Question 1

The national debt

Accepted Answer

A)   is the difference between total government revenues and government expenditures.
B)   is the sum of all past federal deficits plus any surpluses.
C)   is the sum of all past federal deficits less any surpluses.
D)   grows when government spending increases.E) A) and D)
F) A) and C)

Question 2

An inflationary gap may be eliminated using contractionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 3

Recognition lags in fiscal policy stem largely from

Accepted Answer

A)   the fact that it takes time before a fiscal policy, such as a change in government purchases or a change in taxes, is agreed to and put into effect.
B)   the fact that it takes time for a policy action to have its full effect on aggregate demand.
C)   the difficulty of collecting economic data in a timely and accurate fashion.
D)   households and businesses may not respond to fiscal policy to the extent that policy makers had hoped, for example, they may not be as responsive to a tax cut .E) A) and B)
F) C) and D)

Question 4

Public investment expenditure for highways, schools, and national defense is included in which component of GDP?

Accepted Answer

A)   consumption
B)   gross private investment
C)   government purchases
D)   public investmentE) All of the above
F) C) and D)

Question 5

Personal income and payroll taxes are the largest sources of revenue for the federal
government.

Accepted Answer

A) True 
 B)False

Question 6

The government purchases component of aggregate demand includes
I. all purchases by government agencies of goods and services produced by firms.
II. direct production by government agencies themselves.
III. government expenditures on transfer payments.

Accepted Answer

A)   I only
B)   I and II only
C)   I and III only
D)   I, II, and IIIE) A) and B)
F) A) and C)

Question 7

A contractionary fiscal policy will reduce a government budget deficit or increase a government budget surplus and lower the quantity of bonds the government must sell.

Accepted Answer

A) True 
 B)False

Question 8

Expansionary fiscal policy leads to an increase in net exports, all other things unchanged.

Accepted Answer

A) True 
 B)False

Question 9

Figure 12-2 r, there is A)  an inflationary gap. B)  a recessionary gap. C)  equilibrium at full employment. D)  a short-run and a long-run equilibrium. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-2. If real GDP is equal to Yr, there is

Accepted Answer

A)   an inflationary gap.
B)   a recessionary gap.
C)   equilibrium at full employment.
D)   a short-run and a long-run equilibrium.E) B) and D)
F) B) and C)

Question 10

Suppose the economy experiences a recessionary gap. Policymakers who believe that
Government is too big would favor which of the following policies to close the gap?

Accepted Answer

A)   decreases in transfer payment
B)   decreases in income tax rates
C)   increases in government purchases
D)   increases in interest ratesE) B) and C)
F) A) and B)

Question 11

Suppose a country has a national debt of $2,000 billion, a GDP of $28,000 billion, and a
Budget deficit of $115 billion. How much will its new national debt be?

Accepted Answer

A)   $2,115 billion
B)   $1,885 billion
C)   $28,115 billion
D)   $25,885 billionE) A) and B)
F) B) and D)

Question 12

As populations age, the burden of current fiscal policy in many countries is increasingly borne by

Accepted Answer

A)   younger people in the population.
B)   older people in the population.
C)   the government.
D)   new immigrants into a country.E) B) and D)
F) All of the above

Question 13

Some economists argue that

Accepted Answer

A)   discretionary monetary policy is ineffective because of its long identification lag.
B)   discretionary fiscal policy is ineffective because of its long recognition lag.
C)   discretionary monetary policy is ineffective because of its long implementation lag.
D)   discretionary fiscal policy is ineffective because of its long implementation lag.E) A) and B)
F) B) and C)

Question 14

Which of the following contributes to implementation lag for discretionary fiscal policy?

Accepted Answer

A)   the time it takes to secure legislative approval for policy actions
B)   the time it takes for economic agents to respond to policy actions
C)   the difficulty of collecting economic data in a timely manner
D)   the time it takes to borrow funds to finance the fiscal policyE) B) and D)
F) None of the above

Question 15

The provision of aid to an individual who is not required to provide anything in exchange is called a transfer payment.

Accepted Answer

A) True 
 B)False

Question 16

An inflationary gap can be closed with

Accepted Answer

A)   using an expansionary monetary policy.
B)   using a policy action such as a reduction in taxes.
C)   using a policy action such as a reduction in government purchases.
D)   imposing price controls to prevent prices from rising.E) A) and B)
F) A) and C)

Question 17

If there is a recessionary gap, the appropriate fiscal policy would be contractionary.

Accepted Answer

A) True 
 B)False

Question 18

Changes in expenditures and taxes that occur through automatic stabilizers

Accepted Answer

A)   shift the aggregate demand curve to the right in the event of an economic expansion.
B)   shift the aggregate demand curve to the left in the event of an economic contraction.
C)   do not shift the aggregate demand curve.
D)   cause a movement up along the aggregate demand curve the event of an economic expansion and a movement down along the aggregate demand curve the event of an economic contraction.E) B) and C)
F) All of the above

Question 19

Suppose the economy has a recessionary gap. If supply-side effects are very strong in relation to the demand-side effects,

Accepted Answer

A)   the impact of tax cuts will be strengthened because the increase in disposable income induces consumption, which in turn encourages firms to expand production, thereby shifting the short-run aggregate supply curve to the right.
B)   the impact of tax cuts will be strengthened because in addition increasing aggregate demand, long-run and short-run aggregate supply will also increase.
C)   the impact of increased transfer payments to help re-tool the unemployed with new skills will be strengthened, thereby shifting the aggregate demand curve further to the right.
D)   the impact of increased transfer payments to help re-tool the unemployed with new skills will be strengthened, thereby shifting the short-run aggregate supply curve to the right.E) A) and B)
F) All of the above

Question 20

Figure 12-1 
-Refer to Figure 12-1. In this situation, if policymakers want to close the output gap with fiscal policies that will stimulate aggregate demand, what should they do?

Accepted Answer

A)   establish a consumption tax to encourage savings
B)   increase government spending
C)   loosen environmental regulations to lower businesses cost of production
D)   raise interest ratesE) A) and D)
F) A) and C)

Exam 27: Money and Banking

Some economists argue that

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A contractionary fiscal policy will reduce a government budget deficit or increase a government budget surplus and lower the quantity of bonds the government must sell.

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Suppose the economy has a recessionary gap. If supply-side effects are very strong in relation to the demand-side effects,

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Figure 12-2 -Refer to Figure 12-2. If real GDP is equal to Yr, there is

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Recognition lags in fiscal policy stem largely from

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As populations age, the burden of current fiscal policy in many countries is increasingly borne by

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Which of the following contributes to implementation lag for discretionary fiscal policy?

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Public investment expenditure for highways, schools, and national defense is included in which component of GDP?

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The national debt

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Personal income and payroll taxes are the largest sources of revenue for the federal government.

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Changes in expenditures and taxes that occur through automatic stabilizers

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Figure 12-1 -Refer to Figure 12-1. In this situation, if policymakers want to close the output gap with fiscal policies that will stimulate aggregate demand, what should they do?

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Suppose the economy experiences a recessionary gap. Policymakers who believe that Government is too big would favor which of the following policies to close the gap?

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Expansionary fiscal policy leads to an increase in net exports, all other things unchanged.

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Suppose a country has a national debt of $2,000 billion, a GDP of $28,000 billion, and a Budget deficit of $115 billion. How much will its new national debt be?

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An inflationary gap can be closed with

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The provision of aid to an individual who is not required to provide anything in exchange is called a transfer payment.

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If there is a recessionary gap, the appropriate fiscal policy would be contractionary.

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An inflationary gap may be eliminated using contractionary fiscal policy.

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The government purchases component of aggregate demand includes I. all purchases by government agencies of goods and services produced by firms. II. direct production by government agencies themselves. III. government expenditures on transfer payments.

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Figure 12-2 -Refer to Figure 12-2. If real GDP is equal to Y_r, there is

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