Question 1

As of 2010,which country in the world is the only one to be debt-free?

Accepted Answer

A)  Brunei
B)  Greece
C)  Japan
D)  All of these countries have public debt.E) C) and D)
F) None of the above

Question 2

Ricardian equivalence will fail to hold if:

Accepted Answer

A)  people increase their spending when they receive a tax rebate check.
B)  people save,and do not increase their spending when they receive a tax rebate check.
C)  intended expansionary effects of tax policy fail to occur.
D)  None of these is true.E) A) and C)
F) B) and C)

Question 3

During a recession,government deficits can grow because:

Accepted Answer

A)  government spending often increases as part of an expansionary fiscal policy.
B)  income tax revenues tend to decrease because people are earning less.
C)  sales tax revenues tend to decrease because people are spending less.
D)  All of these are true.E) All of the above
F) None of the above

Question 4

A budget surplus is:

Accepted Answer

A)  the amount of money a government spends beyond the net revenue it brings in.
B)  the amount of net revenue a government brings in beyond what it spends.
C)  the total amount of money that a government owes.
D)  the total amount of money that a government is owed.E) All of the above
F) None of the above

Question 5

If the MPC is 0.9,and the government cuts spending by $200b,the overall effect on GDP will be:

Accepted Answer

A)  a decrease of $2,000b.
B)  an increase of $2,000b.
C)  a decrease of $1,800b.
D)  an increase of $180b.E) None of the above
F) A) and B)

Question 6

Republicans often argue in favor of what to push the economy toward economic recovery,as they did during the recession that began in 2008?

Accepted Answer

A)  Tax cuts
B)  Increase government spending
C)  Decrease government spending
D)  Encourage the public to save moreE) All of the above
F) B) and D)

Question 7

If the MPC is 0.6,and the government increases its spending by $300b,the overall effect on GDP will be:

Accepted Answer

A)  a decrease of $750b.
B)  an increase of $750b.
C)  a decrease of $550b.
D)  an increase of $250b.E) A) and B)
F) B) and D)

Question 8

When an economy is in an economic boom,discretionary fiscal policy would call for _____________,and the automatic stabilizers would _____________.

Accepted Answer

A)  lowering tax rates;lower tax revenues
B)  lowering tax revenues;lower tax rates
C)  increasing tax rates;increase tax revenues
D)  None of these is true.E) All of the above
F) B) and D)

Question 9

If the MPC is 0.5,and the government cuts spending by $400b,the overall effect on GDP will be:

Accepted Answer

A)  a decrease of $400b.
B)  an increase of $400b.
C)  a decrease of $800b.
D)  an increase of $800b.E) A) and D)
F) B) and C)

Question 10

If the government were to decrease its spending,it would expect:

Accepted Answer

A)  aggregate demand to fall,and thus GDP to fall.
B)  aggregate demand to rise,and thus GDP to fall.
C)  aggregate demand to fall,and thus GDP to rise.
D)  aggregate demand to rise,and thus GDP to rise.E) All of the above
F) B) and C)

Question 11

Government decisions about the level of taxation and public spending are called:

Accepted Answer

A)  fiscal policy.
B)  monetary policy.
C)  congressional policy.
D)  legislative budgeting policy.E) None of the above
F) A) and C)

Question 12

In 2008,consumers were mailed a stimulus check in response to the recession.The result showed that Ricardian equivalence:

Accepted Answer

A)  held,as most people spent a substantial share of the money.
B)  failed to hold,as most people spent a substantial share of the money.
C)  held,as most people saved the money.
D)  failed to hold,as most people saved the money.E) A) and B)
F) A) and C)

Question 13

Which model is used to evaluate the effects of macroeconomic policy such as tax cuts?

Accepted Answer

A)  Aggregate demand and aggregate supply
B)  Demand and supply
C)  Game theory
D)  None of these is used to evaluate tax policy.E) A) and C)
F) None of the above

Question 14

When output deviates from potential GDP,automatic stabilizers work to push the economy:

Accepted Answer

A)  in the same direction that correctly timed and formulated discretionary policy would.
B)  in the opposite direction that correctly timed and formulated discretionary policy would.
C)  in unpredictable ways,causing a need for discretionary policy.
D)  can bring the economy even further from its long-run equilibrium.E) B) and C)
F) C) and D)

Question 15

Giving the government freedom to deficit spend when necessary is:

Accepted Answer

A)  seen as an economic benefit to public debt.
B)  seen as an economic cost to public debt.
C)  not a good enough reason to allow public debt.
D)  a fallacy;the market will always correct itself.E) B) and C)
F) All of the above

Question 16

If the government undertakes expansionary fiscal policy,it:

Accepted Answer

A)  could increase income taxes.
B)  must want to encourage economic activity.
C)  expects aggregate demand to decrease.
D)  All of these are true.E) A) and D)
F) A) and C)

Question 17

The multiplier effect occurs when:

Accepted Answer

A)  spending by one person causes others to spend more too,increasing the impact of the initial spending on the economy.
B)  the level of consumer confidence increases more than predicted given a tax cut.
C)  increased spending by one or more individuals causes others to react and increase their savings.
D)  None of these is true.E) B) and C)
F) None of the above

Question 18

The American Recovery and Reinvestment Act of 2009:

Accepted Answer

A)  is more commonly known as the "stimulus plan."
B)  cost nearly $800 billion.
C)  included tax cuts and increased government spending.
D)  All of these are true.E) A) and C)
F) B) and C)

Question 19

If the government decreased its spending by $250,and the GDP decreased $1,000 as a result,the MPC must be:

Accepted Answer

A)  -0.75.
B)  0.75.
C)  -4.
D)  2.E) All of the above
F) A) and B)

Question 20

A direct cost of public debt is:

Accepted Answer

A)  the interest the government has to pay to the people it has borrowed from.
B)  it allows the government to be flexible when something unexpected happens.
C)  it can pay for investments that will lead to economic growth in the long run.
D)  All of these are costs to holding public debt.E) B) and C)
F) C) and D)

Exam 29: Fiscal Policy

If the government were to decrease its spending,it would expect:

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During a recession,government deficits can grow because:

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Which model is used to evaluate the effects of macroeconomic policy such as tax cuts?

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If the MPC is 0.5,and the government cuts spending by $400b,the overall effect on GDP will be:

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Ricardian equivalence will fail to hold if:

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When an economy is in an economic boom,discretionary fiscal policy would call for _____________,and the automatic stabilizers would _____________.

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Government decisions about the level of taxation and public spending are called:

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A budget surplus is:

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If the government undertakes expansionary fiscal policy,it:

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Republicans often argue in favor of what to push the economy toward economic recovery,as they did during the recession that began in 2008?

Correct AnswerverifiedShow Answer

If the government decreased its spending by $250,and the GDP decreased $1,000 as a result,the MPC must be:

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If the MPC is 0.9,and the government cuts spending by $200b,the overall effect on GDP will be:

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The multiplier effect occurs when:

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As of 2010,which country in the world is the only one to be debt-free?

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When output deviates from potential GDP,automatic stabilizers work to push the economy:

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A direct cost of public debt is:

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The American Recovery and Reinvestment Act of 2009:

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Giving the government freedom to deficit spend when necessary is:

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In 2008,consumers were mailed a stimulus check in response to the recession.The result showed that Ricardian equivalence:

Correct AnswerverifiedShow Answer

If the MPC is 0.6,and the government increases its spending by $300b,the overall effect on GDP will be:

Correct AnswerverifiedShow Answer

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When an economy is in an economic boom,discretionary fiscal policy would call for _,and the automatic stabilizers would _.

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