Question 1

If the MPC is 0.6,and the government cuts taxes by $50b,the overall effect on GDP will be:

Accepted Answer

A)  an increase of $100b.
B)  a decrease of $25b.
C)  a decrease of $75b.
D)  an increase of $75b.E) All of the above
F) A) and B)

Question 2

Which country in the world has a debt larger than 100 percent of its GDP in 2010?

Accepted Answer

A)  Brunei
B)  Italy
C)  United States
D)  All of these countries owe more than 100 percent of their GDP.E) B) and C)
F) C) and D)

Question 3

When the U.S.economy hits a recession,fiscal policy:

Accepted Answer

A)  automatically becomes expansionary because average tax rates go down and spending on welfare programs goes up.
B)  is always discretionary because the government is quick to react to changes in the business cycle.
C)  automatically becomes contractionary because average tax rates go up and spending on welfare programs goes down.
D)  automatically becomes contractionary because average tax rates go down and spending on welfare programs goes up.E) B) and C)
F) A) and C)

Question 4

If the MPC is 0.75,and the government cuts taxes by $100b,the overall effect on GDP will be:

Accepted Answer

A)  a decrease of $400b.
B)  an increase of $300b.
C)  a decrease of $300b.
D)  an increase of $400b.E) A) and B)
F) A) and D)

Question 5

If the government decreases the income tax rate,then:

Accepted Answer

A)  GDP will decrease.
B)  aggregate demand will shift left.
C)  aggregate demand will shift right.
D)  None of these will happen when income tax decreases.E) A) and B)
F) None of the above

Question 6

If the government wishes to increase GDP by $900b,and the MPC is 0.6,it should decrease taxes by:

Accepted Answer

A)  $600b.
B)  $400b.
C)  $250b.
D)  $1,000b.E) None of the above
F) All of the above

Question 7

In order to accurately capture the multiplier effect,it is important to know:

Accepted Answer

A)  individual's wealth.
B)  what proportion of their income people spend.
C)  what people's expectations of the future are.
D)  Real GDP.E) All of the above
F) C) and D)

Question 8

The model of aggregate demand and aggregate supply can be used to:

Accepted Answer

A)  discuss the pros and cons of income tax cuts.
B)  evaluate a tax cut's effect on short run economic fluctuations.
C)  assess a tax cut's effect on longer run issues such as the national debt.
D)  All of these are true.E) C) and D)
F) B) and C)

Question 9

If the government increases the income tax rate,they assume:

Accepted Answer

A)  C will decrease,shifting aggregate demand to the left.
B)  C will increase,shifting aggregate demand to the right.
C)  I will increase,shifting aggregate demand to the right.
D)  G will increase,shifting aggregate demand to the right.E) C) and D)
F) A) and C)

Question 10

Economist John Maynard Keynes is famous for saying,"In the long run,we are all dead." He is referring to:

Accepted Answer

A)  the length of time it can take the economy to recover to potential GDP without policy intervention.
B)  the permanent inflation that results in long-run adjustments.
C)  the fact that no policy can affect the long-run equilibrium.
D)  None of these is true.E) B) and D)
F) A) and D)

Question 11

Payments from government accounts to individuals for programs that do not involve a purchase of goods or services are called:

Accepted Answer

A)  discretionary funds.
B)  transfer payments.
C)  grants.
D)  fiscal policy.E) None of the above
F) All of the above

Question 12

If the MPC is 0.6,and the government spends an additional $50b,the overall effect on GDP will be:

Accepted Answer

A)  an increase of $250b.
B)  an decrease of $25b.
C)  a decrease of $75b.
D)  an increase of $125b.E) A) and B)
F) A) and D)

Question 13

The marginal propensity to consume:

Accepted Answer

A)  is the amount by which consumption increases when after-tax income increases by $1.
B)  is closely linked to the multiplier effect of government spending.
C)  is a value between 0 and 1.
D)  All of these are true.E) A) and C)
F) None of the above

Question 14

When the government enacts fiscal policy,it:

Accepted Answer

A)  may not always be able to improve matters.
B)  might make things worse.
C)  can bring the economy to its long-run equilibrium more quickly than it can correct itself.
D)  All of these are true.E) All of the above
F) A) and B)

Question 15

One way fiscal policy affects aggregate demand is:

Accepted Answer

A)  directly through government spending.
B)  directly through tariffs.
C)  directly through taxation.
D)  All of these are true.E) All of the above
F) A) and B)

Question 16

The idea that if governments cut taxes but not spending,people will not change their behavior,and expansionary policy will have little expansionary effect is known as:

Accepted Answer

A)  Ricardian equivalence.
B)  Keynesian policy.
C)  the invisible hand.
D)  Ricardian countenance.E) All of the above
F) B) and C)

Question 17

One of the main difficulties with implementing fiscal policy is:

Accepted Answer

A)  the time lag between the time the policy is chosen and the time it gets enacted.
B)  deciding on a policy without all the relevant information.
C)  the danger in overshooting or undershooting the goal of full employment.
D)  All of these are true.E) B) and C)
F) A) and B)

Question 18

If the government wishes to increase GDP by $1,200b,and the MPC is 0.8,it should:

Accepted Answer

A)  increase its spending by $240b.
B)  decrease its spending by $240b.
C)  increase its spending by $960b.
D)  decrease its spending by $960b.E) A) and D)
F) All of the above

Question 19

The taxation multiplier:

Accepted Answer

A)  is calculated as -MPC/(1 - MP
C)  .
B)  has a value between 0 and 1.
C)  is larger the smaller is our marginal propensity to consume.
D)  All of these are true.E) A) and B)
F) B) and C)

Question 20

If the government wishes to increase GDP by $1,000b,and the MPC is 0.6,it should increase its spending by:

Accepted Answer

A)  $250b.
B)  $400b.
C)  $600b.
D)  $1,000b.E) None of the above
F) All of the above

Exam 29: Fiscal Policy

One of the main difficulties with implementing fiscal policy is:

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If the government wishes to increase GDP by $1,200b,and the MPC is 0.8,it should:

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The idea that if governments cut taxes but not spending,people will not change their behavior,and expansionary policy will have little expansionary effect is known as:

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One way fiscal policy affects aggregate demand is:

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If the government increases the income tax rate,they assume:

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If the MPC is 0.6,and the government cuts taxes by $50b,the overall effect on GDP will be:

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The marginal propensity to consume:

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If the government wishes to increase GDP by $900b,and the MPC is 0.6,it should decrease taxes by:

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If the government decreases the income tax rate,then:

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When the government enacts fiscal policy,it:

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In order to accurately capture the multiplier effect,it is important to know:

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If the MPC is 0.6,and the government spends an additional $50b,the overall effect on GDP will be:

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Which country in the world has a debt larger than 100 percent of its GDP in 2010?

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The model of aggregate demand and aggregate supply can be used to:

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Payments from government accounts to individuals for programs that do not involve a purchase of goods or services are called:

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If the MPC is 0.75,and the government cuts taxes by $100b,the overall effect on GDP will be:

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Economist John Maynard Keynes is famous for saying,"In the long run,we are all dead." He is referring to:

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The taxation multiplier:

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If the government wishes to increase GDP by $1,000b,and the MPC is 0.6,it should increase its spending by:

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When the U.S.economy hits a recession,fiscal policy:

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