Question 1

Monetary policy is:

Accepted Answer

A)   the use of the money supply to influence the economy.
B)   action taken by Congress to influence the economy.
C)   only used during times of recession.
D)   only used during times of expansion.
E)   the use of government spending and taxes to influence the economy.

Question 2

Time lags, crowding-out, and savings shifts are all:

Accepted Answer

A)   examples of automatic stabilizers.
B)   issues that arise in the application of activist fiscal policy.
C)   examples of countercyclical fiscal policy.
D)   types of governmental policy.
E)   arguments in favor of fiscal policy.

Question 3

An example of the multiplier effect is when:

Accepted Answer

A)   the government increases government spending initially by $100 billion, and total income in the economy increases by less than $100 billion.
B)   an increase in the price level leads to a shift in the aggregate demand curve.
C)   the government increases government spending initially by $100 billion, and total income in the economy increases by more than $100 billion.
D)   an increase in government spending leads to a decrease in private investment.
E)   short-run aggregate supply shifts in a response to fiscal policy.

Question 4

As part of the Economic Stimulus Act of 2008, the typical family of four received:

Accepted Answer

A)   an extension on unemployment benefits.
B)   an increase in pay.
C)   food stamps to buy basic necessities.
D)   free job training.
E)   a rebate check for $1,800.

Question 5

The x axis for the Laffer curve represents:

Accepted Answer

A)   the tax revenue.
B)   the tax rate.
C)   real gross domestic product (GDP) .
D)   the price level.
E)   the inflation rate.

Question 6

Recognition lag, implementation lag, and impact lag are all examples of:

Accepted Answer

A)   crowding-out.
B)   savings shifts.
C)   time lags that accompany policy decisions.
D)   automatic stabilizers.
E)   fiscal policies.

Question 7

If the spending multiplier is 5, what is the marginal propensity to consume in the economy?

Accepted Answer

A)   0.4
B)   −0.8
C)   0.5
D)   0.75
E)   0.8

Question 8

Which of the following figures illustrates what happens when the government enters the loanable funds market in order to borrow?

Accepted Answer

A)   
B)   
C)   
D)   
E)

Question 9

Write a short explanation of supply-side fiscal policy; include a long-run aggregate supply curve as further illustration.

Accepted Answer

Supply-side fiscal policy involves the u...

Question 10

The use of government spending and taxes to influence the economy is:

Accepted Answer

A)   called fiscal policy.
B)   called countercyclical policy.
C)   called monetary policy.
D)   initiated through actions of the Federal Reserve.
E)   only done during times of recession.

Question 11

Which of the following diagrams represents a Laffer curve?

Accepted Answer

A)   
B)   
C)   
D)   
E)

Question 12

An implementation lag happens because:

Accepted Answer

A)   it is easy to implement fiscal policy.
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 impossible to implement fiscal policy with a divided House of Representatives and Senate.

Question 13

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 14

If the economy begins to fall into a recession, one would expect Congress and the president to conduct:

Accepted Answer

A)   expansionary fiscal policy.
B)   expansionary monetary policy.
C)   contractionary fiscal policy.
D)   contractionary monetary policy.
E)   countercyclical monetary policy.

Question 15

If current savings increases the same amount as the federal stimulus:

Accepted Answer

A)   the budget deficit will not increase.
B)   the effects of the stimulus are negated.
C)   the government will continue to conduct fiscal policy.
D)   consumption must also increase.
E)   the effects of the stimulus are multiplied.

Question 16

Expansionary fiscal policy occurs when:

Accepted Answer

A)   the government decreases spending or increases taxes to stimulate the economy toward expansion.
B)   the government decreases spending or decreases taxes to stimulate the economy toward expansion.
C)   the government increases spending or increases taxes to stimulate the economy toward expansion.
D)   the government increases spending or decreases taxes to stimulate the economy toward expansion.
E)   the Federal Reserve increases money supply to stimulate the economy toward expansion.

Question 17

Government programs that automatically implement countercyclical fiscal policy in response to economic conditions are called:

Accepted Answer

A)   automatic stabilizers.
B)   automatic policies.
C)   automatic balancers.
D)   automatic equalizers.
E)   automatic holders.

Question 18

The Laffer curve shows that:

Accepted Answer

A)   tax revenue is maximized at multiple tax rates.
B)   tax revenue is constant over all tax rates.
C)   tax revenue increases as tax rates increase.
D)   at some specific tax rate, tax revenue is maximized.
E)   tax revenue decreases as tax rates increase.

Question 19

Considering all U.S. taxpayers, average tax revenue (adjusted for both inflation and the number of returns)  went from $6,954 to $6,202 between 1980 and 1991. Many analysts point to these figures and claim them as proof that:

Accepted Answer

A)   the Laffer curve does not exist.
B)   the Laffer curve exists.
C)   supply-side fiscal policy works.
D)   fiscal policy has no effects.
E)   monetary policy is better than fiscal policy.

Question 20

Supply-side fiscal policy:

Accepted Answer

A)   has been proven not to work.
B)   takes time to affect aggregate supply.
C)   has immediate effects on aggregate supply.
D)   includes increases in government employees' pay and individual tax breaks.
E)   is emphasized as a short-run solution to growth problems.

Exam 16: Fiscal Policy

As part of the Economic Stimulus Act of 2008, the typical family of four received:

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An implementation lag happens because:

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If the economy begins to fall into a recession, one would expect Congress and the president to conduct:

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If current savings increases the same amount as the federal stimulus:

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The Laffer curve shows that:

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If the spending multiplier is 5, what is the marginal propensity to consume in the economy?

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Expansionary fiscal policy occurs when:

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Supply-side fiscal policy:

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The use of government spending and taxes to influence the economy is:

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Which of the following diagrams represents a Laffer curve?

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Monetary policy is:

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An example of the multiplier effect is when:

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Considering all U.S. taxpayers, average tax revenue (adjusted for both inflation and the number of returns) went from $6,954 to $6,202 between 1980 and 1991. Many analysts point to these figures and claim them as proof that:

Correct AnswerverifiedShow Answer

Time lags, crowding-out, and savings shifts are all:

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Write a short explanation of supply-side fiscal policy; include a long-run aggregate supply curve as further illustration.

Correct AnswerverifiedSupply-side fiscal policy involves the u...View AnswerShow Answer

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

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Recognition lag, implementation lag, and impact lag are all examples of:

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Government programs that automatically implement countercyclical fiscal policy in response to economic conditions are called:

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The x axis for the Laffer curve represents:

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Which of the following figures illustrates what happens when the government enters the loanable funds market in order to borrow?

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Supply-side fiscal policy involves the u...
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