Question 1

On June 24,2009,President Obama signed into law the Consumer Assistance to Recycle and Save (CARS) Act,better known as

Accepted Answer

A)  the Lightning McQueen program
B)  the Save General Motors program
C)  the Save the US Auto Industry program
D)  the Cash for Clunkers program
E)  the Loot for Lemons program

Question 2

It has been estimated that the marginal propensity to consume out of tax rebate money is around 1/3 which means the multiplier from just tax rebate programs will b about 3.

Accepted Answer

A) True 
 B)False

Question 3

Fiscal policy focuses on manipulating

Accepted Answer

A)  aggregate demand to smooth out business fluctuations
B)  aggregate supply to smooth out business fluctuations
C)  both aggregate supply and aggregate demand to smooth out business fluctuations
D)  aggregate demand to stimulate the economy and aggregate supply to contract it
E)  short-run aggregate supply to stimulate the economy and aggregate demand to contract it

Question 4

Which of the following best describes the concept of laissez-faire?

Accepted Answer

A)  Government should not intervene in the economy.
B)  Government should actively intervene in the economy whenever it judges the action to be beneficial.
C)  Government should intervene in the economy only to promote short-term economic stability.
D)  Government should intervene in the economy only to maximize long-term growth rates.
E)  Government should intervene in the economy only when the economy is not at full employment or there is substantial inflation.

Question 5

The one-time tax cuts used by the Bush administration to stimulate the economy in 2008 proved to be very successful.

Accepted Answer

A) True 
 B)False

Question 6

If policy makers think the natural rate of unemployment is higher than it really is,then their policies designed to move the economy to the estimated natural rate,if continued over the long run,will

Accepted Answer

A)  cause continuing inflation
B)  shift the long-run aggregate supply curve to the left
C)  shift the supply curve of labor to the left
D)  reduce unemployment more than they had intended
E)  keep the economy below its potential GDP level

Question 7

One lesson of the Great Depression was that potential GDP could

Accepted Answer

A)  be too low to ensure full employment if the population was growing
B)  be too low to ensure full employment in a capitalist economy
C)  be too low to ensure full employment in a market economy
D)  fall short of full-employment GDP
E)  exceed equilibrium GDP

Question 8

Who argued that the economy should be left to itself to close a contractionary gap?

Accepted Answer

A)  John F.Kennedy
B)  John Maynard Keynes
C)  the mercantilists
D)  the classical economists
E)  the socialists

Question 9

The Golden Age of fiscal policy was during

Accepted Answer

A)  the 1920s
B)  World War II
C)  the Eisenhower years
D)  the 1960s
E)  the Reagan administration

Question 10

Exhibit 11-1 
-The economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS50 in Exhibit 11-1 is facing an expansionary gap.

Accepted Answer

A) True 
 B)False

Question 11

A federal budget surplus occurs when

Accepted Answer

A)  there is deflation
B)  federal government net taxes exceed purchases
C)  there is inflation
D)  aggregate demand is greater than aggregate supply
E)  aggregate supply is greater than aggregate demand

Question 12

Fiscal policy is concerned with

Accepted Answer

A)  government spending and taxation only
B)  government spending and money only
C)  money and taxation only
D)  government spending,taxation,and money
E)  money only

Question 13

Which of the following is not a weakness of fiscal policy as a tool of economic stabilization?

Accepted Answer

A)  It is ineffective in dealing with stagflation.
B)  Its correct implementation depends on an accurate estimate of potential output.
C)  It is subject to lags.
D)  Households may not respond to changes they perceive as temporary.
E)  Households may not respond to changes they perceive as permanent.

Question 14

Which of the following best describes stagflation?

Accepted Answer

A)  rising unemployment together with economic growth
B)  deflation coupled with a decline of the money supply
C)  deficits coupled with rising unemployment
D)  rising unemployment and inflation rates
E)  inflation coupled with balance of trade deficits

Question 15

A progressive income tax ensures that during expansionary periods,

Accepted Answer

A)  consumption will increase by more than the increase in disposable income
B)  consumption will increase by more than the decrease in disposable income
C)  disposable income will increase by more than the increase in GDP
D)  disposable income will increase by less than the increase in GDP
E)  disposable income will increase by more than the decrease in GDP

Question 16

Recent studies of the effectiveness of fiscal policy tend to suggest that the government spending multiplier is less than 1.

Accepted Answer

A) True 
 B)False

Question 17

Discretionary fiscal policy is an extremely precise tool of macroeconomic stabilization.

Accepted Answer

A) True 
 B)False

Question 18

The Cash for Clunkers program was intended to help the US auto industry and help the environment.Which of the following is often cited as a unintended consequence of the program?

Accepted Answer

A)  it contributed to an increase in the US trade deficit
B)  it helped Toyota surpass GM as the #1 auto maker in the world
C)  it helped the Japanese auto industry more than the US industry
D)  it helped used car dealers more than new car dealers
E)  it led to an acceleration of inflation in the USeconomy

Question 19

Either an increase in autonomous net taxes or a decrease in government purchases can close an expansionary gap.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is an appropriate fiscal policy to address the inflation that occurs when the economy is above potential GDP?

Accepted Answer

A)  Decrease taxes to protect consumers from the effects of inflation.
B)  Increase taxes to reduce aggregate demand.
C)  Increase government spending to provide some of the goods consumers can no longer afford at the higher prices.
D)  Decrease government spending so that the demand for money will fall.
E)  Increase transfer payments to poor people,who are hurt the most by the inflation.

Exam 12: Fiscal Policy

Who argued that the economy should be left to itself to close a contractionary gap?

Correct AnswerverifiedShow Answer

On June 24,2009,President Obama signed into law the Consumer Assistance to Recycle and Save (CARS) Act,better known as

Correct AnswerverifiedShow Answer

A federal budget surplus occurs when

Correct AnswerverifiedShow Answer

Which of the following best describes the concept of laissez-faire?

Correct AnswerverifiedShow Answer

Recent studies of the effectiveness of fiscal policy tend to suggest that the government spending multiplier is less than 1.

Correct AnswerverifiedShow Answer

One lesson of the Great Depression was that potential GDP could

Correct AnswerverifiedShow Answer

Which of the following best describes stagflation?

Correct AnswerverifiedShow Answer

It has been estimated that the marginal propensity to consume out of tax rebate money is around 1/3 which means the multiplier from just tax rebate programs will b about 3.

Correct AnswerverifiedShow Answer

A progressive income tax ensures that during expansionary periods,

Correct AnswerverifiedShow Answer

Which of the following is an appropriate fiscal policy to address the inflation that occurs when the economy is above potential GDP?

Correct AnswerverifiedShow Answer

The one-time tax cuts used by the Bush administration to stimulate the economy in 2008 proved to be very successful.

Correct AnswerverifiedShow Answer

Which of the following is not a weakness of fiscal policy as a tool of economic stabilization?

Correct AnswerverifiedShow Answer

The Cash for Clunkers program was intended to help the US auto industry and help the environment.Which of the following is often cited as a unintended consequence of the program?

Correct AnswerverifiedShow Answer

Discretionary fiscal policy is an extremely precise tool of macroeconomic stabilization.

Correct AnswerverifiedShow Answer

Fiscal policy focuses on manipulating

Correct AnswerverifiedShow Answer

Exhibit 11-1 -The economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS50 in Exhibit 11-1 is facing an expansionary gap.

Correct AnswerverifiedShow Answer

The Golden Age of fiscal policy was during

Correct AnswerverifiedShow Answer

Fiscal policy is concerned with

Correct AnswerverifiedShow Answer

Either an increase in autonomous net taxes or a decrease in government purchases can close an expansionary gap.

Correct AnswerverifiedShow Answer

If policy makers think the natural rate of unemployment is higher than it really is,then their policies designed to move the economy to the estimated natural rate,if continued over the long run,will

Correct AnswerverifiedShow Answer

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Exhibit 11-1 -The economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS₅₀in Exhibit 11-1 is facing an expansionary gap.

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