Question 1

Why is unemployment insurance an automatic stabilizer and how does it work? How does the decline in the percentage of unemployed who receive unemployment insurance in the 2000s impact the effectiveness of unemployment insurance as an automatic stabilizer?

Accepted Answer

An automatic stabilizer is any governmen...

Question 2

Procyclical fiscal policies:

Accepted Answer

A)  reduce cyclical fluctuations in the economy, but not as effectively as countercyclical fiscal policies.
B)  reduce cyclical fluctuations in the economy more effectively than countercyclical fiscal policies.
C)  reduce cyclical fluctuations in the economy about as effectively as countercyclical fiscal policies.
D)  increase cyclical fluctuations in the economy.E) A) and C)
F) A) and B)

Question 3

In practice, economists:

Accepted Answer

A)  agree about what the level of potential output is but disagree about what policies are appropriate.
B)  disagree about what the level of potential output is but agree about what policies are appropriate.
C)  agree about what the level of potential output is and about what policies are appropriate.
D)  disagree about what the level of potential output is and about what policies are appropriate.E) A) and B)
F) B) and D)

Question 4

If an economy is in a recession and the government opts for an expansionary fiscal policy to shift the AD curve closer to potential output, an economist with a typical functional finance view, who acknowledges partial crowding out, would conclude that the AD curve:

Accepted Answer

A)  shifts to the right due to higher government spending.
B)  shifts to the left due to higher government spending.
C)  does not shift since the higher government spending is offset by higher private consumption.
D)  does not shift since the higher government spending is offset by lower private consumption.E) A) and B)
F) A) and C)

Question 5

Reducing the budget deficit by cutting government spending could conceivably:

Accepted Answer

A)  increase income if interest rates fall enough and private investment is more productive than government spending.
B)  increase income if interest rates rise enough and government spending is more productive than private investment.
C)  decrease income if interest rates fall too much and private investment is more productive than government investment.
D)  decrease income if interest rates rise enough and private investment is more productive than government investment.E) A) and B)
F) All of the above

Question 6

Fiscal policy is typically:

Accepted Answer

A)  extremely flexible because most government spending is discretionary.
B)  extremely flexible provided policy lags are short.
C)  flexible despite the presence of implementation problems.
D)  difficult to implement quickly.E) A) and B)
F) B) and C)

Question 7

If the government knew the precise values of the multiplier and potential income, fine-tuning the economy would:

Accepted Answer

A)  be possible.
B)  be much easier, but mistakes would still occur occasionally.
C)  still be very difficult.
D)  be more difficult.E) B) and D)
F) A) and D)

Question 8

Property taxes are:

Accepted Answer

A)  not an automatic stabilizer because they do not vary with income.
B)  not an automatic stabilizer because they vary with income.
C)  an automatic stabilizer because they do not vary with income.
D)  an automatic stabilizer because they vary with income.E) A) and C)
F) B) and C)

Question 9

According to Ricardian equivalence advocates, if the government announces a plan to balance the budget by reducing its deficits to zero, then the private sector will:

Accepted Answer

A)  decrease consumption.
B)  decrease savings.
C)  decrease investment.
D)  increase savings.E) A) and B)
F) A) and D)

Question 10

Unemployment compensation is:

Accepted Answer

A)  an automatic stabilizer because it rises as income increases, slowing an economic expansion.
B)  an automatic stabilizer because it falls as income increases, slowing an economic expansion.
C)  an automatic stabilizer because it falls as income decreases, slowing an economic contraction.
D)  not an automatic stabilizer.E) B) and D)
F) All of the above

Question 11

When inflation and unemployment are both higher than desired, most economists believe that the government should:

Accepted Answer

A)  adopt contractionary monetary policies that reduce both inflation and unemployment.
B)  adopt expansionary fiscal policies that reduce both inflation and unemployment.
C)  determine whether reducing inflation is more or less important than reducing unemployment and adopt a policy that targets the more important goal.
D)  not act as it is impossible to reduce either inflation or unemployment under these circumstances.E) C) and D)
F) B) and D)

Question 12

The provisions in state constitutions requiring them to balance their budgets mean that:

Accepted Answer

A)  state governments often behave procyclically because lower revenues during recessions means lower state spending.
B)  state government spending acts as an automatic stabilizer for the national economy.
C)  state governments can follow a functional finance approach with greater consistency than the federal government, which has no such requirement.
D)  state governments can only use monetary policy to affect their economies.E) B) and D)
F) B) and C)

Question 13

Consider the following quote from your text,"Some economists argue that crowding out can totally offset the expansionary effect of fiscal policy..." Demonstrate graphically the case where the crowding out effect does "completely negate" the effect of expansionary fiscal policy.Explain your diagram,making sure to define the crowding out effect in your answer.

Accepted Answer

Crowding out refers to the offsetting ef...

Question 14

The income tax is:

Accepted Answer

A)  an automatic stabilizer because income tax revenues rise as income increases, slowing an economic expansion.
B)  an automatic stabilizer because income tax revenues rise as income increases, accelerating an economic expansion.
C)  an automatic stabilizer because income tax revenues fall as income increases, accelerating an economic expansion.
D)  not an automatic stabilizer.E) All of the above
F) C) and D)

Question 15

Fine tuning the economy with fiscal policy is:

Accepted Answer

A)  relatively simple because the government has access to the best information available.
B)  difficult because the government lacks important information about the economy.
C)  relatively simple because the political process usually works smoothly and without significant lags.
D)  difficult because economists have not developed any theoretical models of the macroeconomy.E) All of the above
F) B) and D)

Question 16

Refer to the graph shown. Expansionary fiscal policy is most likely to shift the aggregate demand curve from: 0 to AD2 if crowding out does not occur and from AD0 to AD1 if crowding out does occur. B) AD0 to AD2 if crowding out does not occur and from AD0 to AD3 if crowding out does occur. C) AD2 to AD0 if crowding out does not occur and from AD1 to AD2 if crowding out does occur. D) AD2 to AD0 if crowding out does not occur and from AD1 to AD3 if crowding out does occur." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  AD0 to AD2 if crowding out does not occur and from AD0 to AD1 if crowding out does occur.
B)  AD0 to AD2 if crowding out does not occur and from AD0 to AD3 if crowding out does occur.
C)  AD2 to AD0 if crowding out does not occur and from AD1 to AD2 if crowding out does occur.
D)  AD2 to AD0 if crowding out does not occur and from AD1 to AD3 if crowding out does occur.E) A) and B)
F) A) and C)

Question 17

Define the crowding out effect.

Accepted Answer

The crowding out effect is the offsettin...

Question 18

What is meant by "sound finance"?

Accepted Answer

Sound finance is a view of pub...

Question 19

If a government finances an increase in its expenditures by selling bonds to the public, then the aggregate demand curve will:

Accepted Answer

A)  not shift.
B)  shift out - but not as much as it would if crowding out didn't occur.
C)  shift out by the same amount regardless of whether crowding out occurs.
D)  shift out more if crowding out occurs.E) A) and D)
F) B) and D)

Question 20

If an economy is in a recession and the government opts for an expansionary fiscal policy to shift the AD curve closer to the potential output, a sound finance economist with a Classical view, who holds the Ricardian equivalence theorem to be practically true, would conclude that the AD curve:

Accepted Answer

A)  shifts to the right due to higher government spending.
B)  shifts to the left due to higher government spending.
C)  does not shift since the higher government spending is offset by higher private consumption.
D)  does not shift since the higher government spending is offset by lower private consumption.E) A) and B)
F) A) and C)

Exam 32: The Fiscal Policy Dilemma

Why is unemployment insurance an automatic stabilizer and how does it work? How does the decline in the percentage of unemployed who receive unemployment insurance in the 2000s impact the effectiveness of unemployment insurance as an automatic stabilizer?

Correct Answer
verified
An automatic stabilizer is any governmen...
View Answer

Fine tuning the economy with fiscal policy is:

Correct Answer
verified

Property taxes are:

Correct Answer
verified

Fiscal policy is typically:

Correct Answer
verified

When inflation and unemployment are both higher than desired, most economists believe that the government should:

Correct Answer
verified

In practice, economists:

Correct Answer
verified

According to Ricardian equivalence advocates, if the government announces a plan to balance the budget by reducing its deficits to zero, then the private sector will:

Correct Answer
verified

Reducing the budget deficit by cutting government spending could conceivably:

Correct Answer
verified

Refer to the graph shown. Expansionary fiscal policy is most likely to shift the aggregate demand curve from:

Correct Answer
verified

Define the crowding out effect.

Correct Answer
verified
The crowding out effect is the offsettin...
View Answer

If an economy is in a recession and the government opts for an expansionary fiscal policy to shift the AD curve closer to the potential output, a sound finance economist with a Classical view, who holds the Ricardian equivalence theorem to be practically true, would conclude that the AD curve:

Correct Answer
verified

Unemployment compensation is:

Correct Answer
verified

The provisions in state constitutions requiring them to balance their budgets mean that:

Correct Answer
verified

Procyclical fiscal policies:

Correct Answer
verified

If a government finances an increase in its expenditures by selling bonds to the public, then the aggregate demand curve will:

Correct Answer
verified

The income tax is:

Correct Answer
verified

Correct Answer
verified
Crowding out refers to the offsetting ef...
View Answer

What is meant by "sound finance"?

Correct Answer
verified
Sound finance is a view of pub...
View Answer

If an economy is in a recession and the government opts for an expansionary fiscal policy to shift the AD curve closer to potential output, an economist with a typical functional finance view, who acknowledges partial crowding out, would conclude that the AD curve:

Correct Answer
verified

If the government knew the precise values of the multiplier and potential income, fine-tuning the economy would:

Correct Answer
verified

Exam 32: The Fiscal Policy Dilemma

Why is unemployment insurance an automatic stabilizer and how does it work? How does the decline in the percentage of unemployed who receive unemployment insurance in the 2000s impact the effectiveness of unemployment insurance as an automatic stabilizer?

Correct AnswerverifiedAn automatic stabilizer is any governmen...View AnswerShow Answer

Fine tuning the economy with fiscal policy is:

Correct AnswerverifiedShow Answer

Property taxes are:

Correct AnswerverifiedShow Answer

Fiscal policy is typically:

Correct AnswerverifiedShow Answer

When inflation and unemployment are both higher than desired, most economists believe that the government should:

Correct AnswerverifiedShow Answer

In practice, economists:

Correct AnswerverifiedShow Answer

According to Ricardian equivalence advocates, if the government announces a plan to balance the budget by reducing its deficits to zero, then the private sector will:

Correct AnswerverifiedShow Answer

Reducing the budget deficit by cutting government spending could conceivably:

Correct AnswerverifiedShow Answer

Refer to the graph shown. Expansionary fiscal policy is most likely to shift the aggregate demand curve from:

Correct AnswerverifiedShow Answer

Define the crowding out effect.

Correct AnswerverifiedThe crowding out effect is the offsettin...View AnswerShow Answer

If an economy is in a recession and the government opts for an expansionary fiscal policy to shift the AD curve closer to the potential output, a sound finance economist with a Classical view, who holds the Ricardian equivalence theorem to be practically true, would conclude that the AD curve:

Correct AnswerverifiedShow Answer

Unemployment compensation is:

Correct AnswerverifiedShow Answer

The provisions in state constitutions requiring them to balance their budgets mean that:

Correct AnswerverifiedShow Answer

Procyclical fiscal policies:

Correct AnswerverifiedShow Answer

If a government finances an increase in its expenditures by selling bonds to the public, then the aggregate demand curve will:

Correct AnswerverifiedShow Answer

The income tax is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedCrowding out refers to the offsetting ef...View AnswerShow Answer

What is meant by "sound finance"?

Correct AnswerverifiedSound finance is a view of pub...View AnswerShow Answer

If an economy is in a recession and the government opts for an expansionary fiscal policy to shift the AD curve closer to potential output, an economist with a typical functional finance view, who acknowledges partial crowding out, would conclude that the AD curve:

Correct AnswerverifiedShow Answer

If the government knew the precise values of the multiplier and potential income, fine-tuning the economy would:

Correct AnswerverifiedShow Answer

Correct Answer
verified
An automatic stabilizer is any governmen...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The crowding out effect is the offsettin...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Crowding out refers to the offsetting ef...
View Answer

Correct Answer
verified
Sound finance is a view of pub...
View Answer

Correct Answer
verified

Correct Answer
verified