Question 1

With a regressive tax system, as the level of income increases in an economy, the average tax rate will:

Accepted Answer

A)  increase.
B)  decrease.
C)  remain constant.
D)  either increase or decrease.E) None of the above
F) B) and C)

Question 2

An appropriate fiscal policy for severe demand-pull inflation is:

Accepted Answer

A)  an increase in government spending.
B)  depreciation of the dollar.
C)  a reduction in interest rates.
D)  a tax rate increase.E) A) and C)
F) A) and B)

Question 3

The "cyclically adjusted budget" refers to:

Accepted Answer

A)  the inflationary impact which the automatic stabilizers have in a full-employment economy.
B)  that portion of a full-employment GDP which is not consumed in the year it is produced.
C)  the size of the federal government's budgetary surplus or deficit when the economy is operating at full employment.
D)  the number of workers who are underemployed when the level of unemployment is 7 to 8 percent.E) A) and B)
F) B) and C)

Question 4

Refer to the above data.If a lump-sum tax (the same tax amount at each level of GDP)  of $40 is imposed in this economy, the tax system:

Accepted Answer

A)  is regressive.
B)  is proportional.
C)  is progressive.
D)  may be either proportional or progressive.E) A) and B)
F) A) and C)

Question 5

An economy is experiencing a high rate of inflation.The government wants to reduce GDP by $36 billion to reduce inflationary pressure.The MPC is .75.By how much should the government raise taxes to achieve its objective?

Accepted Answer

A)  $6 billion
B)  $9 billion
C)  $12 billion
D)  $16 billionE) All of the above
F) C) and D)

Question 6

Some economists believe the budget deficit is directly linked to the trade deficit through real interest rates and the international value of the dollar.

Accepted Answer

A) True 
 B)False

Question 7

The actual and full-employment budgets will be equal when the economy is at full-employment.

Accepted Answer

A) True 
 B)False

Question 8

The financing of a government deficit increases interest rates and, as a result, reduces investment spending.This statement describes:

Accepted Answer

A)  the supply-side effects of fiscal policy.
B)  built-in stability.
C)  the crowding-out effect.
D)  the net export effect.E) None of the above
F) B) and C)

Question 9

Suppose that in an economy with an MPC of .8 the government wanted to shift the aggregate demand curve leftward by $40 billion at each price level to remedy demand-pull inflation.It could:

Accepted Answer

A)  increase taxes by $10 billion.
B)  reduce government spending by $40 billion.
C)  reduce government spending by $5 billion.
D)  increase taxes by $20 billion.E) A) and C)
F) All of the above

Question 10

The table below shows the full-employment budget surplus as a percentage of GDP over a five-year period.  Refer to the above information.In which year was fiscal policy contractionary?

Accepted Answer

A)  Year 2
B)  Year 3
C)  Year 4
D)  Year 5E) A) and D)
F) All of the above

Question 11

The federal budget deficit is found by:

Accepted Answer

A)  subtracting government tax revenues plus government borrowing from government spending in a particular year.
B)  subtracting government tax revenues from government spending in a particular year.
C)  cumulating the differences between government spending and tax revenues over all years since the nation's founding.
D)  subtracting government revenues from the non-investment-type government spending in a particular year.E) B) and D)
F) A) and B)

Question 12

Refer to the graph given below. d1 in period 1.The crowding-out effect of a large government deficit would be shown as a(n) : A) shift of the investment demand curve from Id1 to Id2. B) leftward shift of the investment demand curve. C) increase in the interest rate from 4 percent to 6 percent and a decline in investment spending of $5 billion. D) increase in the interest rate from 6 percent to 8 percent and a decline in investment spending of $40 billion." class="answers-bank-image d-inline" rel="preload" > Assume that the investment demand curve of an economy is Id1 in period 1.The crowding-out effect of a large government deficit would be shown as a(n) :

Accepted Answer

A)  shift of the investment demand curve from Id1 to Id2.
B)  leftward shift of the investment demand curve.
C)  increase in the interest rate from 4 percent to 6 percent and a decline in investment spending of $5 billion.
D)  increase in the interest rate from 6 percent to 8 percent and a decline in investment spending of $40 billion.E) B) and D)
F) B) and C)

Question 13

In an economy, the government wants to increase aggregate demand by $48 billion at each price level to increase real GDP and reduce unemployment.If the MPC is .75, then it could:

Accepted Answer

A)  reduce taxes by $12 billion.
B)  reduce taxes by $16 billion.
C)  reduce government spending by $12 billion.
D)  increase government spending by $18 billion.E) A) and B)
F) A) and C)

Question 14

A contractionary fiscal policy shifts the aggregate demand curve leftward and may or may not reduce real GDP.

Accepted Answer

A) True 
 B)False

Question 15

One of the timing problems with fiscal policy is an "operational lag" that occurs between the:

Accepted Answer

A)  beginning of a recession and the time that it is recognized that the event is occurring.
B)  time the need for fiscal action is recognized and the time that action is actually taken.
C)  time that fiscal action is taken and the time that action has an impact on output, employment, and the price level.
D)  time that fiscal action has an impact on output, employment, and the price level and the time by which it can be determined if the policy is effective.E) A) and B)
F) B) and C)

Question 16

Within the aggregate demand and aggregate supply framework, fiscal policy that emphasizes activist government policies to stabilize the economy would view cutting personal income taxes as primarily a shift:

Accepted Answer

A)  right in the aggregate demand curve.
B)  left in the aggregate demand curve.
C)  right in the aggregate supply curve.
D)  left in the aggregate supply curve.E) B) and C)
F) A) and B)

Question 17

Using Image 13.2 Global Perspective, which of the following countries had the lowest public debt as a percentage of GDP in 2015?

Accepted Answer

A)  France
B)  Belgium
C)  Spain
D)  CanadaE) All of the above
F) B) and C)

Question 18

A public debt which is owed to foreigners can be burdensome because:

Accepted Answer

A)  foreign interest rates are persistently higher than domestic interest rates.
B)  payment of interest reduces the volume of goods and services available for domestic uses.
C)  payment of interest will conflict with a nation's foreign aid programs.
D)  payment of interest will necessarily have a deflationary effect on prices in the paying nation.E) None of the above
F) B) and D)

Question 19

Refer to the above diagram where T is tax revenues and G is government expenditures.All figures are in billions of dollars.If the full-employment and actual GDP are each $400 billion, government can balance its budget by:

Accepted Answer

A)  increasing T by $40 billion.
B)  reducing G by $20 billion.
C)  reducing T by $20 billion.
D)  increasing T by $10 billion and reducing G by $20 billion.E) A) and C)
F) B) and D)

Question 20

Which of the following statements is correct?

Accepted Answer

A)  Built-in stability only partially offsets fluctuations in economic activity.
B)  Built-in stability works in halting inflation, but it cannot alleviate unemployment.
C)  Built-in stability can be relied on to eliminate completely any fluctuation in economic activity.
D)  Built-in stability overcorrects for fluctuations in economic activity; for example, it may change a small expansion into a recession.E) C) and D)
F) A) and B)

Exam 13: Part B: Fiscal Policy, Deficits, Surpluses, and Debt

Some economists believe the budget deficit is directly linked to the trade deficit through real interest rates and the international value of the dollar.

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With a regressive tax system, as the level of income increases in an economy, the average tax rate will:

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Refer to the above data.If a lump-sum tax (the same tax amount at each level of GDP) of $40 is imposed in this economy, the tax system:

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The actual and full-employment budgets will be equal when the economy is at full-employment.

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In an economy, the government wants to increase aggregate demand by $48 billion at each price level to increase real GDP and reduce unemployment.If the MPC is .75, then it could:

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Using Image 13.2 Global Perspective, which of the following countries had the lowest public debt as a percentage of GDP in 2015?

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An economy is experiencing a high rate of inflation.The government wants to reduce GDP by $36 billion to reduce inflationary pressure.The MPC is .75.By how much should the government raise taxes to achieve its objective?

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A contractionary fiscal policy shifts the aggregate demand curve leftward and may or may not reduce real GDP.

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The "cyclically adjusted budget" refers to:

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The table below shows the full-employment budget surplus as a percentage of GDP over a five-year period. Refer to the above information.In which year was fiscal policy contractionary?

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One of the timing problems with fiscal policy is an "operational lag" that occurs between the:

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Which of the following statements is correct?

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Refer to the graph given below. Assume that the investment demand curve of an economy is Id1 in period 1.The crowding-out effect of a large government deficit would be shown as a(n) :

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An appropriate fiscal policy for severe demand-pull inflation is:

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A public debt which is owed to foreigners can be burdensome because:

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The financing of a government deficit increases interest rates and, as a result, reduces investment spending.This statement describes:

Correct AnswerverifiedShow Answer

Within the aggregate demand and aggregate supply framework, fiscal policy that emphasizes activist government policies to stabilize the economy would view cutting personal income taxes as primarily a shift:

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The federal budget deficit is found by:

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Suppose that in an economy with an MPC of .8 the government wanted to shift the aggregate demand curve leftward by $40 billion at each price level to remedy demand-pull inflation.It could:

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Refer to the above diagram where T is tax revenues and G is government expenditures.All figures are in billions of dollars.If the full-employment and actual GDP are each $400 billion, government can balance its budget by:

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Refer to the graph given below. Assume that the investment demand curve of an economy is I_d1 in period 1.The crowding-out effect of a large government deficit would be shown as a(n) :

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