Chapter 16 (Fiscal Policy)

21) Economists refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the _________ effect.

A) multiplier

10) Before the Great Depression of the 1930s, the majority of government spending took place at the _________ and after the Great Depression the majority off government spending took place at the ________.

A) state and local levels; federal level

12) Fiscal policy is determined by

D) Congress and the president

4) Which of the following would be classified as fiscal policy?

D) The federal government cuts taxes to stimulate the economy

29)Which of the following would increase the size of the government purchases multiplier?

D) a decrease in the amount saved by households from an increase in income

15) An increase in individual income taxes __________ disposable income, which __________ consumption spending.

D) decreases; decreases

11) Congress and the president carry out fiscal policy through changes in

D) government purchases and taxes

5) Which of the following is an objective of fiscal policy?

D)high rates of economic growth

19) Which of the following is considered contractionary fiscal policy?

A) Congress increases the income tax rate

2) If Congress passed a one-time tax cut in order to stimulate the economy in 2014, and tax rate levels returned to their pre-2014 level in 2015, how should this tax cut affect the economy?

A) The tax cut would increase consumption spending less than would a permanent tax cut.

30) If the tax multiplier is -1.5 and a $200 billion tax increase is implemented, what is the change in GDP, holding everything else constant? (Assume the price level stays constant.)

A) a $300 billion decrease in GDP

26) A change in consumption spending caused by income changes is __________ change in spending, and a change in government spending that occurs to improve roads and bridges is __________ change in spending.

A) an induced; an autonomous

7) The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession is an example of

A) automatic stabilizers

8) The increase in government spending on unemployment insurance payments t workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

A) automatic stabilizers

16) Tax cuts on business income increase aggregate demand by increasing

A) business investment spending

1) Part of the spending on the Caldecott Tunnel project in northern California came from the American Reinvestment and Recovery Act, which is an example of __________ aimed at increasing real GDP and employment.

A) discretionary fiscal policy

13) An increase in government purchases will increase aggregate demand because

A) government expenditures are a component of aggregate demand

20) Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be _________ and real GDP to be _________.

A) higher; higher

14) Expansionary fiscal policy involves

A) increasing government purchases or decreasing taxes

9) Which of the following would not be considered an automatic stabilizer?

A) legislation increasing funding for job retraining passed during a recession

23) The aggregate demand curve will shift to the right __________ the initial increase in government purchases.

B) by more than

24) The aggregate demand curve will shift to the left __________ the initial decrease in government purchases.

B) by more than

25) The aggregate demand curve will shift to the right __________ the initial decrease in taxes.

B) by more than

27) The government purchases multiplier equals the change in ________ divided by the change in _________.

B) equilibrium real GDP; government purchases

28) The tax multiplier equals the change in __________ divided by the change in __________.

B) equilibrium real GDP; taxes

3) Fiscal policy refers to changes in

B) federal

18) If the economy is falling below potential real GDP. which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

B) government purchases

6) Automatic stabilizers refer to

B) government spending and taxes that automatically increase or decrease along with the business cycle

22) The multiplier effect refers to the series of

B) induced increases in consumption spending that result from an initial increase in autonomous expenditures

17) Tax cuts on business income __________ aggregate demand.

B) would increase