Multiple Choice Questions

Government deficits tend to increase during
  • Congress increases the income tax rate.
  • A tax cut is designed to stimulate spending during a recession.
  • Shift the aggregate demand curve to the right.
  • Periods of war and recession.
Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real​ GDP?
  • An increase in government purchases
  • A significant increase in inflation.
  • An increase in taxes.
  • An increase in government purchases.
Which of the following would be considered a fiscal policy​ action?
  • Periods of war and recession.
  • interest on the national​ debt, grants to state and local​ governments, and transfer payments.
  • A tax cut is designed to stimulate spending during a recession.
  • Congress increases the income tax rate.
If the economy is falling below potential real​ GDP, which would be an appropriate fiscal policy to bring the economy back to​ long-run aggregate​ supply?
  • An increase in government purchases.
  • a​ $300 billion decrease in GDP
  • a decrease of less than​ $80 billion
  • An increase in taxes.
The government purchases multiplier equals the change in​ ________ divided by the change in​ ________.
  • A significant increase in inflation.
  • equilibrium real​ GDP; government purchases
  • equilibrium real​ GDP; taxes
  • private​ expenditures; government purchases
During 1970−​1997, the U.S. federal government was
  • A budget surplus results.
  • Rises because of programs such as unemployment insurance and Medicaid.
  • individual income taxes.
  • In deficit every year.
Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be​ ________ and real GDP to be​ _________.
  • taxes; expenditures
  • Increasing government purchases or decreasing taxes.
  • lower; lower
  • higher; higher
Suppose the government spending multiplier isThe federal government cuts spending by​ $40 billion. What is the change in GDP if the price level is not held​ constant?
  • a decrease of less than​ $80 billion
  • less than​ $500 billion.
  • An increase in taxes.
  • decrease; rise; fall
Crowding​ out, following an increase in government​ spending, results from​ (the exchange rate is the foreign exchange price of the domestic​ currency)
  • higher interest rates and higher exchange rates.
  • equilibrium real​ GDP; government purchases
  • decrease taxes to increase consumer disposable income.
  • private​ expenditures; government purchases
Suppose real GDP is​ $13 trillion, potential real GDP is​ $13.5 trillion, and Congress and the president plan to use fiscal policy to restore the economy to potential real GDP. Assuming a constant price​ level, Congress and the president would need to increase government purchases by
  • automatic stabilizers.
  • More than $200 billion.
  • a decrease of less than​ $80 billion
  • less than​ $500 billion.
Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be​ ________ and real GDP to be​ ________.
  • higher; higher
  • Shift the aggregate demand curve to the right.
  • taxes; expenditures
  • lower; lower
Expansionary fiscal policy involves
  • Increasing government purchases or decreasing taxes.
  • higher; higher
  • Shift the aggregate demand curve to the right.
  • federal taxes and purchases that are intended to achieve macroeconomic policy objectives.
Which of the following would be classified as fiscal​ policy?
  • decrease taxes to increase consumer disposable income.
  • The federal government cuts taxes to stimulate the economy.
  • A significant increase in inflation.
  • The total value of U.S. Treasury bonds outstanding.
Automatic stabilizers refer to
  • government spending and taxes that automatically increase or decrease along with the business cycle.
  • have risen from 25 percent to about 48 percent of federal government expenditures.
  • The total value of U.S. Treasury bonds outstanding.
  • more sensitive​ consumption, investment, and net exports are to changes in interest rates.
The federal government debt as a percentage of GDP fell
  • The total value of U.S. Treasury bonds outstanding.
  • individual income taxes.
  • From 1998-2001.
  • transfer payments.
Fiscal policy is defined as changes in federal​ ________ and​ ________ to achieve macroeconomic objectives such as price​ stability, high rates of economic​ growth, and high employment.
  • federal taxes and purchases that are intended to achieve macroeconomic policy objectives.
  • higher; higher
  • lower; lower
  • taxes; expenditures
An increase in the sensitivity of private spending​ (consumption, investment, and net​ exports) to changes in the interest rate​ ________ the government purchases multiplier.
  • will decrease.
  • - Make domestic businesses less competitive in international markets as the dollar appreciates in value.- Raise interest rates and reduce consumer expenditures on automobiles and new houses.- Reduce investment in new capital.
  • More than $200 billion.
  • automatic stabilizers.
Crowding out refers to a decline in​ ________ as a result of an increase in​ ________.
  • private​ expenditures; government purchases
  • equilibrium real​ GDP; taxes
  • equilibrium real​ GDP; government purchases
  • more sensitive​ consumption, investment, and net exports are to changes in interest rates.
The federal government debt equals
  • decrease taxes to increase consumer disposable income.
  • equilibrium real​ GDP; government purchases
  • The total value of U.S. Treasury bonds outstanding.
  • From 1998-2001.
If the federal​ government's expenditures are less than its tax​ revenues, then
  • transfer payments.
  • An increase in government purchases.
  • equilibrium real​ GDP; taxes
  • A budget surplus results.
An increase in government spending may expedite recovery from a recession in the short run, but in the long-run, ​this policy may
  • - Make domestic businesses less competitive in international markets as the dollar appreciates in value.- Raise interest rates and reduce consumer expenditures on automobiles and new houses.- Reduce investment in new capital.
  • More than $200 billion.
  • automatic stabilizers.
  • decrease taxes to increase consumer disposable income.
If the tax multiplier is minus−1.5 and a​ $200 billion tax increase is​ implemented, what is the change in​ GDP, holding all else​ constant? ​
  • equilibrium real​ GDP; taxes
  • An increase in government purchases.
  • a​ $300 billion decrease in GDP
  • An increase in government purchases
The three categories of federal government​ expenditures, in addition to government​ purchases, are
  • Increasing government purchases or decreasing taxes.
  • Shift the aggregate demand curve to the right.
  • lower; lower
  • interest on the national​ debt, grants to state and local​ governments, and transfer payments.
An increase in government purchases of​ $200 billion will shift the aggregate demand curve to the right by
  • will decrease.
  • increase; fall; rise
  • less than​ $500 billion.
  • More than $200 billion.
During​ recessions, government expenditure automatically
  • private​ expenditures; government purchases
  • The federal government cuts taxes to stimulate the economy.
  • Rises because of programs such as unemployment insurance and Medicaid.
  • In deficit every year.
A recession tends to cause the federal budget deficit to​ ________ because tax revenues​ ________ and government spending on transfer payments​ _________.
  • a decrease of less than​ $80 billion
  • An increase in government purchases.
  • increase; fall; rise
  • automatic stabilizers.
To combat a recession with discretionary fiscal​ policy, Congress and the president should
  • decrease taxes to increase consumer disposable income.
  • private​ expenditures; government purchases
  • a decrease of less than​ $80 billion
  • more sensitive​ consumption, investment, and net exports are to changes in interest rates.
The tax multiplier equals the change in​ ________ divided by the change in​ ________.
  • equilibrium real​ GDP; government purchases
  • equilibrium real​ GDP; taxes
  • a​ $300 billion decrease in GDP
  • individual income taxes.
Fiscal policy refers to changes in
  • Shift the aggregate demand curve to the right.
  • federal taxes and purchases that are intended to achieve macroeconomic policy objectives.
  • Increasing government purchases or decreasing taxes.
  • lower; lower
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Multiple Choice Questions
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