Unit 4.1 FISCAL POLICY

Suppose that autonomous consumption is $400 and that the marginal propensity to consume is 0.8. If disposable income increases by $1,200, consumption spending will increase by

960

In the graph above, AD denotes the aggregate demand curve, SRAS the short-run aggregate supply curve, and LRAS the long-run aggregate supply curve. Which of the following changes would move the economy to its long-run equilibrium?

A decrease in government spending

A leftward shift of the supply curve for computers could be caused by which of the following in the short run?

A decrease in the number of computer manufacturers

Which of the following relationships is illustrated by short-run Phillips curve?

A decrease in the rate of inflation is accompanied by an increase in the rate of unemployment

In which of the following circumstances would the rule of four be applied?

At least four justices on the Supreme Court agree that a case should be put on the Court's docket.

Congress is most likely to exert oversight of the executive bureaucracy in which of the following ways?

Controlling an executive agency's annual budget

Which of the following is an example of fiscal policy?

Decreasing income tax rates

In the short run, how would a government's budget deficit, national debt, and real output change if government spending increases with no change in taxes?

Deficit: Increase; Debt: Increase; Real Output: Increase

Which of the following is true of automatic fiscal policy stabilizers?

For a given level of government spending, they produce a deficit during a recession and a surplus during an expansion

Suppose the President asks Congress to cut taxes for consumers and to increase spending on the military. How would these actions affect real GDP and the price level?

GDP increases and the price level increases

Monetarist theory Keynesian theory Classical theory Supply-side theory

Government should allow the central bank to promote economic stability through adjusting the money supply Government should use fiscal policy to fight recessions and inflation by adjusting aggregate demand Government should not interfere in the economy, because the economy is self-correcting in the long run Government should promote production through tax cuts for businesses and deregulation

THE FOLLOWING 10 QUESTIONS ARE REVIEW FROM AP GOVERNMENT. You can change an answer immediately if you miss a question. When none of the presidential candidates receives a majority of the votes in the electoral college, the winner is chosen by the ______

House of Representatives only

Which of the following is a way Congress can influence the federal judiciary

It can change appellate jurisdiction of federal courts.

An increase in government spending financed by increased borrowing will most likely change the real interest rate and the gross private domestic investment in which of the following ways?

Real Interest Rate: Increase; Gross Private Domestic Investment: Decrease

THE REMAINING QUESTIONS ARE FROM THE TEST BANK FOR UNIT 4 FISCAL POLICY. You can change an answer immediately if you miss a question. PAY ATTENTION to the correct answers to these questions, you may see them on your test!

THE REMAINING QUESTIONS ARE FROM THE TEST BANK FOR UNIT 4 FISCAL POLICY. You can change an answer immediately if you miss a question. PAY ATTENTION to the correct answers to these questions, you may see them on your test!

When the total amount the government spends equals tax revenues in any given year, which of the following must remain constant?

The national debt

Automatic fiscal policy stabilizers include the following: income taxes go down automatically during recessions, welfare payments go up automatically during recessions.

True

Cost-push inflation eventually results in more unemployment, which EVENTUALLY results in lower wages, which EVENTUALLY results in an increase in short run aggregate supply. Left alone, the SRAS curve shifts right and we return to full employment at a lower price level.

True

Demand-pull inflation eventually results in higher wages, which EVENTUALLY results in decreased short-run aggregate supply. Left alone, the SRAS curve shifts left and we return to full employment GDP but at a higher price level.

True

The "ratchet effect" refers to the problem of "sticky prices" which prevents the price level from falling when the government decreases spending to fight demand-pull inflation

True

The fiscal policy described above is an example of discretionary fiscal policy designed to expand GDP to fight a recession

True

Velocity of money refers to the average number of times per year a dollar is spent on final goods and services.

True

fiscal policy involves budgetary actions by the Federal Government to "stimulate the economy" or "reign in inflation." These actions include changing taxes AND/OR changing government spending.

True

THE 5 QUESTIONS BELOW ARE REVIEW QUESTIONS FROM PREVIOUS UNITS. Which of the following household purchases will be counted as part of gross private investment in a country's gross domestic product?

a newly constructed home

Economic growth is best defined as

a sustained increase in real gross domestic product per capita

According to the short-run Phillips curve, a decrease in unemployment is expected to be accompanied by

an increase in inflation

Suppose that the government decreases taxes and at the same time the central bank decreases the discount rate (making interest rates on loans cheaper). The combined actions will result in

an increase in the real gross domestic product and an indeterminate change in the interest rate

Which of the following would cause the official unemployment rate to understate the problem of unemployment?

discouraged workers who have given up looking for a job

Fiscal policy refers to government policies to stabilize the economy of a country through changes to which 2 of the following?

government spending taxes

An appropriate fiscal policy to combat a recession would be to increase which of the following?

government spending

When a child's parents both identify strongly with the same political party, the child will most likely

identify with the parents' party

An increase in which of the following is most likely to promote long-run economic growth?

investment tax credits for capital goods

The Bipartisan Campaign Reform Act of 2002 (McCain-Feingold) did which of the following?

it banned soft money donations to national parties

Which of the following is true of the long-run Phillips curve?

it is vertical at the natural rate of unemployment

Which of the following best describes pork barrel politics?

members of Congress negotiate bills so that individual districts get money for projects that do not benefit the nation as a whole

Fiscal policies refer to the government's power to

tax and spend

In the Federalist Papers, James Madison argues that political liberty is best protected by

the fragmentation of political power in a large republic

The process known as front-loading refers to

the tendency of states to choose an early date on the primary calendar

Crowding-out is when the federal government's expansionary fiscal policy raises REAL interest rates on private sector borrowers (like businesses and home buyers) because the government is borrowing so much money. These higher interest rates prevent some private sector borrowers from taking out loans.

true

The federal government borrows money by selling Treasury bills, Treasury notes, Treasury bonds, and US savings bonds.

• True

Which of the following will most likely occur if a government adopts an annually balanced budget rule that requires the government to eliminate any deficits or surpluses?

• the automatic stabilizing effect of fiscal policy will be eliminated