Question 1

If the government increased taxes 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)  0.80.E) B) and C)
F) A) and D)

Question 2

Which country in the world has a debt larger than 100 percent of its GDP in 2010?

Accepted Answer

A)  Japan
B)  Italy
C)  Greece
D)  All of these countries owe more than 100 percent of their GDP.E) A) and D)
F) A) and B)

Question 3

In a booming economy,fiscal policy automatically becomes:

Accepted Answer

A)  contractionary as tax rates rise and welfare payments fall.
B)  expansionary as tax rates rise and welfare payments fall.
C)  contractionary as tax rates fall and welfare payments rise.
D)  expansionary as tax rates fall and welfare payments rise.E) None of the above
F) B) and C)

Question 4

If the MPC is 0.6,and the government increases taxes 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 $450b.
D)  an increase of $450b.E) A) and B)
F) A) and C)

Question 5

If the MPC is 0.8,and the government spends an additional $100b,the overall effect on GDP will be:

Accepted Answer

A)  $400b.
B)  $500b.
C)  $120b.
D)  $180b.E) A) and B)
F) A) and C)

Question 6

The effect of government spending or tax cuts on national income is measured by the:

Accepted Answer

A)  multiplier.
B)  substractor.
C)  aggregator.
D)  divisor.E) A) and D)
F) All of the above

Question 7

If the MPC is 0.5,then the taxation multiplier must be:

Accepted Answer

A)  2.
B)  -1.
C)  -1.5.
D)  1.E) B) and D)
F) B) and C)

Question 8

By 2012,the dollar value of the debt had climbed:

Accepted Answer

A)  past 100 percent of GDP.
B)  to just under $800 billion.
C)  to just past $500 billion.
D)  back down to 40 percent of GDP.E) B) and D)
F) A) and B)

Question 9

With the economy booming,the government starts to worry about the increasing rate of inflation,and decides to cut its spending on highway maintenance and defer it to sometime in the future.This is an example of:

Accepted Answer

A)  an automatic stabilizer.
B)  discretionary fiscal policy.
C)  expansionary fiscal policy.
D)  None of these is true.E) C) and D)
F) None of the above

Question 10

If the MPC = 0.75,then the taxation multiplier must be:

Accepted Answer

A)  3.
B)  4.
C)  -3.
D)  -4.E) None of the above
F) All of the above C

Question 11

The government spending multiplier is calculated as:

Accepted Answer

A)  1/(1 - MP
C)  .
B)  -1/(1 - MP
C)  .
C)  -MPC/(1 - MP
C)  .
D)  (1 - MP
C)  * - MPC.E) A) and C)
F) B) and C)

Question 12

If the marginal propensity to consume was 0.75,it would mean that:

Accepted Answer

A)  $0.75 of an additional $1 of individuals' after-tax income is spent on consumption.
B)  $0.75 of an additional $1 of individuals' after-tax income is saved.
C)  $0.25 of an additional $1 of individuals' after-tax income is spent on consumption.
D)  None of these is true.E) B) and D)
F) A) and B)

Question 13

If the government wished to shift aggregate demand to the right,it might:

Accepted Answer

A)  increase government spending.
B)  increase income taxes.
C)  pressure the Fed to decrease the money supply.
D)  Any of these things might cause aggregate demand to shift to the right.E) B) and C)
F) B) and D) A

Question 14

In a booming economy,discretionary fiscal policy:

Accepted Answer

A)  can be added to the automatic contractionary effects of policies already in place.
B)  often act counter to the automatic stabilizers that already exist.
C)  removes the effect of the automatic stabilizers that already are present.
D)  All of these are true.E) C) and D)
F) All of the above

Question 15

Lags in the policy-making process come from:

Accepted Answer

A)  lack of understanding the current state of the economy.
B)  the process of deciding on and passing legislation.
C)  the time it takes for policy to have an impact on the economy.
D)  All of these are true.E) All of the above
F) B) and D)

Question 16

The multiplier effect suggests that:

Accepted Answer

A)  spending $1 increases GDP by more than $1.
B)  spending $1 increases GDP by less than $1.
C)  saving $1 increases GDP by more than $1.
D)  spending $1 decreases GDP by more than $1.E) A) and B)
F) A) and C)

Question 17

Disposable income is:

Accepted Answer

A)  total income minus taxes.
B)  what consumers base their buying decisions on.
C)  the amount consumers have to spend on goods and services.
D)  All of these are true.E) C) and D)
F) None of the above

Question 18

If the government decreases the income tax rate,they assume it will affect which component of GDP?

Accepted Answer

A)  C
B)  NX
C)  G
D)  A change to the income tax rate will not affect any of these components.E) A) and D)
F) A) and C) A

Question 19

Discretionary fiscal policy is:

Accepted Answer

A)  fiscal policy that the government actively chooses to adopt.
B)  taxes and government spending that affect fiscal policy without specific action from policymakers.
C)  fiscal policy that the government enacts only for a short period of time.
D)  taxes and government spending that the government actively votes against adoption.E) C) and D)
F) All of the above

Question 20

During a severe recession,the government decides to lower its tax rates to give consumers relief,and allow them to pay less in taxes.This is an example of:

Accepted Answer

A)  discretionary fiscal policy.
B)  an automatic stabilizer.
C)  contractionary fiscal policy.
D)  None of these is true.E) B) and C)
F) None of the above

Exam 29: Fiscal Policy

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

Correct AnswerverifiedShow Answer

Which country in the world has a debt larger than 100 percent of its GDP in 2010?

Correct AnswerverifiedShow Answer

In a booming economy,fiscal policy automatically becomes:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the MPC is 0.8,and the government spends an additional $100b,the overall effect on GDP will be:

Correct AnswerverifiedShow Answer

The effect of government spending or tax cuts on national income is measured by the:

Correct AnswerverifiedShow Answer

If the MPC is 0.5,then the taxation multiplier must be:

Correct AnswerverifiedShow Answer

By 2012,the dollar value of the debt had climbed:

Correct AnswerverifiedShow Answer

With the economy booming,the government starts to worry about the increasing rate of inflation,and decides to cut its spending on highway maintenance and defer it to sometime in the future.This is an example of:

Correct AnswerverifiedShow Answer

If the MPC = 0.75,then the taxation multiplier must be:

Correct AnswerverifiedC

The government spending multiplier is calculated as:

Correct AnswerverifiedShow Answer

If the marginal propensity to consume was 0.75,it would mean that:

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If the government wished to shift aggregate demand to the right,it might:

Correct AnswerverifiedA

In a booming economy,discretionary fiscal policy:

Correct AnswerverifiedShow Answer

Lags in the policy-making process come from:

Correct AnswerverifiedShow Answer

The multiplier effect suggests that:

Correct AnswerverifiedShow Answer

Disposable income is:

Correct AnswerverifiedShow Answer

If the government decreases the income tax rate,they assume it will affect which component of GDP?

Correct AnswerverifiedA

Discretionary fiscal policy is:

Correct AnswerverifiedShow Answer

During a severe recession,the government decides to lower its tax rates to give consumers relief,and allow them to pay less in taxes.This is an example of:

Correct AnswerverifiedShow Answer

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C

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A

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A

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