases c. SRAS curve shifts rightward and the price level falls d. AD curve shifts leftward and the price level decreases e. AD curve shifts rightward and the price level decreases
d. AD curve shifts leftward and the price level decreases
Federal spending (including transfer payments), as a percent of GDP, a. has remained largely unchanged over the last 50 years b. has exceeded 10 percent only in wartime periods c. is less than half of state and local government spending d. has increased since 1921 e. has greatly diminished in recent years
d. has increased since 1921
To close a contractionary gap using fiscal policy, the government can a. increase government spending by the size of the gap b. decrease government spending by the size of the gap c. increase government spending by more than the size of the gap d. increase government spending by less than the size of the gap e. decrease government spending by more than the size of the gap
d. increase government spending by less than the size of the gap
When the share of individual income tax collected by the government from people with higher incomes is smaller than the share of tax collected from people with lower incomes, then the tax is: a. optional b. proportional c. progressive d. regressive e. passive
d. regressive
Assume that initially G is $100 and equilibrium real GDP demanded is $1,000. If the multiplier is 4 and G increases to $200, real GDP demanded will increase a. by $100 b. by $2,000 c. by $1,000 d. to $1,400 e. to $2,000
d. to $1,400
Discretionary expansionary fiscal policy may lead to a. Crowding out b. decreased unemployment c. inflation d. higher interest rates e. All of the above.
e. All of the above.
A typical __________ fiscal policy allows government to decrease the level of aggregate demand, through increases in taxes. a. Standardized b. expansionary c. discretionary d. Exemplary e. Contractionary
e. Contractionary
After the Great Depression, the role of fiscal policy in the U.S. economy was changed as a result of a. the influence of Keynes's General Theory b. the economic impact of World War II c. the Employment Act of 1946 d. both a and c e. all of the above
e. all of the above
If government purchases increase and net taxes decrease, a. the price level will fall b. the money supply must rise c. the aggregate demand curve shifts leftward d. aggregate supply shifts rightward e. output and employment will increase
e. output and employment will increase
