Question 1

During times of economic boom, the spending on unemployment insurance:

Accepted Answer

A)   likely falls, since more people are working.
B)   likely goes up, since wages typically rise during booms.
C)   likely stays the same, as government spending is through set criteria and unaffected by the business cycle.
D)   is usually based on discretionary fiscal policy.E) A) and B)
F) A) and C)

Question 2

When government decides to use fiscal policy:

Accepted Answer

A)   the information for how much to change taxes is readily available.
B)   the expedited process of approval aids with quick enactment.
C)   it always keeps the economy closer to potential GDP than it otherwise would be.
D)   It may take time to implement it.E) A) and B)
F) None of the above

Question 3

Which model is used to evaluate the effects of macroeconomic policy such as tax cuts?

Accepted Answer

A)   Aggregate demand and aggregate supply
B)   Demand and supply
C)   Game theory
D)   Circular flow.E) C) and D)
F) All of the above

Question 4

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

Accepted Answer

A)   decrease military spending.
B)   increase the amount of educational grants available.
C)   decrease corporate income taxes.
D)   All of these would cause a decrease in aggregate demand.E) All of the above
F) B) and C)

Question 5

Payments from government accounts to individuals for programs that do not involve a purchase of goods or services are called:

Accepted Answer

A)   discretionary funds.
B)   transfer payments.
C)   grants.
D)   fiscal policy.E) A) and B)
F) All of the above

Question 6

One way fiscal policy affects aggregate demand is:

Accepted Answer

A)   indirectly through government spending.
B)   directly through tariffs.
C)   directly through taxation.
D)   indirectly through taxation.E) C) and D)
F) All of the above

Question 7

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

Question 8

The shortest term security sold by the US is the:

Accepted Answer

A)   Treasury bonds.
B)   Treasury notes.
C)   certificate of deposit.
D)   Treasury bills.E) A) and D)
F) None of the above

Question 9

A main argument for investing in US securities is the:

Accepted Answer

A)   high rate of interest.
B)   low rate of interest
C)   low risk of owning them.
D)   varied time frame of payment for different types of securities.E) A) and D)
F) None of the above

Question 10

If the government were to decrease its spending, it would expect aggregate demand to:

Accepted Answer

A)   fall, and thus GDP to fall.
B)   rise, and thus GDP to fall.
C)   fall, and thus GDP to rise.
D)   rise, and thus GDP to rise.E) B) and C)
F) All of the above

Question 11

If the economy in the graph shown is currently at point D, we can conclude the:

Accepted Answer

A)   economy is in an economic boom.
B)   government may want to enact contractionary fiscal policy.
C)   unemployment rate is likely very low.
D)   All of these are likely to be true.E) A) and B)
F) A) and C)

Question 12

Assuming the economy in the graph shown is currently at equilibrium A, we can conclude:

Accepted Answer

A)   the economy is in a recession.
B)   the economy is producing less than its potential level of output.
C)   there must be unemployment of resources.
D)   All of these are true.E) C) and D)
F) B) and C)

Question 13

The total amount of money that a government owes at a point in time is called:

Accepted Answer

A)   a budget deficit.
B)   a budget surplus.
C)   public debt.
D)   national surplus.E) A) and B)
F) None of the above

Question 14

Keynesian policy:

Accepted Answer

A)   refers to policies that actively shift aggregate demand in an effort to reach full employment.
B)   refers to fiscal policy.
C)   promotes spending more and taxing less to boost economic activity to potential GDP.
D)   All of these are true.E) B) and D)
F) B) and C)

Question 15

In a booming economy, discretionary fiscal policy:

Accepted Answer

A)   can be added to the automatic stabilizers effects of policies already in place.
B)   often acts 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) A) and C)
F) B) and D)

Question 16

As of 2013, which was the only country in the world to be debt-free?

Accepted Answer

A)   Brunei
B)   Greece
C)   Japan
D)   KoreaE) B) and D)
F) A) and B)

Question 17

According to the graph shown, if the government decides to increase its spending, it is most likely at point:

Accepted Answer

A)   C
B)   B
C)   D
D)   It's impossible to tell without more information.E) A) and D)
F) B) and C)

Question 18

Consumption depends on:

Accepted Answer

A)   total income.
B)   disposable income.
C)   pre-tax income.
D)   Consumption is unrelated to income.E) A) and B)
F) B) and D)

Question 19

If the government enacts contractionary fiscal policy, it could:

Accepted Answer

A)   reduce its spending.
B)   decrease personal income taxes.
C)   decrease corporate income taxes.
D)   All of these are contractionary.E) B) and C)
F) A) and C)

Question 20

The process of deciding on and passing fiscal policy legislation creates:

Accepted Answer

A)   an information lag.
B)   a formulation lag.
C)   an implementation lag.
D)   a direction lag.E) All of the above
F) A) and C)

Exam 13: Fiscal Policy

If the economy in the graph shown is currently at point D, we can conclude the:

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If the government enacts contractionary fiscal policy, it could:

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One way fiscal policy affects aggregate demand is:

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Which model is used to evaluate the effects of macroeconomic policy such as tax cuts?

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As of 2013, which was the only country in the world to be debt-free?

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

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Assuming the economy in the graph shown is currently at equilibrium A, we can conclude:

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During times of economic boom, the spending on unemployment insurance:

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If the government were to decrease its spending, it would expect aggregate demand to:

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The process of deciding on and passing fiscal policy legislation creates:

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Consumption depends on:

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Payments from government accounts to individuals for programs that do not involve a purchase of goods or services are called:

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When government decides to use fiscal policy:

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A main argument for investing in US securities is the:

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According to the graph shown, if the government decides to increase its spending, it is most likely at point:

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The total amount of money that a government owes at a point in time is called:

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The shortest term security sold by the US is the:

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In a booming economy, discretionary fiscal policy:

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

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Keynesian policy:

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