Question 1

An advantage of automatic stabilizers over discretionary fiscal policy is that

Accepted Answer

A)   automatic stabilizers are not subject to the same time lags as discretionary fiscal policy.
B)   automatic stabilizers can be easily fine-tuned to move the economy to full employment.
C)   only policymakers are involved in implementing automatic stabilizers.
D)   the Ricardian equivalence theorem applies more readily to automatic stabilizers than to discretionary fiscal policy.E) A) and B)
F) A) and C)

Question 2

Supply-side economists argue cuts in tax rates

Accepted Answer

A)   always reduce tax revenues.
B)   can raise tax revenues.
C)   always increase budget deficits.
D)   only lead to reductions in government spending.E) A) and B)
F) A) and C)

Question 3

A direct expenditure offset occurs when an increase in government spending

Accepted Answer

A)   results in an increase in household saving for retirement.
B)   is followed by an increase in consumer spending
C)   results in a decrease in private spending.
D)   is followed by an increase in taxes.E) None of the above
F) A) and B)

Question 4

The recognition time lag is the time between

Accepted Answer

A)   when an economic problem manifests itself and it is officially acknowledged.
B)   the recognition of an economic problem and implementing policies to solve it.
C)   implementing policies to solve an economic problem and when the results of that policy can be measured.
D)   the beginning of the budgetary process and the final budget resolution.E) A) and D)
F) B) and C)

Question 5

If the government increases its spending but does NOT raise taxes

Accepted Answer

A)   aggregate demand will increase without any effect on the price level.
B)   the government will have to borrow funds.
C)   the government will have to reduce the money supply.
D)   the government will have to raise expenditures or lower taxes the next year.E) A) and B)
F) A) and C)

Question 6

The idea that creating incentives for individuals and firms to increase productivity leading to an increase in long-run aggregate supply is

Accepted Answer

A)   supply-side economics.
B)   demand-side economics.
C)   the Ricardian equivalence theorem.
D)   laissez-faire economics.E) A) and B)
F) A) and C)

Question 7

What are the various time lags that affect discretionary fiscal policy, and what are their effects?

Accepted Answer

The recognition lag refers to the time i...

Question 8

Suppose the government believes the economy is operating beyond the full-employment real GDP. What kind of fiscal policy could it pursue?

Accepted Answer

The government could initiate contractio...

Question 9

-Refer to the above figure. Suppose that the economy starts at AD1. If the government reduces taxes, then the economy goes to AD2, but then falls back to AD3. This is an example of

Accepted Answer

A)   partial crowding-out effect.
B)   Ricardian equivalence.
C)   laissez-faire.
D)   complete crowding-out effect.E) A) and D)
F) All of the above

Question 10

Other factors being constant, what happens when the federal government finances a growing budget deficit by increasing the amount it borrows from the private sector?

Accepted Answer

A)   There will be an increase in the interest rate.
B)   There will be a decrease in the interest rate.
C)   The crowding out effect will be cancelled out.
D)   There will be an increase in net exports.E) A) and D)
F) None of the above

Question 11

Which of the following is an example of an automatic stabilizer?

Accepted Answer

A)   cost of living adjustments to Social Security payments
B)   unemployment benefits
C)   a temporary tax rebate
D)   all of the aboveE) B) and C)
F) C) and D)

Question 12

Discretionary fiscal policy

Accepted Answer

A)   is the use of government spending and tax policies to influence economic growth and inflation.
B)   is the use of regulation to influence economic growth and inflation.
C)   is the purchase and sale of Treasury securities to influence economic growth and inflation.
D)   is the use of the money supply to maintain stable prices.E) A) and D)
F) A) and C)

Question 13

Explain how indirect crowding out can offset expansionary fiscal policy.

Accepted Answer

If the government increases spending, it...

Question 14

Supply-side theory suggests that

Accepted Answer

A)   aggregate supply does not depend on labor productivity.
B)   increased government spending does not increase aggregate demand.
C)   higher tax rates may not increase overall tax revenues.
D)   increased labor productivity may not increase real output.E) B) and C)
F) B) and D)

Question 15

According to supply-side economics, changes in marginal tax rates will have which of the following effects?

Accepted Answer

A)   change the incentive to work
B)   change the incentive to save
C)   change the incentive to invest
D)   all of the aboveE) B) and C)
F) All of the above

Question 16

How might fiscal policy be used to correct an inflationary gap?

Accepted Answer

A)   The exchange rate would be adjusted to encourage imports.
B)   The exchange rate would be adjusted to discourage imports.
C)   Government spending would be adjusted to reduce consumer spending.
D)   Business operations would be regulated by the government to become more efficient.E) B) and C)
F) A) and D)

Question 17

What are the automatic stabilizers the United States has in place, and how do they function differently from discretionary fiscal policy?

Accepted Answer

Automatic stabilizers are provisions of ...

Question 18

Supply-side economists argue that changes in tax rates cause changes in

Accepted Answer

A)   the full-employment level of output.
B)   labor supply.
C)   tax revenues.
D)   all of the above.E) B) and D)
F) A) and D)

Question 19

Fiscal policy involves the actions of

Accepted Answer

A)   taxation and spending in an effort to address inflation and unemployment.
B)   business regulation to increase economic efficiency.
C)   changing interest rates to stimulate private savings.
D)   changing the exchange rate to discourage imports.E) All of the above
F) A) and D)

Question 20

When data on the economy requires some time to gather and interpret, there is

Accepted Answer

A)   an aggregate time lag.
B)   an action time lag.
C)   a recognition time lag.
D)   an effect time lag.E) A) and B)
F) A) and C)

Exam 13: Fiscal Policy

Fiscal policy involves the actions of

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When data on the economy requires some time to gather and interpret, there is

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A direct expenditure offset occurs when an increase in government spending

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The recognition time lag is the time between

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What are the various time lags that affect discretionary fiscal policy, and what are their effects?

Correct AnswerverifiedThe recognition lag refers to the time i...View AnswerShow Answer

What are the automatic stabilizers the United States has in place, and how do they function differently from discretionary fiscal policy?

Correct AnswerverifiedAutomatic stabilizers are provisions of ...View AnswerShow Answer

Supply-side theory suggests that

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According to supply-side economics, changes in marginal tax rates will have which of the following effects?

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Discretionary fiscal policy

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An advantage of automatic stabilizers over discretionary fiscal policy is that

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Supply-side economists argue cuts in tax rates

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-Refer to the above figure. Suppose that the economy starts at AD1. If the government reduces taxes, then the economy goes to AD2, but then falls back to AD3. This is an example of

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The idea that creating incentives for individuals and firms to increase productivity leading to an increase in long-run aggregate supply is

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If the government increases its spending but does NOT raise taxes

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Suppose the government believes the economy is operating beyond the full-employment real GDP. What kind of fiscal policy could it pursue?

Correct AnswerverifiedThe government could initiate contractio...View AnswerShow Answer

Explain how indirect crowding out can offset expansionary fiscal policy.

Correct AnswerverifiedIf the government increases spending, it...View AnswerShow Answer

Supply-side economists argue that changes in tax rates cause changes in

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Which of the following is an example of an automatic stabilizer?

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Other factors being constant, what happens when the federal government finances a growing budget deficit by increasing the amount it borrows from the private sector?

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How might fiscal policy be used to correct an inflationary gap?

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The recognition lag refers to the time i...
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Automatic stabilizers are provisions of ...
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The government could initiate contractio...
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If the government increases spending, it...
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Correct Answer
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Correct Answer
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Correct Answer
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