Question 1

Fiscal policy formation causes a delay in implementation even though a recession can usually be recognized within a few weeks after it begins.

Accepted Answer

A) True 
 B)False

Question 2

When government spending increases,consumption also increases via the multiplier process.

Accepted Answer

A) True 
 B)False

Question 3

Fiscal policy formation is typically a quick process.

Accepted Answer

A) True 
 B)False

Question 4

Jack has an MPC of 0.82 and Jill has an MPC of 0.78.Ceteris paribus,if the government transfers income from people who behave like Jack to people who behave like Jill,

Accepted Answer

A)  It is not possible to predict what will happen to aggregate demand.
B)  Aggregate demand will increase.
C)  Aggregate demand will remain the same.
D)  Aggregate demand will decrease.

Question 5

Which of the following fiscal policies cause a decrease in aggregate expenditures?

Accepted Answer

A)  An increase in transfer payments and an increase in government spending.
B)  An increase in transfer payments and a decrease in taxes.
C)  A decrease in taxes and an increase in government spending.
D)  An increase in taxes and a decrease in government spending.

Question 6

Fiscal policy involves changes in government spending and taxes,but not regulation of prices or production.

Accepted Answer

A) True 
 B)False

Question 7

F is the full employment equilibrium then a shift from AD1 to AD2 in Figure 11.2 will A) Worsen the existing unemployment problem. B) Reduce,but not close,the GDP gap. C) Cause significant inflation. D) Eliminate the GDP gap." class="answers-bank-image d-inline" rel="preload" > Assuming QF is the full employment equilibrium then a shift from AD1 to AD2 in Figure 11.2 will

Accepted Answer

A)  Worsen the existing unemployment problem.
B)  Reduce,but not close,the GDP gap.
C)  Cause significant inflation.
D)  Eliminate the GDP gap.

Question 8

Fiscal restraint is defined as

Accepted Answer

A)  Tax hikes or spending cuts intended to reduce aggregate demand.
B)  Tax hikes or spending cuts intended to increase aggregate demand.
C)  Tax cuts or spending hikes intended to increase aggregate demand.
D)  Tax cuts or spending hikes intended to reduce aggregate demand.

Question 9

Fiscal policy affects

Accepted Answer

A)  The level of output only.
B)  The mix of output only.
C)  Both the level and the mix of output.
D)  Interest rates only,and therefore does not affect the level or mix of output.

Question 10

If the recessionary GDP gap is $500,then the proper fiscal stimulus when faced with an upward-sloping AS curve is to

Accepted Answer

A)  Shift the AD curve rightward by $500.
B)  Shift the AD curve rightward by more than $500.
C)  Shift the AD curve leftward by $500.
D)  Shift the AS curve rightward by less than $500.

Question 11

If the multiplier equals 2 and the AD shortfall is $6 million,the desired fiscal stimulus is

Accepted Answer

A)  $6 million.
B)  $12 million.
C)  $333,333.
D)  $3 million.

Question 12

The crowding out effect refers to a decrease in

Accepted Answer

A)  Consumption or investment as a result of an increase in government borrowing.
B)  Investment resulting from an increase in consumption and a decrease in savings.
C)  Government spending resulting from a decrease in taxes.
D)  Consumption resulting from an increase in investment.

Question 13

1 to AD2 will A) Move equilibrium to QF. B) Eliminate the GDP gap because of the increase in output. C) Move equilibrium to point Y where the price level is higher than before. D) Move the economy to point Y and then the market mechanism will move the economy to point Z." class="answers-bank-image d-inline" rel="preload" > According to Figure 11.2,a shift from AD1 to AD2 will

Accepted Answer

A)  Move equilibrium to QF.
B)  Eliminate the GDP gap because of the increase in output.
C)  Move equilibrium to point Y where the price level is higher than before.
D)  Move the economy to point Y and then the market mechanism will move the economy to point Z.

Question 14

A $500 increase in government spending contains more fiscal stimulus than a $500 tax cut.

Accepted Answer

A) True 
 B)False

Question 15

1 and full-employment output is $6.0 trillion.If aggregate demand increases by the amount of the GDP gap,equilibrium will occur at A) Point a. B) Point b. C) Point c. D) Point d." class="answers-bank-image d-inline" rel="preload" > Refer to Figure 11.1.Assume aggregate demand is initially represented by AD1 and full-employment output is $6.0 trillion.If aggregate demand increases by the amount of the GDP gap,equilibrium will occur at

Accepted Answer

A)  Point a.
B)  Point b.
C)  Point c.
D)  Point d.

Question 16

If the economy is experiencing excess demand that is causing inflation,the inflationary pressures can be eliminated by reducing government spending by less than the amount of excess demand.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following would not be a policy option to eliminate an AD shortfall?

Accepted Answer

A)  Increase government purchases.
B)  Reduce taxes.
C)  Reduce transfer payments.
D)  Increase transfer payments.

Question 18

The amount of additional aggregate demand needed to achieve full employment after allowing for price level changes is

Accepted Answer

A)  The AD shortfall.
B)  The AD excess.
C)  The recessionary GDP gap.
D)  The inflationary GDP gap.

Question 19

An income transfer contains less fiscal stimulus than an increase in government spending of the same size.

Accepted Answer

A) True 
 B)False

Question 20

The recessionary GDP gap will differ from the AD shortfall when the

Accepted Answer

A)  Multiplier effect raises spending.
B)  Budget is balanced.
C)  Aggregate supply curve slopes upward.
D)  Multiplier effect lowers spending.

Exam 11: Fiscal Policy

According to Figure 11.2,a shift from AD1 to AD2 will

Correct AnswerverifiedShow Answer

Which of the following would not be a policy option to eliminate an AD shortfall?

Correct AnswerverifiedShow Answer

The amount of additional aggregate demand needed to achieve full employment after allowing for price level changes is

Correct AnswerverifiedShow Answer

If the economy is experiencing excess demand that is causing inflation,the inflationary pressures can be eliminated by reducing government spending by less than the amount of excess demand.

Correct AnswerverifiedShow Answer

Assuming QF is the full employment equilibrium then a shift from AD1 to AD2 in Figure 11.2 will

Correct AnswerverifiedShow Answer

If the multiplier equals 2 and the AD shortfall is $6 million,the desired fiscal stimulus is

Correct AnswerverifiedShow Answer

A $500 increase in government spending contains more fiscal stimulus than a $500 tax cut.

Correct AnswerverifiedShow Answer

Fiscal policy formation is typically a quick process.

Correct AnswerverifiedShow Answer

Refer to Figure 11.1.Assume aggregate demand is initially represented by AD1 and full-employment output is $6.0 trillion.If aggregate demand increases by the amount of the GDP gap,equilibrium will occur at

Correct AnswerverifiedShow Answer

The crowding out effect refers to a decrease in

Correct AnswerverifiedShow Answer

An income transfer contains less fiscal stimulus than an increase in government spending of the same size.

Correct AnswerverifiedShow Answer

Fiscal restraint is defined as

Correct AnswerverifiedShow Answer

Fiscal policy formation causes a delay in implementation even though a recession can usually be recognized within a few weeks after it begins.

Correct AnswerverifiedShow Answer

Fiscal policy affects

Correct AnswerverifiedShow Answer

Jack has an MPC of 0.82 and Jill has an MPC of 0.78.Ceteris paribus,if the government transfers income from people who behave like Jack to people who behave like Jill,

Correct AnswerverifiedShow Answer

When government spending increases,consumption also increases via the multiplier process.

Correct AnswerverifiedShow Answer

Fiscal policy involves changes in government spending and taxes,but not regulation of prices or production.

Correct AnswerverifiedShow Answer

The recessionary GDP gap will differ from the AD shortfall when the

Correct AnswerverifiedShow Answer

Which of the following fiscal policies cause a decrease in aggregate expenditures?

Correct AnswerverifiedShow Answer

If the recessionary GDP gap is $500,then the proper fiscal stimulus when faced with an upward-sloping AS curve is to

Correct AnswerverifiedShow Answer

According to Figure 11.2,a shift from AD₁ to AD₂ will

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Assuming Q_Fis the full employment equilibrium then a shift from AD₁ to AD₂ in Figure 11.2 will

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Refer to Figure 11.1.Assume aggregate demand is initially represented by AD₁ and full-employment output is $6.0 trillion.If aggregate demand increases by the amount of the GDP gap,equilibrium will occur at

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified