Homework answers / question archive / Chapter 15   Fiscal Policy 1) Which of the following does not reflect the state of the tax system in the United States today? A) The tax laws have become increasingly simplified as private citizens have demanded these changes

Chapter 15   Fiscal Policy 1) Which of the following does not reflect the state of the tax system in the United States today? A) The tax laws have become increasingly simplified as private citizens have demanded these changes

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Chapter 15   Fiscal Policy

1) Which of the following does not reflect the state of the tax system in the United States today?

A) The tax laws have become increasingly simplified as private citizens have demanded these changes.

B) The tax laws are used to achieve social policy goals such as energy conservation.

C) The tax laws are used to achieve macroeconomic goals of high employment and economic growth.

D) Many taxpayers use software or professional tax preparation companies to file their income taxes.

 

2) Fiscal policy refers to changes in

A) state and local taxes and purchases that are intended to achieve macroeconomic policy objectives.

B) federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

C) federal taxes and purchases that are intended to fund the war on terrorism.

D) the money supply and interest rates that are intended to achieve macroeconomic policy objectives.

 

3) Which of the following is an objective of fiscal policy?

A) energy independence from Middle East oil

B) health care coverage for all Americans

C) discovering a cure for AIDs

D) high rates of economic growth

E) homeland security

 

4) The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession is an example of

A) automatic stabilizers.

B) discretionary fiscal policy.

C) discretionary monetary policy.

D) automatic monetary policy.

 

5) Which of the following would not be considered an automatic stabilizer?

A) legislation increasing funding for job retraining passed during a recession

B) decreasing unemployment insurance payments due to decreased jobless during an expansion

C) rising income tax collections due to rising incomes during an expansion

D) declining food stamp payments due to more persons finding jobs during an expansion

 

6) Federal government purchases, as a percentage of GDP,

A) have risen since the early 1950s.

B) have fallen since the early 1950s.

C) have remained roughly the same since the early 1950s.

D) rose from the early 1950s until the mid 1980s, and then fell.

 

15.2   The Effects of Fiscal Policy on Real GDP and the Price Level

 

1) Automatic stabilizers refer to government spending and taxing which automatically increase and decrease to

A) stabilize interest rates.

B) stabilize foreign-exchange rates.

C) offset the effects of the business cycle on the economy.

D) offset the effects of inflation.

 

2) An increase in government purchases will increase aggregate demand because

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.

 

Figure 15-1

 

 

 

 

3) Refer to Figure 15-1.  An increase in taxes would be depicted as a movement from ________, using the static AD-AS model in the figure above.

A) E to B

B) B to C

C) A to B

D) B to A

E) C to D

 

4) Refer to Figure 15-1.  Suppose the economy is in a recession and expansionary fiscal policy is pursued.  Using the static AD-AS model in the figure above, this would be depicted as a movement from

A) A to B.

B) B to C.

C) C to B.

D) B to A.

E) A to E.

 

5) Refer to Figure 15-1.  Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium.  Using the static AD-AS model in the figure above, this would be depicted as a movement from

A) A to B.

B) B to C.

C) C to B.

D) B to A.

E) A to E.

 

6) Refer to Figure 15-1.  Suppose the economy is in short-run equilibrium below potential GDP and no fiscal or monetary policy is pursued.  Using the static AD-AS model in the figure above, this would be depicted as a movement from

A) A to B.

B) B to C.

C) C to B.

D) B to A.

E) A to E.

 

7) Refer to Figure 15-1.  Suppose the economy is in short-run equilibrium above potential GDP and automatic stabilizers move the economy back to long-run equilibrium.  Using the static AD-AS model in the figure above, this would be depicted as a movement from

A) D to C.

B) A to E.

C) C to B.

D) B to A.

E) E to A.

 

8) Refer to Figure 15-1.  Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued.  Using the static AD-AS model in the figure above, this would be depicted as a movement from

A) D to C.

B) A to E.

C) C to D.

D) C to B.

E) E to A.

 

9) Refer to Figure 15-1.  Suppose the economy is in short-run equilibrium above potential GDP and wages and prices are rising. If contractionary policy is used to move the economy back to long run equilibrium, this would be depicted as a movement from ________ using the static AD-AS model in the figure above.

A) D to C

B) C to B

C) A to E

D) B to A

E) E to A

 

15.4   The Government Purchases and Tax Multipliers

 

1) Economists refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the ________ effect.

A) multiplier

B) expenditure

C) consumption

D) aggregate demand

 

2) The aggregate demand curve will shift to the right ________ the initial increase in government purchases.

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

 

3) The aggregate demand curve will shift to the right ________ the initial decrease in taxes.

A) by less than

B) by more than

C) by the same amount

D) sometimes by more than and other times by less than

 

4) A change in consumption spending caused by income changes is ________ change in spending, and a change in government spending that occurs to improve roads and bridges is ________ change in spending.

A) an induced; an autonomous

B) an expansionary; a contractionary

C)  an autonomous; an induced

D) a contractionary; an expansionary

 

5) The tax multiplier equals the change in ________ divided by the change in ________.

A) taxes; equilibrium real GDP

B) equilibrium real GDP; taxes

C) taxes; consumption spending

D) consumption spending; taxes

 

6) If the tax multiplier is -1.5 and a $200 billion tax increase is implemented, what is the change in GDP, holding everything else constant?  (Assume the price level stays constant.)

A) a $300 billion decrease in GDP

B) a $300 billion increase in GDP

C) a $30 billion increase in GDP

D) a $133.33 billion decrease in GDP

E) a $133.33 billion increase in GDP

 

15.5   The Limits of Using Fiscal Policy to Stabilize the Economy

 

1) The Federal Reserve plays a larger role than Congress and the president in stabilizing the economy because

A) the Federal Reserve can more quickly change monetary policy than the president and the Congress can change fiscal policy.

B) the Federal Reserve can immediately recognize when real GDP is below or above potential GDP.

C) changes in interest rates have a considerably larger effect on the economy than changes in government purchases or taxes.

D) changes in interest rates have their full effect on the economy in a short period of time, whereas changes in government spending and taxes have their full effect over a long period of time.

 

2) Crowding out refers to a decline in ________ as a result of an increase in ________.

A) tax revenues; unemployment

B) government purchases; tax rates

C) government purchases; private expenditures

D) private expenditures; government purchases

 

3) An increase in the sensitivity of private spending (consumption, investment, and net exports) to changes in the interest rate ________ the government purchases multiplier.

A) will decrease

B) will increase

C) will not change

D) may increase or may decrease

 

4) In the long run, most economists agree that a permanent increase in government spending leads to ________ crowding out of private spending.

A) no

B) partial

C) complete

D) more than complete

 

5) In the long run, most economists agree that a permanent increase in government spending leads to 

A) no decrease in private spending.

B) a decrease in private spending by less than the amount that government spending increased.

C) a decrease in private spending by the same amount that government spending increased.

D) a decrease in private spending by more than the amount that government spending increased.

 

15.6   Deficits, Surpluses, and Federal Government Debt

 

1) To evaluate the size of the federal budget deficit or surplus over time, it would be best to look at the

A) absolute size of the budget deficit or surplus.

B) budget deficit or surplus as a percentage of GDP.

C) budget deficit or surplus as a percentage of tax revenues.

D) budget deficit or surplus as a percentage of government spending.

 

2) An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

A) increase; rise; falls

B) increase; fall; rises

C) decrease; rise; falls

D) decrease; fall; rises

 

3) Suppose the federal budget deficit for the year was $100 billion and the economy was in a recession.  If the economy had been at potential GDP, it is estimated that tax revenues would have been $60 billion higher and government spending on transfer payments $50 billion lower.  Using these estimates, the cyclically adjusted budget

A) deficit was $210 billion.

B) deficit was $110 billion.

C) surplus was $10 billion.

D) surplus was $110 billion.

 

4) During the Great Depression, what appeared to be ________ fiscal policy was actually not when the ________ budget deficit or surplus is examined.

A) expansionary; actual

B) expansionary; cyclically adjusted

C) contractionary; actual

D) contractionary; cyclically adjusted

 

15.7   The Effects of Fiscal Policy in the Long Run

 

1) Which of the following best describes supply-side economics?

A) Labor productivity affects aggregate supply.

B) Education affects labor productivity which affects aggregate supply.

C) Education affects the incentive to work, save, and invest and, therefore, aggregate supply.

D) Tax rates, particularly marginal tax rates, affect the incentive to work, save, and invest and, therefore, aggregate supply.

 

2) A decrease in which of the following would decrease the tax wedge?

A) marginal tax rate

B) money supply

C) national debt

D) federal budget deficit

 

3) Economists who believe the supply-side effects of tax cuts are small essentially believe that

A) tax cuts mainly affect aggregate demand.

B) tax cuts mainly affect aggregate supply.

C) tax cuts will increase the quantity of labor supplied.

D) tax cuts will result in relatively small changes in the price level.

 

4) From 2007 to 2009, aggregate demand in the United States had ________ and the effects of changing oil prices caused short-run aggregate supply to ________, resulting in a new equilibrium with a higher price level and lower real GDP.

A) decreased; increase

B) decreased; decrease

C) increased; increase

D) increased; decrease