Deck 9: Fiscal Policy

Question 1

Using the aggregate supply - aggregate demand model, the tax cuts of 2001 and 2003 that came in the form of tax rebate checks would cause

A)aggregate demand to shift to the right.
B)aggregate supply to shift to the right.
C)aggregate demand to shift to the left.
D)aggregate supply to shift to the left.

Answer 1

A

Question 2

Which of the following would qualify as an aggregate supply shock?

A)An unexpected increase in oil prices
B)A seasonally expected increase in oil prices
C)An unexpected reduction in consumer confidence
D)An anticipated tax cut

Answer 2

A

Question 3

The purpose of fiscal policy is to

A)alter the direction of the economy.
B)change people's attitudes toward government.
C)educate people as to the importance of economics.
D)offer insight into the way things work.

Answer 3

A

Question 4

The tax cuts of 2001 and 2003 that came in the form of tax rebate checks are good examples of

A)fiscal policy.
B)monetary policy.
C)the fallacy of composition.
D)the fallacy that causation and correlation are the same.

Question 5

Discretionary Fiscal Policy differs from Nondiscretionary Fiscal Policy in that

A)the former deals with interest rates and the latter deals with tax policy.
B)the former is built into the system whereas the latter requires timely decisions.
C)the former requires timely decisions whereas the latter is built into the system.
D)the former deals with tax policy and the latter deals with interest rates.

Question 6

Nondiscretionary Fiscal Policy works by having

A)progressive income tax rates take a portion of increased income thereby dampening periods of growth.
B)Congress and the President agree upon a tax cut to stimulate growth.
C)welfare programs reduce spending on people when they have increased incomes thereby dampening periods of economic growth.
D)both progressive income tax rates take a portion of increased income and welfare programs reduce spending on people when they have increased incomes thereby dampening periods of economic growth.

Question 7

The tax cuts of 2001 and 2003 that came in the form of tax rebate checks are good examples of ______ fiscal policy

A)non-discretionary
B)non-conjunctive
C)discretionary
D)universally discredited

Question 8

Fiscal Policy is controlled by

A)the Federal Reserve Board.
B)Congress and the President.
C)the Supreme Court.
D)private banks.

Question 9

If you were to use an Aggregate Supply Aggregate Demand diagram to model nondiscretionary and discretionary fiscal policy in reaction to a negative aggregate demand shock, you would see the aggregate demand curve move

A)to the right as a result of the shock.
B)to the left as a result of the shock.
C)back toward its pre-shock position as a result of these policies.
D)to the left, back toward its pre-shock position as a result of these policies.

Question 10

An example of discretionary fiscal policy would be

A)the operation of the welfare state.
B)the operation of the progressive federal income tax.
C)a tax cut adopted to stimulate consumption.
D)an interest rate cut implemented to stimulate consumption.

Question 11

An example of discretionary fiscal policy would be

A)the operation of the welfare state.
B)the operation of the progressive federal income tax.
C)a tax increase adopted to control inflationary pressures.
D)an interest rate increase implemented to control inflationary pressures.

Question 12

Short-run expansionary Fiscal Policy would result in

A)aggregate demand moving to the right.
B)aggregate supply moving to the right.
C)aggregate demand moving to the left.
D)aggregate supply moving to the left.

Question 13

If you were to use an Aggregate Supply Aggregate Demand diagram to model nondiscretionary and discretionary fiscal policy in reaction to a positive aggregate demand shock, you would see the aggregate demand curve move

A)to the right as a result of the shock.
B)to the left as a result of the shock.
C)back toward its pre-shock position as a result of these policies.
D)to the right, back toward its pre-shock position as a result of these policies.

Question 14

Fiscal policy is purposeful movements in ____________ designed to direct an economy.

A)interest rates
B)legal structures
C)government regulations
D)government spending and taxes

Question 15

Discretionary Fiscal Policy differs from Nondiscretionary Fiscal Policy in that

A)the former deals with government spending and the latter deals with tax policy.
B)the former is chosen by Congress while the latter is chosen by the President.
C)the former is always stabilizing, while the latter is never stabilizing.
D)the former often takes years to enact, while the latter takes effect automatically.

Question 16

An example of nondiscretionary fiscal policy would be

A)the existence of the progressive federal income tax.
B)a federal jobs program adopted to stimulate consumption.
C)a tax cut adopted to stimulate consumption.
D)an interest rate cut implemented to stimulate consumption.

Question 17

Replacement of a progressive income tax system with a single income tax rate would be an example of

A)nondiscretionary fiscal policy.
B)discretionary fiscal policy.
C)mandatory spending policy.
D)interest rate policy.

Question 18

An example of nondiscretionary fiscal policy would be

A)the operation of the welfare state.
B)a federal jobs program adopted to stimulate consumption.
C)a tax cut adopted to stimulate consumption.
D)an interest rate cut implemented to stimulate consumption.

Question 19

An example of discretionary fiscal policy would be

A)the existence of the welfare state.
B)the existence of the progressive federal income tax.
C)a federal jobs program adopted to stimulate consumption.
D)an interest rate cut implemented to stimulate consumption.

Question 20

Short-run contractionary Fiscal Policy would result in

A)aggregate demand moving to the right.
B)aggregate supply moving to the right.
C)aggregate demand moving to the left.
D)aggregate supply moving to the left.

Question 21

A recent example of the recognition lag came in the form of it taking

A)several months in 2003 for Congress to agree on a tax cut package even after they had agreed on having one.
B)only a month or two from the passage of the 2003 tax cut to the issuance to rebate checks.
C)until Fall 2001 to recognize that the recession of 2001 had started in January 2001.
D)very little time for the effects of the 2003 rebate checks to have an effect on the economy.

Question 22

Which of the following would qualify as an aggregate demand shock?

A)An unexpected increase in oil prices
B)A seasonally expected increase in oil prices
C)An unexpected reduction in consumer confidence
D)An anticipated tax cut

Question 23

In terms of timing, the 2003 tax rebate

A)clearly arrived too late.
B)was enacted and implemented in a relatively short period of time.
C)was extremely poor in that it rapidly overheated the economy at the wrong time.
D)was perfect because it unambiguously ended a recession.

Question 24

Which of the following would be described as the administrative lag?

A)The time required to know that there is a recession.
B)The time required to agree upon a policy remedy for a recession.
C)The time required to get a particular plan implemented with the money put into peoples' hands.
D)The time required to get the people to spend the money returned to them through tax cuts.

Question 25

A recent example of the administrative lag came in the form of it taking

A)several months in 2003 for Congress to agree on a specific tax cut package even after they had agreed on having one.
B)only a month or two from the passage of the 2003 tax cut to the issuance to rebate checks.
C)until Summer 2003 to recognize that the recession of 2001 ended in December of 2001.
D)very little time for the effects of the 2003 rebate checks to have an effect on the economy.

Question 26

A political problem with discretionary fiscal policy is the

A)contractionary bias.
B)big-state bias.
C)expansionary bias.
D)overreaction bias.

Question 27

The tax cuts included in President Obama's 2009 fiscal stimulus package

A)were implemented through short-term changes in withholding tables.
B)went primarily to families earning more than $250,000 per year.
C)were matched by equal reductions in individual state income tax rates.
D)all of the options are correct.

Question 28

The mistiming problem with discretionary fiscal policy results from

A)a delay in recognizing a recession.
B)a delay in agreeing on a solution to a recession.
C)a delay in getting a particular plan implemented with the money getting into peoples' hands.
D)all of the options are correct.

Question 29

Generally speaking the last two years of a President's term are associated with

A)higher growth than the first two years.
B)the same growth as the first two years.
C)lower growth than the first two years.
D)higher unemployment than the first two years

Question 30

The 2003 tax rebate is an example of

A)nondiscretionary fiscal policy.
B)monetary policy.
C)discretionary fiscal policy.
D)nondiscretionary trade policy.

Question 31

A political problem with discretionary fiscal policy is the

A)political business cycle.
B)split control of the legislative and judicial branches of government.
C)business cycle.
D)Federal Reserve.

Question 32

Real economic growth during the first two years of President George W. Bush's second term was

A)approximately 8.7% per year.
B)higher than real economic growth during the first two years of President Bill Clinton's second term.
C)approximately 3.2% per year.
D)negative because of the 2001 recession.

Question 33

Real economic growth during the first two years of President George W. Bush's second term was

A)approximately 8.7% per year.
B)lower than real economic growth during the first two years of President Bill Clinton's second term.
C)approximately 6.4% per year.
D)negative because of the 2001 recession.

Question 34

In terms of timing, the 2003 rebate was

A)proposed at a time the economy needed a boost.
B)proposed at a time the economy was doing fine without it.
C)exactly the wrong policy in that the economy was on the verge of overheating.
D)unfortunate in that it stalled the economy.

Question 35

President Obama's 2009 fiscal stimulus package included

A)tax increases for individuals.
B)a reduction in unemployment benefits.
C)increased federal borrowing from state and local governments.
D)increased spending on "shovel-ready" infrastructure projects.

Question 36

The operational lag seemingly did not apply in the case of the 2003 tax cut because it took

A)several months in 2003 for Congress to agree on a tax cut package even after they had agreed on having one.
B)only a month or two from the passage of the 2003 tax cut to the issuance to rebate checks.
C)until Fall 2001 to recognize that the recession of 2001 had started January 2001.
D)until Summer 2003 to recognize that the recession of 2001 ended in December of 2001.

Question 37

Which of the following would be described as the operational lag?

A)The time required to know that there is a recession.
B)The time required to agree upon a policy remedy for a recession.
C)The time required to get a particular plan implemented with the money getting into peoples' hands.
D)Both the time required to know that there is a recession and agree upon a policy remedy for a recession.

Question 38

Which of the following would qualify as an aggregate supply shock?

A)An unexpected decrease in oil prices
B)A seasonally expected decrease in oil prices
C)An unexpected surge in consumer confidence
D)An anticipated tax cut

Question 39

Which of the following would be described as the recognition lag?

A)The time required to know that there is a recession.
B)The time required to agree upon a policy remedy for a recession.
C)The time required to get a particular plan implemented with the money getting into peoples' hands.
D)The time required by a President to sign legislation.

Question 40

Tax rebates such as those approved in 2003 might be

A)spent on consumption goods.
B)saved in the form of increased bank account balances.
C)used to pay down existing consumer debt.
D)all of the options are correct.

Question 41

The predictions that the Obama administration used to justify the stimulus plan have been shown to be (according to most economists)

A)wrong; the plan worked much better than their predictions suggested it would.
B)wrong; the plan did not work as well as their predictions suggested it would, but did have some positive impact.
C)wrong; the plan had no positive impact and has been credited with extending the recession of 2007-2009.
D)right on the mark.

Question 42

The portion of the Obama stimulus package that provided unemployment benefits for longer than the usual 26 weeks is best thought of as

A)nondiscretionary fiscal policy.
B)discretionary (and expansionary)fiscal policy.
C)discretionary (and contractionary)fiscal policy.
D)monetary policy.

Question 43

The portion of the Obama stimulus package that bolstered state welfare plans is best thought of as

A)nondiscretionary fiscal policy.
B)discretionary (and expansionary)fiscal policy.
C)discretionary (and contractionary)fiscal policy.
D)monetary policy.

Question 44

The portion of the Obama stimulus package that bolstered state Medicaid plans is best thought of as

A)nondiscretionary fiscal policy.
B)discretionary (and expansionary)fiscal policy.
C)discretionary (and contractionary)fiscal policy.
D)monetary policy.

Question 45

The Obama stimulus plan's requirement that projects be "shovel-ready" was designed to combat which of these

A)The operational lag.
B)The administrative lag.
C)The recognition lag.
D)The political business cycle.

Question 46

The late 1960's era Johnson 10% tax surcharge designed to curb inflation is an example of

A)nondiscretionary fiscal policy.
B)discretionary (and expansionary)fiscal policy.
C)discretionary (and contractionary)fiscal policy.
D)monetary policy.

Question 47

A political problem with discretionary fiscal policy is the

A)political business cycle.
B)split control of the legislative and judicial branches of government.
C)business cycle.
D)Federal Reserve.

Question 48

The portion of the Obama stimulus package that provided more money (a $25 per week increase)to those who were unemployed is best thought of as

A)nondiscretionary fiscal policy.
B)discretionary (and expansionary)fiscal policy.
C)discretionary (and contractionary)fiscal policy.
D)monetary policy.

Question 49

A political problem with discretionary fiscal policy is the

A)the ability of powerful politicians to direct government spending to their favored causes.
B)split control of the legislative and judicial branches of government.
C)business cycle.
D)Federal Reserve.

Question 50

Authorization in 2009 of increased federal spending on "shovel-ready" infrastructure projects was intended to speed up the macroeconomic impact of the deficit spending by

A)carefully designing the projects to save or create the largest possible number of jobs.
B)avoiding the lengthy design phase of the projects.
C)paying the entire contracted amount up front.
D)paying for the projects with new taxes approved by Congress.

Question 51

The portion of the Obama stimulus package that cut taxes is best thought of as

A)nondiscretionary fiscal policy.
B)discretionary (and expansionary)fiscal policy.
C)discretionary (and contractionary)fiscal policy.
D)monetary policy.

Question 52

A political problem with discretionary fiscal policy is the

A)contractionary bias.
B)expansionary bias.
C)big-state bias.
D)overreaction bias.

Question 53

The critical elements of discretionary fiscal policy are

A)Tax policy and spending policy
B)A progressive income tax and a welfare state
C)Interest rates and the money supply
D)Interest rates and tax rates

Question 54

Critics of the Obama stimulus plan were

A)entirely from conservatives.
B)entirely from liberals.
C)from both conservatives and liberals.
D)hard to find at the time.

Question 55

Liberal critics of the Obama stimulus plan focused their concern on

A)their belief that the package was too large and created a threat of inflation.
B)their belief that the package was too small and therefore insufficient to the task.
C)the plan's requirement that plans be shovel ready.
D)the fact that there were too few tax cuts in the plan.

Question 56

The portion of the Obama stimulus package that bolstered state unemployment plans is best thought of as

A)nondiscretionary fiscal policy.
B)discretionary (and expansionary)fiscal policy.
C)discretionary (and contractionary)fiscal policy.
D)monetary policy.

Question 57

The arguments that the Obama administration used to justify the stimulus plan are

A)consistent with the theory expressed in the chapter's discussion of discretionary fiscal policy.
B)inconsistent with the theory expressed in the chapter's discussion of discretionary fiscal policy.
C)consistent with the discussion of expansionary bias.
D)consistent with the discussion of politically-motivated actions taken by the powerful.

Question 58

The critical elements of nondiscretionary fiscal policy are

A)Tax policy and spending policy
B)A progressive income tax and a welfare state
C)Interest rates and the money supply
D)Interest rates and tax rates

Question 59

A significant adverse supply-side shock to the U.S. economy in mid-2008 came from

A)a tripling of world crude oil prices.
B)the plummeting world price of crude oil.
C)increased federal spending on "shovel-ready" infrastructure projects.
D)all of the options are correct.

Question 60

The portion of the Obama stimulus package that increased spending is best thought of as

A)nondiscretionary fiscal policy.
B)discretionary (and expansionary)fiscal policy.
C)discretionary (and contractionary)fiscal policy.
D)monetary policy.

Question 61

A political leader suggesting that an economic downturn will be cushioned automatically is referring to

A)Monetary policy
B)Discretionary Fiscal Policy
C)Nondiscretionary Fiscal Policy
D)Tax policy changes

Question 62

A political leader suggesting that an economic downturn will be better dealt with by allowing the built-in stabilizers to work is referring to

A)Monetary policy
B)Discretionary Fiscal Policy
C)Nondiscretionary Fiscal Policy
D)Tax policy changes

Question 63

A political leader suggesting that the country "stay the course" in the face of an economic downturn because things will be potentially made worse if tax and spending policies are adopted, is, by implication suggesting ____ is better.

A)Trade policy
B)Discretionary Fiscal Policy
C)Nondiscretionary Fiscal Policy
D)Regulatory changes

Question 64

A political leader suggesting that an economic downturn will be cushioned by nondiscretionary fiscal policy is referring to

A)Tax policy and spending policy
B)A progressive income tax and a welfare state
C)Interest rates and the money supply
D)Interest rates and tax rates

Question 65

A political leader suggesting that an economic downturn will be better dealt with actively changing tax and spending policies is advocating

A)Monetary policy
B)Discretionary Fiscal Policy
C)Nondiscretionary Fiscal Policy
D)Regulatory changes

Question 66

A political leader suggesting that an economic downturn will be cushioned automatically is referring to the automatic actions resulting from

A)Tax policy and spending policy
B)A progressive income tax and a welfare state
C)Interest rates and the money supply
D)Interest rates and tax rates