Question 1

Figure 27-2 
-Refer to Figure 27-2. In the graph above, if the economy is at point A, an appropriate fiscal policy by Congress and the president would be to

Accepted Answer

A)   decrease the required reserve ratio.
B)   sell government securities.
C)   increase government expenditures.
D)   decrease transfer payments.

Question 2

The Trump administration hopes to expand apprenticeship programs that provide skills needed by workers. This would ________ the employment-population ratio, which would increase ________.

Accepted Answer

A)   increase; growth in labor productivity
B)   increase; the growth rate of hours worked
C)   decrease; growth in labor productivity
D)   decrease; the growth rate of hours worked

Question 3

Expansionary fiscal policy involves increasing government purchases or increasing taxes.

Accepted Answer

A) True 
 B)False

Question 4

An increase in government purchases will increase aggregate demand because

Accepted Answer

A)   government expenditures are a component of aggregate demand.
B)   consumption expenditures are a component of aggregate demand.
C)   the decline in the price level will increase demand.
D)   the decline in the interest rate will increase demand.

Question 5

A change in tax rates

Accepted Answer

A)   has a less complicated effect on GDP than does a tax cut of a fixed amount.
B)   has a larger multiplier effect the smaller the tax rate.
C)   will not affect disposable income.
D)   will not affect the size of the multiplier.

Question 6

A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

Accepted Answer

A)   increase; rise; falls
B)   increase; fall; rises
C)   decrease; rise; falls
D)   decrease; fall; rises

Question 7

Figure 27-7 
-Refer to Figure 27-7. Given that the economy has moved from A to B in the graph above, which of the following would be the appropriate fiscal policy to achieve potential GDP?

Accepted Answer

A)   increase taxes
B)   increase government spending
C)   contractionary fiscal policy
D)   decrease interest rates

Question 8

How does expansionary monetary policy increase spending in the economy compared to how expansionary fiscal policy increases spending in the economy?

Accepted Answer

Expansionary monetary policy increases s...

Question 9

Figure 27-6 
-Refer to Figure 27-6. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B

Accepted Answer

A)   the unemployment rate is very low.
B)   firms are operating at below capacity.
C)   the economy is below full employment.
D)   income and profits are falling.
E)   there is pressure on wages and prices to fall.

Question 10

Federal government expenditures as a percentage of GDP

Accepted Answer

A)   have risen since the early 1950s to the present.
B)   have fallen since the early 1950s to the present.
C)   rose from 1950 to 1991, fell from 1992 to 2001, rose again until 2011, and have fallen from 2011 to the present.
D)   rose from 1950 to 2001 and then fell from 2001 to the present.
E)   rose from 1950 to 1980, fell from 1981 to 2001, and have risen from 2001 to the present.

Question 11

Figure 27-11 
-Refer to Figure 27-11. If government purchases increase by $100 billion and lead to an ultimate increase in aggregate demand as shown in the graph, the difference in real GDP between point A and point B will be

Accepted Answer

A)   $100 billion.
B)   less than $100 billion.
C)   more than $100 billion.
D)   There is insufficient information given here to draw a conclusion.

Question 12

A(n)  ________ in private expenditures as a result of a(n)  ________ in government purchases is called crowding out.

Accepted Answer

A)   increase; decrease
B)   decrease; decrease
C)   decrease; increase
D)   increase; increase

Question 13

The fastest growing category of government expenditure is

Accepted Answer

A)   grants to state and local governments.
B)   defense spending.
C)   transfer payments.
D)   government purchases.

Question 14

The total value of U.S. Treasury bonds outstanding is called the federal government debt.

Accepted Answer

A) True 
 B)False

Question 15

In the case of an upward-sloping aggregate supply curve, the change in real GDP brought about by a change in government spending will be less than that predicted by the simple government purchases multiplier.

Accepted Answer

A) True 
 B)False

Question 16

The problem typically during a recession is not that there is too little money, but too little spending. If the problem was too little money, what would be its cause? If the problem was too little spending, what could be its cause?

Accepted Answer

Too little money would be caused by too ...

Question 17

Expansionary fiscal policy ________ the price level and ________ equilibrium real GDP.

Accepted Answer

A)   decreases; increases
B)   increases; decreases
C)   increases; increases
D)   decreases; decreases

Question 18

A tax rebate, which is expected to be offered in this and all future years, will

Accepted Answer

A)   have a small positive effect on consumption and aggregate demand.
B)   have no effect on consumption and aggregate demand.
C)   have a significant positive effect on consumption and aggregate demand, with aggregate demand growing by a multiple of the tax rebate.
D)   increase aggregate supply and aggregate demand.

Question 19

Government transfer payments include which of the following?

Accepted Answer

A)   interest on the national debt
B)   grants to state and local governments
C)   Social Security and Medicare programs
D)   national defense

Question 20

The aggregate demand curve will shift to the left ________ the initial decrease in government purchases.

Accepted Answer

A)   by less than
B)   by more than
C)   by the same amount as
D)   sometimes by more than and other times by less than

Exam 27: Fiscal Policy

Federal government expenditures as a percentage of GDP

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How does expansionary monetary policy increase spending in the economy compared to how expansionary fiscal policy increases spending in the economy?

Correct AnswerverifiedExpansionary monetary policy increases s...View AnswerShow Answer

The aggregate demand curve will shift to the left ________ the initial decrease in government purchases.

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Figure 27-11 -Refer to Figure 27-11. If government purchases increase by $100 billion and lead to an ultimate increase in aggregate demand as shown in the graph, the difference in real GDP between point A and point B will be

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Expansionary fiscal policy involves increasing government purchases or increasing taxes.

Correct AnswerverifiedShow Answer

In the case of an upward-sloping aggregate supply curve, the change in real GDP brought about by a change in government spending will be less than that predicted by the simple government purchases multiplier.

Correct AnswerverifiedShow Answer

A tax rebate, which is expected to be offered in this and all future years, will

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Government transfer payments include which of the following?

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The fastest growing category of government expenditure is

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The problem typically during a recession is not that there is too little money, but too little spending. If the problem was too little money, what would be its cause? If the problem was too little spending, what could be its cause?

Correct AnswerverifiedToo little money would be caused by too ...View AnswerShow Answer

A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

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The total value of U.S. Treasury bonds outstanding is called the federal government debt.

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Figure 27-7 -Refer to Figure 27-7. Given that the economy has moved from A to B in the graph above, which of the following would be the appropriate fiscal policy to achieve potential GDP?

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Figure 27-6 -Refer to Figure 27-6. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B

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A change in tax rates

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A(n) ________ in private expenditures as a result of a(n) ________ in government purchases is called crowding out.

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An increase in government purchases will increase aggregate demand because

Correct AnswerverifiedShow Answer

Expansionary fiscal policy ________ the price level and ________ equilibrium real GDP.

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The Trump administration hopes to expand apprenticeship programs that provide skills needed by workers. This would ________ the employment-population ratio, which would increase ________.

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Figure 27-2 -Refer to Figure 27-2. In the graph above, if the economy is at point A, an appropriate fiscal policy by Congress and the president would be to

Correct AnswerverifiedShow Answer

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Expansionary monetary policy increases s...
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Too little money would be caused by too ...
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A recession tends to cause the federal budget deficit to because tax revenues and government spending on transfer payments .

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A(n) in private expenditures as a result of a(n) in government purchases is called crowding out.

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Expansionary fiscal policy the price level and equilibrium real GDP.

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The Trump administration hopes to expand apprenticeship programs that provide skills needed by workers. This would the employment-population ratio, which would increase .

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Correct Answer
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