Chapter 12-Online Quiz

When an economy is expanding and producing above the natural level of output, which of the following is least likely? -An increase in tax revenue. -Federal government purchases decline as a percentage of GDP. -A decrease in transfer payments. -The actual budget deficit will be less than the budget surplus.

-The actual budget deficit will be less than the budget surplus.

Which of the following could not be expected to occur following a cut in business taxes? -Increased private investment. -A shift to the left of the AD curve. -A shift to the right of the SRAS curve. -A higher level of real GDP.

A shift to the left of the AD curve.

Which of the following statements are true? -For an economy that is currently running a budget surplus, an expansionary fiscal policy will generate a budget deficit. -Budget deficits are primarily funded through government sales of bonds. -The government precisely determine the amount of increased government purchases required to eliminate a recessionary gap. -Excessive national debt forces countries to bankruptcy.

Budget deficits are primarily funded through government sales of bonds.

Which of the following actions is most appropriate during an inflationary gap? -Cutting the corporate profit tax. -Reforming the tax system by lowering income tax rates. -Cutting government expenditures on new roads. -Increasing government research and development spending to universities.

Cutting government expenditures on new roads.

Which of the following is not an advantage of automatic stabilizers over discretionary fiscal policy? -Shorter lags. -Does not contribute to budget deficits. -No decisions need to be made. -Automatic stabilizers shift the AD curve as they are built into the AD curve

Does not contribute to budge deficits.

Which of the following could not be relied upon to automatically help reduce the severity of a contraction in the economy? -Rising welfare payments leading to increasing disposable income. -A cut in the income tax rate shifting the AD curve to the right. -Falling unemployment compensation lowering disposable income. -An increase in the budget surplus.

Falling unemployment compensation lowering disposable income.

If lags did not exist, fiscal policy could be costlessly used to stabilize the economy? -Fiscal policy may cause crowding out. -Fiscal policy can only be used to cure recessionary gaps, not inflationary gaps. -The needed changes in the money supply may not occur. -Fiscal policy has no influence on the economy.

Fiscal policy may cause crowding out.

Which of the following would not be counted as part as government purchases? -Funds spent on a ship for use by the Navy. -Funds spent on pens for use by the IRS. -Funds used to provide food stamps. -Funds used to provide equipment at a public university.

Funds used to provide food stamps.

Which of the following statements is true? -Fiscal policy refers to the changing in the money supply to alter the level of output in the economy. -If during a recession the government deliberately lowers the rate of taxation, it is engaged in discretionary fiscal policy. -Reducing government purchases tends to shift the AD curve to the right. -Fiscal policy influences only the AD curve.

If during a recession the government deliberately lowers the rate of taxation, it is engaged in discretionary fiscal policy.

Which of the following would help correct a recession? -A cut in unemployment compensation. -A cut in the investment tax credit. -Increased government spending on national defense. -A higher income tax rates.

Increased government spending on national defense.

Which of the following statements are true? -Discretionary fiscal policy cannot be used during inflationary periods. -Increasing levels of transfer payments tend to arise during periods of economic contraction. -Fiscal policy does not suffer from the same lags a monetary policy. -Because the national debt must be paid off, high levels of national debt are of concern.

Increasing levels of transfer payments tend arise during periods of economic contraction.

Which of the following changes will shift the AD curve to the right? -Cutting welfare spending. -Raising income taxes. -Increasing unemployment compensation. -Cutting government spending.

Increasing unemployment compensation.

If the government is attempting to increase the natural level of output_. -It is following the supply-side policies. -It relies on automatic stabilizers. -It needs to increase income tax rates. -It should increase the level of transfer payments.

It is following the supply-side policies.

Which of the following is most unlikely to occur as a result of an increase in government purchases financed by deficit spending? -An increase in the supply of bonds. -Lower interest rates. -A shift to the left of the LRAS curve. -A fall in private investment.

Lower interest rates

Suppose that welfare is eliminated in the United States. If the economy were to move into a recession? -Tax rates would need to be increased to eliminate the recession. -One of the automatic stabilizers would not be available to help cure the recession. -Unemployment compensation would not act as an automatic stabilizer. -The economy would have to rely on discretionary fiscal policy to cure the recession.

One of the automatic stabilizers would not be available to help cure the recession.

Increasing government purchases tends to? -Raise unemployment. -Raise the price level. -Cut tax collections. -Raise private investment.

Raise price level.

Which of the following is an example of an automatic stabilizer? -Cutting tax rates during an recession in order to shift the AD curve to the right. -Cutting government purchases during a recession in oder to shift the AD curve to the right. -Rising welfare spending during an expansion. -Rising tax collections during an expansion.

Rising tax collections during an expansion.

Which of the following is the best example of an automatic stabilizer? -Cutting tax rates during a recession. -Cutting the money supply during an expansion. -Rising tax collections during expansion. -Changing unemployment policies during a recession.

Rising tax collections during expansion.

Which of the following defines supply-side economics? -Government programs that tend to reduce fluctuations in GDP automatically. -A situation when the government budget surplus is equal to zero. -The sum of all past federal deficits. -The belief that fiscal policy can be used to stimulate long-run aggregate supply.

The belief that fiscal policy can be used to stimulate long-run aggregate supply.

Which of the following is not a concern if crowding out occurs? -Lower private investment may harm the growth prospects for the U.S economy. -A larger fiscal expansion is needed to correct a recessionary gap. -The national debt will drive the United States into bankruptcy. -Interest rates will increase.

The national debt will drive the United States into bankruptcy.

Which of the following statements is not true in regards to transfer payments? -Transfer payments have become a larger as a share of total economic activity over the past 40 years. -During economic downturns, transfer payments tend to increase. -Transfer payments account for roughly two-thirds of all federal government spending. -Transfer payments, government purchases, and net interests are the three categories for government expenditures.

Transfer payments account for roughly two-thirds of all federal government spending.

As the economy moves into recession? -Unemployment compensation tends to increase. -Tax rates tend to increase. -Federal government purchases tend to fall. -Welfare spending falls.

Unemployment compensation tends to increase.

Supply-side economics recommends? -Increasing transfer payments during recession. -Raising tax rates during times of rapid economic expansion. -Only using monetary policy to influence the level of output in the economy. -Using fiscal policy to encourage investment.

Using fiscal policy to encourage investment.