Question 1

The multiplier effect suggests that:

Accepted Answer

A)  a ripple effect occurs from one person's initial spending.
B)  government spending $1 will create more than a $1 increase in GDP.
C)  a tax cut will increase GDP by more than the amount of the initial tax cut.
D)  All of these are true.E) A) and B)
F) A) and D)

Question 2

The multiplier:

Accepted Answer

A)  measures the effect of government spending or tax cuts on national income.
B)  measures the number of times each dollar is spent in the economy.
C)  measures the supply of money in the economy.
D)  measures the effect of household spending on national income.E) A) and C)
F) C) and D)

Question 3

Fiscal policy can:

Accepted Answer

A)  have real effects on the economy in the short run.
B)  bring the economy to its long run equilibrium faster than it can correct itself.
C)  cause inflation.
D)  All of these are true.E) B) and C)
F) All of the above

Question 4

During times of economic boom,the spending on unemployment insurance:

Accepted Answer

A)  likely falls,since more people are working.
B)  likely goes up,since wages typically rise during booms.
C)  likely stays roughly the same,as government spending in this way is through set criteria and not affected by the business cycle.
D)  is usually based on discretionary fiscal policy.E) All of the above
F) A) and B)

Question 5

If the government wishes to increase GDP by $1,200b,and the MPC is 0.75,it should:

Accepted Answer

A)  increase its spending by $300b.
B)  decrease its spending by $300b.
C)  increase its spending by $900b.
D)  decrease its spending by $900b.E) A) and B)
F) All of the above

Question 6

The process of deciding on and passing fiscal policy legislation creates:

Accepted Answer

A)  an information lag.
B)  a formulation lag.
C)  an implementation lag.
D)  a direction lag.E) B) and D)
F) All of the above

Question 7

If the government were to reduce its spending,it would be enacting:

Accepted Answer

A)  contractionary fiscal policy.
B)  expansionary fiscal policy.
C)  a budgetary crisis intervention.
D)  expansionary budgetary policy.E) All of the above
F) None of the above

Question 8

Fiscal policy affects aggregate demand:

Accepted Answer

A)  through two channels.
B)  directly and indirectly.
C)  and can increase or decrease it.
D)  All of these are true.E) A) and B)
F) None of the above

Question 9

If Ricardian equivalence holds,one way to get the expansionary effects of a tax cut to occur is:

Accepted Answer

A)  pair it with reduced government spending.
B)  pair it with increased government spending.
C)  to run a campaign inspiring people to buy goods made in the United States.
D)  None of these will create the expansionary effects of a tax cut.E) A) and B)
F) C) and D)

Question 10

When an economy is in a recession,discretionary fiscal policy would call for ________,and the automatic stabilizers would ____________.

Accepted Answer

A)  lowering tax rates;lower tax revenues
B)  increasing tax rates;increase tax revenues
C)  increasing tax revenues;increase tax rates
D)  None of these is true.E) A) and D)
F) A) and C)

Question 11

The taxation multiplier tells us:

Accepted Answer

A)  the amount by which GDP increases when government spending increases by $1.
B)  tells us the amount GDP decreases when taxes increase by $1.
C)  the fraction of each tax dollar that will increase GDP when consumers spend $1.
D)  the amount by which government spending increases when GDP increases by $1.E) All of the above
F) B) and C)

Question 12

If the marginal propensity to consume was 0.9,it would mean that:

Accepted Answer

A)  consumers spend $9 out of every $10 of additional disposable income.
B)  consumers save $9 out of every $10 of additional disposable income.
C)  consumers spend $1 out of every $10 of additional disposable income.
D)  people should save more.E) A) and C)
F) C) and D)

Question 13

If the MPC is 0.5,then the government spending multiplier must be:

Accepted Answer

A)  1.2.
B)  2.
C)  2.25.
D)  2.5.E) None of the above
F) A) and D)

Question 14

The government budget involves:

Accepted Answer

A)  money coming in as tax revenues.
B)  money going out through government purchases.
C)  money going out to individuals for programs that do not involve goods or services.
D)  All of these are true.E) C) and D)
F) All of the above

Question 15

If the government decreased its spending by $400,and the GDP decreased $1,000 as a result,the MPC must be:

Accepted Answer

A)  0.60.
B)  0.75.
C)  4.
D)  2.5.E) A) and B)
F) A) and C)

Question 16

The existing tax rates on income in the United States:

Accepted Answer

A)  act as an automatic stabilizer.
B)  curtail spending slightly when incomes rise because people have to pay more in taxes when incomes are high.
C)  encourage spending slightly when incomes fall because people pay less in taxes when incomes are low.
D)  All of these are true.E) A) and D)
F) B) and C)

Question 17

Transfer payments:

Accepted Answer

A)  are payments from government accounts to individuals for programs that do not involve a purchase of goods or services.
B)  involve programs such as Social Security and welfare.
C)  do not show up in GDP.
D)  All of these are true.E) B) and D)
F) A) and B)

Question 18

For any MPC,the taxation multiplier is:

Accepted Answer

A)  smaller in absolute value than the government spending multiplier.
B)  larger in absolute value than the government spending multiplier.
C)  the same as the government spending multiplier.
D)  the inverse of the government spending multiplier.E) None of the above
F) B) and D)

Question 19

When government decides to use fiscal policy:

Accepted Answer

A)  the information for how much to change taxes is readily available.
B)  the expedited process of approval aids with quick enactment.
C)  it always keeps the economy closer to potential GDP than it otherwise would be.
D)  None of these is true.E) All of the above
F) B) and C)

Question 20

Increased government spending on unemployment insurance during a recession is an example of:

Accepted Answer

A)  an automatic stabilizer.
B)  discretionary fiscal policy.
C)  expansionary fiscal policy.
D)  contractionary fiscal policy.E) B) and D)
F) A) and B)

Exam 29: Fiscal Policy

If Ricardian equivalence holds,one way to get the expansionary effects of a tax cut to occur is:

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During times of economic boom,the spending on unemployment insurance:

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The government budget involves:

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The existing tax rates on income in the United States:

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If the government were to reduce its spending,it would be enacting:

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The multiplier:

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Increased government spending on unemployment insurance during a recession is an example of:

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If the government wishes to increase GDP by $1,200b,and the MPC is 0.75,it should:

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Fiscal policy can:

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For any MPC,the taxation multiplier is:

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If the marginal propensity to consume was 0.9,it would mean that:

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The taxation multiplier tells us:

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Transfer payments:

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When government decides to use fiscal policy:

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The process of deciding on and passing fiscal policy legislation creates:

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If the MPC is 0.5,then the government spending multiplier must be:

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The multiplier effect suggests that:

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When an economy is in a recession,discretionary fiscal policy would call for ________,and the automatic stabilizers would ____________.

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Fiscal policy affects aggregate demand:

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If the government decreased its spending by $400,and the GDP decreased $1,000 as a result,the MPC must be:

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When an economy is in a recession,discretionary fiscal policy would call for ,and the automatic stabilizers would ____.

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