Question 1

Supply-side fiscal policy will lead to:

Accepted Answer

A)   an outward rotation of the long-run aggregate supply curve.
B)   a rightward shift of the aggregate demand curve.
C)   a rightward shift of the long-run aggregate supply curve.
D)   an inward rotation of the long-run aggregate supply curve.
E)   a leftward shift of the long-run aggregate supply curve.

Question 2

The new classical critique of fiscal policy asserts that:

Accepted Answer

A)   decreases in government spending and increases in taxes are largely offset by increases in savings.
B)   recognition lags make it difficult to time fiscal policy.
C)   implementation lags make it hard to get fiscal-policy proposals through the government.
D)   impact lags make it difficult to know how much the spending multiplier will impact the total income in an economy.
E)   increases in government spending and decreases in taxes are largely offset by increases in savings.

Question 3

The three time lags that accompany policy decisions are:

Accepted Answer

A)   recognition lag, implementation lag, and impact lag.
B)   crowding-out lag, implementation lag, and impact lag.
C)   recognition lag, implementation lag, and countercyclical lag.
D)   crowding-out lag, implementation lag, and countercyclical lag.
E)   crowding-out lag, stabilizing lag, and countercyclical lag.

Question 4

Policies that focus on education:

Accepted Answer

A)   will affect aggregate supply immediately.
B)   are examples of an automatic stabilizer.
C)   are not examples of a supply-side fiscal policy initiative.
D)   will shift the long-run aggregate supply curve to the left over time.
E)   increase effective labor resources and thus increase aggregate supply over time.

Question 5

To determine the total impact on spending from an initial change of a given amount,you could use:

Accepted Answer

A)   the Laffer curve.
B)   the spending multiplier.
C)   monetary policy.
D)   fiscal policy.
E)   automatic stabilizers.

Question 6

If the marginal propensity to consume is equal to 0.75,the spending multiplier is equal to:

Accepted Answer

A)   4.0.
B)   1.75.
C)   0.25.
D)   0.57.
E)   1.33.

Question 7

List and summarize the three shortcomings of fiscal policy.

Accepted Answer

The three shortcomings of fiscal policy ...

Question 8

When aggregate demand is high enough to drive unemployment below the natural rate:

Accepted Answer

A)   there is downward pressure on the price level and the government may want to conduct contractionary fiscal policy.
B)   the economy is slipping into a recession and the government may want to conduct expansionary fiscal policy.
C)   there is upward pressure on the price level and the government may want to conduct contractionary fiscal policy.
D)   there is upward pressure on the price level and the government may want to conduct expansionary fiscal policy.
E)   there is downward pressure on the price level and the government may want to conduct expansionary fiscal policy.

Question 9

A technological advancement allows for:

Accepted Answer

A)   a reduction in structural unemployment.
B)   a greater multiplier effect.
C)   a lesser multiplier effect.
D)   production of a greater quantity of output using a greater quantity of inputs.
E)   production of a greater quantity of output using the same or fewer inputs.

Question 10

A government might want to reduce aggregate demand if it believes that:

Accepted Answer

A)   the economy is in long-run equilibrium.
B)   the economy is above the natural rate of unemployment.
C)   the economy is producing below full-employment output.
D)   the economy is expanding past its long-run capabilities.
E)   the economy is in a recession.

Question 11

Tie fiscal policy initiatives to budget deficits and surpluses.

Accepted Answer

The government budget is represented as ...

Question 12

The "crowding-out" critique is based on the idea that:

Accepted Answer

A)   consumption increases when government spending increases.
B)   government spending may be a substitute for private spending.
C)   time lags crowd out the effects of fiscal policy.
D)   supply-side fiscal policy does not increase total output.
E)   increases in government spending and decreases in taxes are offset by increases in savings.

Question 13

Which of the following diagrams represents a Laffer curve?

Accepted Answer

A)   
B)   
C)   
D)   
E)

Question 14

Supply-side fiscal policy involves the use of:

Accepted Answer

A)   government spending and taxes to affect the consumption side of the economy.
B)   government spending and taxes to affect the production side of the economy.
C)   government spending and taxes to affect the net exports side of the economy.
D)   monetary policy to supplement traditional fiscal policy.
E)   government spending and taxes to affect the aggregate demand curve.

Question 15

The Laffer curve is:

Accepted Answer

A)   an assertion that increases in government spending and decreases in taxes are largely offset by increases in savings.
B)   an illustration of the relationship between the price level and real output.
C)   an illustration of the relationship between tax rates and tax revenues.
D)   an illustration of the relationship between government spending and taxes.
E)   an illustration of real gross domestic product (GDP)  over time.

Question 16

An illustration of the relationship between tax rates and tax revenues is called:

Accepted Answer

A)   the Laffer curve.
B)   the new classical critique.
C)   the aggregate demand-aggregate supply model.
D)   the loanable funds market.
E)   the marginal tax curve.

Question 17

A recognition lag happens because:

Accepted Answer

A)   it takes time to recognize the true long-run growth rate in the economy.
B)   it is difficult to determine when the economy is turning up or down.
C)   in most nations, one or more governing bodies must approve government spending or new tax policies.
D)   it takes time for the complete effects of monetary and fiscal policy to materialize.
E)   it is difficult to recognize what the unemployment rate is.

Question 18

An initial increase in government spending of $100 billion can create more than $100 billion through what economists call:

Accepted Answer

A)   a multiplier effect.
B)   an enhancement effect.
C)   an interest rate effect.
D)   an aggregate supply effect.
E)   a wealth effect.

Question 19

An increase in taxes or a decrease in spending during an economic expansion can:

Accepted Answer

A)   increase the budget deficit but pay off some of the government debt.
B)   work to decrease the budget deficit and pay off some of the government debt.
C)   work to decrease the budget deficit but will not pay off any of the government debt.
D)   increase the budget deficit and increase the size of the government debt.
E)   work to decrease the budget deficit and increase the government debt.

Question 20

Countercyclical fiscal policy:

Accepted Answer

A)   is fiscal policy that seeks to counteract business-cycle fluctuations.
B)   only includes expansionary fiscal policy.
C)   only includes contractionary fiscal policy.
D)   attempts to counteract pro-cyclical fiscal policy.
E)   is no longer used by the government.

Exam 16: Fiscal Policy

A technological advancement allows for:

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Supply-side fiscal policy involves the use of:

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List and summarize the three shortcomings of fiscal policy.

Correct AnswerverifiedThe three shortcomings of fiscal policy ...View AnswerShow Answer

Supply-side fiscal policy will lead to:

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If the marginal propensity to consume is equal to 0.75,the spending multiplier is equal to:

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A government might want to reduce aggregate demand if it believes that:

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Which of the following diagrams represents a Laffer curve?

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A recognition lag happens because:

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Tie fiscal policy initiatives to budget deficits and surpluses.

Correct AnswerverifiedThe government budget is represented as ...View AnswerShow Answer

Countercyclical fiscal policy:

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The "crowding-out" critique is based on the idea that:

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When aggregate demand is high enough to drive unemployment below the natural rate:

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An initial increase in government spending of $100 billion can create more than $100 billion through what economists call:

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The Laffer curve is:

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Policies that focus on education:

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The new classical critique of fiscal policy asserts that:

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An increase in taxes or a decrease in spending during an economic expansion can:

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The three time lags that accompany policy decisions are:

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To determine the total impact on spending from an initial change of a given amount,you could use:

Correct AnswerverifiedShow Answer

An illustration of the relationship between tax rates and tax revenues is called:

Correct AnswerverifiedShow Answer

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The three shortcomings of fiscal policy ...
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The government budget is represented as ...
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