Question 1

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 2

Taxes assessed on firms and employees on wages and salaries earned are called

Accepted Answer

A)   dividend taxes.
B)   payroll taxes.
C)   corporate profits taxes.
D)   earned income taxes.E) All of the above
F) A) and B)

Question 3

Figure 12-1 1, A)  potential output is greater than actual output. B)  the economy is operating at a point outside its production possibilities curve. C)  the actual unemployment rate is less than the natural rate of unemployment. D)  aggregate demand will fall to restore equilibrium." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-1. At output level Y1,

Accepted Answer

A)   potential output is greater than actual output.
B)   the economy is operating at a point outside its production possibilities curve.
C)   the actual unemployment rate is less than the natural rate of unemployment.
D)   aggregate demand will fall to restore equilibrium.E) B) and D)
F) All of the above

Question 4

Suppose the government institutes a new investment tax credit. This is likely to

Accepted Answer

A)   shift the short-run aggregate supply curve to the right by an amount equal to the amount of tax credit times the spending multiplier.
B)   shift the aggregate demand curve to the right by an amount equal to the amount of tax credit times the spending multiplier.
C)   shift the short-run aggregate supply curve to the right by an amount equal to the initial change in investment times the spending multiplier.
D)   shift the aggregate demand curve to the right by an amount equal to the initial change in investment times the spending multiplier.E) A) and D)
F) B) and C)

Question 5

A reduction in tax rates may result in a short-term reduction in government revenues, but it
will also leave people with more disposable income.

Accepted Answer

A) True 
 B)False

Question 6

Contractionary fiscal policy will lead to a fall in interest rates.

Accepted Answer

A) True 
 B)False

Question 7

Fiscal policy is concerned with government's manipulation of taxing, spending, and the money supply to encourage full employment at stable prices.

Accepted Answer

A) True 
 B)False

Question 8

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) B) and C)
F) A) and D)

Question 9

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) None of the above
F) A) and C)

Question 10

According to Professor Baotai Wang who examined the crowding out phenomenon in
Canada between 1961-2000, as discussed in the Case in Point, government expenditures for health and education

Accepted Answer

A)   increased human capital and encouraged private sector investment, leading to crowding in.
B)   did not increase the rate of return on private investment and therefore led to crowding out.
C)   increased human capital and generated strong supply-side effects.
D)   led to only small increases in human capital.E) A) and B)
F) B) and D)

Question 11

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) A) and B)
F) A) and C)

Question 12

Which of the following describes a discretionary fiscal policy action/program?

Accepted Answer

A)   the progressive income tax system
B)   The government increases funding for the Dislocated Worker Program, a federal initiative that provides retraining and career counseling.
C)   the unemployment compensation program
D)   the system of welfare programsE) B) and D)
F) A) and B)

Question 13

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) None of the above
F) B) and C)

Question 14

The bulk of federal receipts come from

Accepted Answer

A)   property taxes and personal income tax.
B)   personal income tax and from payroll taxes.
C)   corporate income taxes and personal income tax.
D)   personal income tax and property taxes.E) None of the above
F) B) and D)

Question 15

If the federal budget is initially balanced and government expenditures remain constant, then a
Decrease in GDP will

Accepted Answer

A)   decrease tax revenues and create a budget surplus.
B)   increase tax revenues and create a budget surplus.
C)   decrease tax revenues and create a budget deficit.
D)   increase tax revenues and create a budget deficit.E) A) and B)
F) A) and C)

Question 16

An expansionary fiscal policy
I. includes an increase in government spending.
II. includes tax cuts.
III. increases a government budget deficit or reduces a government budget surplus.

Accepted Answer

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

Question 17

An expansionary fiscal policy will result in the Treasury selling more bonds, the price of bonds falling, and interest rates rising.

Accepted Answer

A) True 
 B)False

Question 18

Contractionary fiscal policy will lead to an increase in government borrowing.

Accepted Answer

A) True 
 B)False

Question 19

The use of government expenditures and taxes to influence the level of economic activity is called fiscal policy.

Accepted Answer

A) True 
 B)False

Question 20

In general, personal income taxes

Accepted Answer

A)   rise automatically during a recession.
B)   rise automatically during an expansion.
C)   rise automatically during a contraction.
D)   are decreased during a recession through legislative actions of Congress.E) All of the above
F) None of the above

Exam 12: Government and Fiscal Policy

An expansionary fiscal policy I. includes an increase in government spending. II. includes tax cuts. III. increases a government budget deficit or reduces a government budget surplus.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to Professor Baotai Wang who examined the crowding out phenomenon in Canada between 1961-2000, as discussed in the Case in Point, government expenditures for health and education

Correct AnswerverifiedShow Answer

A reduction in tax rates may result in a short-term reduction in government revenues, but it will also leave people with more disposable income.

Correct AnswerverifiedShow Answer

If the federal budget is initially balanced and government expenditures remain constant, then a Decrease in GDP will

Correct AnswerverifiedShow Answer

Fiscal policy is concerned with government's manipulation of taxing, spending, and the money supply to encourage full employment at stable prices.

Correct AnswerverifiedShow Answer

Suppose the government institutes a new investment tax credit. This is likely to

Correct AnswerverifiedShow Answer

Contractionary fiscal policy will lead to a fall in interest rates.

Correct AnswerverifiedShow Answer

The use of government expenditures and taxes to influence the level of economic activity is called fiscal policy.

Correct AnswerverifiedShow Answer

In general, personal income taxes

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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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Taxes assessed on firms and employees on wages and salaries earned are called

Correct AnswerverifiedShow Answer

The bulk of federal receipts come from

Correct AnswerverifiedShow Answer

Recognition lags in fiscal policy stem largely from

Correct AnswerverifiedShow Answer

Which of the following describes a discretionary fiscal policy action/program?

Correct AnswerverifiedShow Answer

Some economists argue that

Correct AnswerverifiedShow Answer

Contractionary fiscal policy will lead to an increase in government borrowing.

Correct AnswerverifiedShow Answer

An expansionary fiscal policy will result in the Treasury selling more bonds, the price of bonds falling, and interest rates rising.

Correct AnswerverifiedShow Answer

An inflationary gap can be closed with

Correct AnswerverifiedShow Answer

Figure 12-1 -Refer to Figure 12-1. At output level Y1,

Correct AnswerverifiedShow Answer

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Figure 12-1 -Refer to Figure 12-1. At output level Y₁,

Correct Answer
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