Macroeconomics Chapter 8 Quiz

A

A contractionary fiscal policy can be illustrated by a (n): Answers: A. decrease in aggregate demand. B. change in the price level. C. increase in aggregate supply. D. increase in aggregate demand.

A

A federal budget deficit exists when: Answers: A. federal government spending exceeds tax revenues. B. federal government spending is increasing. C. federal government taxation is decreasing. D. federal government assets are less than liabilities.

B

Countercyclical discretionary fiscal policy calls for: Answers: A. surpluses during both recessions and periods of demand-pull inflation. B. deficits during recessions and surpluses during periods of demand-pull inflation. C. surpluses during recessions and deficits during periods of demand-pull inflation. D. deficits during both recessions and periods of demand-pull inflation.

B

When the federal government uses taxation and spending actions to stimulate the economy, it is conducting: Answers: A. employment policy. B. fiscal policy. C. monetary policy. D. incomes policy.

C

If the government wishes to increase the level of real GDP, it might reduce: Answers: A. transfer payments. B. its purchases of goods and services. C. taxes. D. the size of the budget deficit.

B

The combination of fiscal policies that would reinforce each other and be most expansionary would be a (n): Answers: A. decrease in government spending and an increase in taxes. B. increase in government spending and a decrease in taxes. C. decrease in government spending and taxes. D. increase in government spending and taxes.

B

The federal budget deficit is calculated each year by: Answers: A. adding up consumption, investment, government purchases, and net exports. B. subtracting government spending from government revenues. C. subtracting consumption and investment from government spending. D. adding up the difference between government revenues and spending over the years of the nation's existence.

B

The public debt is held as: Answers: A. U.S. securities, corporate bonds, and common stock. B. Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds. C. Federal Reserve Notes. D. U.S. gold certificates.

A

The time that elapses between the beginning of a recession or an inflationary episode an dthe identification of the macroeconomic problem is referred to as a (n): Answers: A. recognition lag. B. administrative lag. C. budget lag. D. operational lag.

B

When government tax revenues change automatically and in a countercyclical direction over the course of the business cycle, this is an example of: Answers: A. money creation. B. built-in stability. C. the standardized budget. D. impounding.

D

When the federal government cuts taxes and increases spenidng to stimulate the economy during a period of recession, such actions are designed to be: Answers: A. automatic. B. nondiscretionary. C. passive. D. countercyclical.

A

Proponents of the notion of a "political business cycle" suggest that: Answers: A. a possible cause of economic fluctuations is due to the use of fiscal policy for political purposes. B. the cyclically adjusted budget is a better indicator of the state of the economy than the actual budget. C. cyclical swings in the economy are produced by the inherent instability found in capitalist economies. D. there is a trade-off among goals that tends to make the economic policies of state and local governments procyclical.

D

Refer to the above diagram. The economy is at equilibrium at point B. What fiscal policy would increase real GDP? Answers: A. Decrease aggregate demand from AD2 to AD3 by increasing government spending. B. Decrease aggregate demand from AD2 to AD3 by decreasing government spending. C. Increase aggregate demand from AD2 to AD1 by decreasing taxes. D. Increase aggregate demand from AD2 to AD3 by decreasing taxes.

A

Refer to the above diagram. The economy is at equilibrium at point C. What fiscal policy would increase real GDP? Answers: A. Increase aggregate demand from AD1 to AD2 by increasing government spending. B. Increase aggregate demand from AD2 to AD1 by decreasing taxes. C. Decrease aggregate demand from AD2 to AD3 by increasing taxes. D. Make no change because the economy is at or near its full-employment level of real output.

C

The crowding-out effect suggests that: Answers: A. increases in government spending will close a recessionary expenditure gap. B. high taxes reduce both consumption and saving. C. increases in government spending may raise the interest rate and thereby reduce private investment. D. increases in consumption are always at the expense of saving.

C

Fiscal policy refers to the: Answers: A. fact that equal increases in government spending and taxation will be contractionary. B. altering of the interest rate to change aggregate demand. C. manipulation of government spending and taxes to stabilize domestic output, employment, and the price level. D. manipulation of government spending and taxes to achieve greater equality in the distribution of income.

A

If the Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a (n): Answers: A. expansionary fiscal policy. B. supply-side fiscal policy. C. nondiscretionary fiscal policy. D. contractionary fiscal policy.

C

Which combination of fiscal policy would most likely be offsetting? Answers: A. Decrease in taxes but no change in government spending. B. Increase in taxes but no change in government spending. C. Increase in taxes and government spending. D. Decrease in taxes and increase in government spending.

B

Which is an example of an automatic stabilizer? As real GDP decreases, income tax revenues: Answers: A. and transfer payments decreases. B. decrease and transfer payments increase. C. and transfer payments increase. D. increase and transfer payments decrease.

D

Which of the following are contractionary fiscal policies? Answers: A. Decreased taxation and no change in government spending. B. Increased taxation and increased government spending. C. No change in taxation and increased in government spending. D. Increased taxation and decreased government spending.