Deck 29: Fiscal Policy

Question 1

Disposable income is:

A)total income minus taxes.
B)what consumers base their buying decisions on.
C)the amount consumers have to spend on goods and services.
D)All of these are true.

Answer 1

All of these are true.

Question 2

Rising unemployment and decreased business confidence could be signs that the economy is at the start of a(n):

A)recession.
B)boom.
C)recovery.
D)expansion.

Answer 2

recession.

Question 3

Democrats often argue in favor of what to push the economy toward economic recovery,as they did during the recession that began in 2008?

A)Tax cuts
B)Increase government spending
C)Decrease government spending
D)Encourage the public to save more

Answer 3

Increase government spending

Question 4

According to this book,The American Recovery and Reinvestment Act of 2009:

A)was successful.
B)was unsuccessful.
C)remains hotly debated whether it was successful or not.
D)is known as the most effective legislation ever passed in U.S.history.

Question 5

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

A)aggregate demand to fall,and thus GDP to fall.
B)aggregate demand to rise,and thus GDP to fall.
C)aggregate demand to fall,and thus GDP to rise.
D)aggregate demand to rise,and thus GDP to rise.

Question 6

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

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.

Question 7

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

A)Aggregate demand and aggregate supply
B)Demand and supply
C)Game theory
D)None of these is used to evaluate tax policy.

Question 8

Republicans often argue in favor of what to push the economy toward economic recovery,as they did during the recession that began in 2008?

A)Tax cuts
B)Increase government spending
C)Decrease government spending
D)Encourage the public to save more

Question 9

Consumption depends on:

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

Question 10

The model of aggregate demand and aggregate supply can be used to:

A)discuss the pros and cons of income tax cuts.
B)evaluate a tax cut's effect on short run economic fluctuations.
C)assess a tax cut's effect on longer run issues such as the national debt.
D)All of these are true.

Question 11

An example of fiscal policy would be government:

A)increasing the amount of available educational grants.
B)decreasing the income tax.
C)increasing corporate income taxes.
D)All of these are examples of fiscal policy.

Question 12

Fiscal policy affects aggregate demand:

A)through two channels.
B)directly and indirectly.
C)and can increase or decrease it.
D)All of these are true.

Question 13

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

A)increase government spending.
B)increase income taxes.
C)pressure the Fed to decrease the money supply.
D)Any of these things might cause aggregate demand to shift to the right.

Question 14

The American Recovery and Reinvestment Act of 2009:

A)is more commonly known as the "stimulus plan."
B)cost nearly $800 billion.
C)included tax cuts and increased government spending.
D)All of these are true.

Question 15

Government decisions about the level of taxation and public spending are called:

A)fiscal policy.
B)monetary policy.
C)congressional policy.
D)legislative budgeting policy.

Question 16

Fiscal policy is:

A)government decisions about the level of taxation and public spending.
B)congressional budget office decisions.
C)the decisions that affect the available money supply in the economy.
D)government decisions about the level of the interest rate in the economy.

Question 17

One way fiscal policy affects aggregate demand is:

A)directly through government spending.
B)directly through tariffs.
C)directly through taxation.
D)All of these are true.

Question 18

Fiscal policy most directly affects the economy by increasing or decreasing:

A)aggregate demand.
B)short-run aggregate supply.
C)long-run aggregate supply.
D)the money supply.

Question 19

By 2012,the dollar value of the debt had climbed:

A)past 100 percent of GDP.
B)to just under $800 billion.
C)to just past $500 billion.
D)back down to 40 percent of GDP.

Question 20

If the government were to increase its spending,it would expect:

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

Question 21

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

A)C
B)NX
C)G
D)A change to the income tax rate will not affect any of these components.

Question 22

If the government decreases the income tax rate,then:

A)GDP will decrease.
B)aggregate demand will shift left.
C)aggregate demand will shift right.
D)None of these will happen when income tax decreases.

Question 23

Contractionary fiscal policy is enacted when the overall effect of decisions about taxation and spending is to:

A)reduce aggregate demand.
B)increase aggregate demand.
C)reduce aggregate supply.
D)increase aggregate supply.

Question 24

If the government were to increase taxes,it would be enacting:

A)contractionary fiscal policy.
B)expansionary fiscal policy.
C)a budgetary crisis intervention.
D)expansionary budgetary policy.

Question 25

If the government were to reduce its spending,it would be enacting:

A)contractionary fiscal policy.
B)expansionary fiscal policy.
C)a budgetary crisis intervention.
D)expansionary budgetary policy.

Question 26

Government decreasing taxes is an example of:

A)expansionary fiscal policy.
B)contractionary fiscal policy.
C)expansionary monetary policy.
D)contractionary monetary policy.

Question 27

If the government enacts contractionary fiscal policy,it:

A)must want to slow economic activity.
B)could increase taxes.
C)expects aggregate demand to decrease.
D)All of these are true.

Question 28

If the government increases the income tax rate:

A)disposable income decreases.
B)disposable income increases.
C)disposable income remains unaffected.
D)total income increases.

Question 29

If the government undertakes expansionary fiscal policy,it:

A)could increase income taxes.
B)must want to encourage economic activity.
C)expects aggregate demand to decrease.
D)All of these are true.

Question 30

Economist John Maynard Keynes is famous for saying,"In the long run,we are all dead." He is referring to:

A)the length of time it can take the economy to recover to potential GDP without policy intervention.
B)the permanent inflation that results in long-run adjustments.
C)the fact that no policy can affect the long-run equilibrium.
D)None of these is true.

Question 31

If the fiscal policy makers aim to increase aggregate demand,they will likely enact:

A)expansionary fiscal policy.
B)contractionary fiscal policy.
C)expansionary monetary policy.
D)contractionary monetary policy.

Question 32

We use the term expansionary fiscal policy when the overall effect of decisions about taxation and spending is to:

A)increase aggregate demand.
B)decrease aggregate demand.
C)increase aggregate supply.
D)decrease aggregate supply.

Question 33

If the government enacts contractionary fiscal policy,it could:

A)reduce its spending.
B)increase personal income taxes.
C)increase corporate income taxes.
D)All of these are contractionary.

Question 34

One reason the government enacts fiscal policy instead of waiting for the economy to correct itself is:

A)the automatic adjustment can take a very long time.
B)the automatic adjustment means a lower level of potential GDP.
C)the automatic adjustment will cause permanent inflation.
D)All of these are true.

Question 35

If the government increases the income tax rate,they assume:

A)C will decrease,shifting aggregate demand to the left.
B)C will increase,shifting aggregate demand to the right.
C)I will increase,shifting aggregate demand to the right.
D)G will increase,shifting aggregate demand to the right.

Question 36

If the government increases the income tax rate,consumers:

A)have less to spend and will reduce their consumption.
B)have more to spend and will reduce their consumption.
C)have less to spend and will increase their consumption.
D)have more to spend and will increase their consumption.

Question 37

Economist John Maynard Keynes once said,"In the long run,we are all dead." Keynes was likely:

A)in favor of using fiscal policy.
B)against the use of fiscal policy.
C)in favor of allowing the economy to always correct itself.
D)None of these statements is true.

Question 38

If the government undertakes expansionary fiscal policy,it might:

A)increase income taxes.
B)decrease income taxes.
C)decrease government spending.
D)increase corporate income taxes.

Question 39

Increased government spending is an example of:

A)expansionary fiscal policy.
B)contractionary fiscal policy.
C)expansionary monetary policy.
D)contractionary monetary policy.

Question 40

When fiscal policy makers wish to reduce aggregate demand,they could enact:

A)contractionary fiscal policy.
B)expansionary fiscal policy.
C)contractionary monetary policy.
D)expansionary monetary policy.

Question 41

When an economy is in an economic boom,discretionary fiscal policy would call for _____________,and the automatic stabilizers would _____________.

A)lowering tax rates;lower tax revenues
B)lowering tax revenues;lower tax rates
C)increasing tax rates;increase tax revenues
D)None of these is true.

Question 42

A difficulty with effective fiscal policy is:

A)the reality of time lags.
B)the guess as to what potential GDP is.
C)the lack of relevant information needed to decide the magnitude of change.
D)All of these are true.

Question 43

Discretionary fiscal policy is:

A)fiscal policy that the government actively chooses to adopt.
B)taxes and government spending that affect fiscal policy without specific action from policymakers.
C)fiscal policy that the government enacts only for a short period of time.
D)taxes and government spending that the government actively votes against adoption.

Question 44

Keynesian policy:

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.

Question 45

When an economy is in a recession,discretionary fiscal policy would call for ________,and the automatic stabilizers would ____________.

A)lowering tax rates;lower tax revenues
B)increasing tax rates;increase tax revenues
C)increasing tax revenues;increase tax rates
D)None of these is true.

Question 46

Johnny has been working a lot of overtime during the most current economic boom.As a result,his income is high enough for him to move from the 10 percent tax bracket to the 15 percent tax bracket.So,Johnny pays a higher percentage of a higher income to the government this year.The increased amount paid to the government is an example of:

A)discretionary fiscal policy slowing the economy.
B)automatic stabilizers slowing the economy.
C)discretionary fiscal policy encouraging economic activity.
D)automatic stabilizers encouraging economic activity.

Question 47

The amount of time it takes for fiscal policy to have an impact on the economy creates:

A)an information lag.
B)a formulation lag.
C)an implementation lag.
D)a direction lag.

Question 48

Lags in the policy-making process come from:

A)lack of understanding the current state of the economy.
B)the process of deciding on and passing legislation.
C)the time it takes for policy to have an impact on the economy.
D)All of these are true.

Question 49

Fiscal policy can:

A)have real effects on the economy in the short run.
B)bring the economy to its long run equilibrium faster than it can correct itself.
C)cause inflation.
D)All of these are true.

Question 50

The existing tax rates on income in the United States:

A)act as an automatic stabilizer.
B)curtail spending slightly when incomes rise because people have to pay more in taxes when incomes are high.
C)encourage spending slightly when incomes fall because people pay less in taxes when incomes are low.
D)All of these are true.

Question 51

One of the main difficulties with implementing fiscal policy is:

A)the time lag between the time the policy is chosen and the time it gets enacted.
B)deciding on a policy without all the relevant information.
C)the danger in overshooting or undershooting the goal of full employment.
D)All of these are true.

Question 52

When government decides to use fiscal policy:

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)None of these is true.

Question 53

When output deviates from potential GDP,automatic stabilizers work to push the economy:

A)in the same direction that correctly timed and formulated discretionary policy would.
B)in the opposite direction that correctly timed and formulated discretionary policy would.
C)in unpredictable ways,causing a need for discretionary policy.
D)can bring the economy even further from its long-run equilibrium.

Question 54

Taxes and government spending that affect fiscal policy without specific action from policymakers are called:

A)automatic stabilizers.
B)discretionary fiscal policy.
C)expansionary fiscal policy.
D)contractionary fiscal policy.

Question 55

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

A)an information lag.
B)a formulation lag.
C)an implementation lag.
D)a direction lag.

Question 56

When the government enacts fiscal policy,it:

A)may not always be able to improve matters.
B)might make things worse.
C)can bring the economy to its long-run equilibrium more quickly than it can correct itself.
D)All of these are true.

Question 57

A lack of understanding regarding the current state of the economy creates:

A)an information lag.
B)a formulation lag.
C)an implementation lag.
D)a direction lag.

Question 58

Fiscal policy that the government actively chooses to adopt is called:

A)automatic stabilizing policy.
B)discretionary fiscal policy.
C)monetary policy.
D)contractionary policy.

Question 59

Maude is complaining about how much she pays in taxes now that the economy is finally doing really well.Even though she's in the same tax bracket as she was last year,she's paying $500 more in taxes this year,just because she earned more overtime pay this year.Maude's increased tax payment to the government is an example of:

A)expansionary fiscal policy.
B)contractionary fiscal policy.
C)discretionary fiscal policy.
D)automatic stabilizers.

Question 60

Automatic stabilizers are the:

A)taxes and government spending that affect fiscal policy without specific action from policymakers.
B)fiscal policies that government actively chooses to adopt.
C)expansionary fiscal policies.
D)Keynesian policies.

Question 61

If Ricardian equivalence holds,one way to get the expansionary effects of a tax cut to occur is:

A)pair it with reduced government spending.
B)pair it with increased government spending.
C)to run a campaign inspiring people to buy goods made in the United States.
D)None of these will create the expansionary effects of a tax cut.

Question 62

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

A)likely falls,since more people are working.
B)likely goes up,since wages typically rise during booms.
C)likely stays roughly the same,as government spending in this way is through set criteria and not affected by the business cycle.
D)is usually based on discretionary fiscal policy.

Question 63

Ricardian equivalence predicts:

A)that if governments cut taxes but not spending,people will not change their behavior.
B)if people perceive current tax cuts to mean higher tax payments in the future,the cuts will have little expansionary effect.
C)the consumers need to feel as though they will not have to pay in the future for current spending to make current tax cuts effective expansionary policy.
D)All of these are true.

Question 64

The multiplier effect suggests that:

A)a ripple effect occurs from one person's initial spending.
B)government spending $1 will create more than a $1 increase in GDP.
C)a tax cut will increase GDP by more than the amount of the initial tax cut.
D)All of these are true.

Question 65

The stimulus strategy behind tax cuts will only be effective if Ricardian equivalence:

A)holds,and people increase their spending.
B)holds,and people save more.
C)fails to hold,and people increase their spending.
D)fails to hold,and people save more.

Question 66

The multiplier effect occurs when:

A)spending by one person causes others to spend more too,increasing the impact of the initial spending on the economy.
B)the level of consumer confidence increases more than predicted given a tax cut.
C)increased spending by one or more individuals causes others to react and increase their savings.
D)None of these is true.

Question 67

The multiplier effect suggests that:

A)spending $1 increases GDP by more than $1.
B)spending $1 increases GDP by less than $1.
C)saving $1 increases GDP by more than $1.
D)spending $1 decreases GDP by more than $1.

Question 68

During a severe recession,the government decides to lower its tax rates to give consumers relief,and allow them to pay less in taxes.This is an example of:

A)discretionary fiscal policy.
B)an automatic stabilizer.
C)contractionary fiscal policy.
D)None of these is true.

Question 69

Increased government spending on unemployment insurance during a recession is an example of:

A)an automatic stabilizer.
B)discretionary fiscal policy.
C)expansionary fiscal policy.
D)contractionary fiscal policy.

Question 70

An example of an automatic stabilizer is:

A)increased unemployment rates cause the government to pay out more in unemployment insurance.
B)increased tax revenues due to average incomes going up during a boom.
C)reduced unemployment rates during a boom means more people working,and the government pays less out in food assistance.
D)All of these are examples of automatic stabilizers.

Question 71

In 2008,consumers were mailed a stimulus check in response to the recession.The result showed that Ricardian equivalence:

A)held,as most people spent a substantial share of the money.
B)failed to hold,as most people spent a substantial share of the money.
C)held,as most people saved the money.
D)failed to hold,as most people saved the money.

Question 72

The idea that if governments cut taxes but not spending,people will not change their behavior,and expansionary policy will have little expansionary effect is known as:

A)Ricardian equivalence.
B)Keynesian policy.
C)the invisible hand.
D)Ricardian countenance.

Question 73

When the U.S.economy hits a recession,fiscal policy:

A)automatically becomes expansionary because average tax rates go down and spending on welfare programs goes up.
B)is always discretionary because the government is quick to react to changes in the business cycle.
C)automatically becomes contractionary because average tax rates go up and spending on welfare programs goes down.
D)automatically becomes contractionary because average tax rates go down and spending on welfare programs goes up.

Question 74

In order to accurately capture the multiplier effect,it is important to know:

A)individual's wealth.
B)what proportion of their income people spend.
C)what people's expectations of the future are.
D)Real GDP.

Question 75

In a booming economy,fiscal policy automatically becomes:

A)contractionary as tax rates rise and welfare payments fall.
B)expansionary as tax rates rise and welfare payments fall.
C)contractionary as tax rates fall and welfare payments rise.
D)expansionary as tax rates fall and welfare payments rise.

Question 76

The multiplier:

A)measures the effect of government spending or tax cuts on national income.
B)measures the number of times each dollar is spent in the economy.
C)measures the supply of money in the economy.
D)measures the effect of household spending on national income.

Question 77

Ricardian equivalence will fail to hold if:

A)people increase their spending when they receive a tax rebate check.
B)people save,and do not increase their spending when they receive a tax rebate check.
C)intended expansionary effects of tax policy fail to occur.
D)None of these is true.

Question 78

The effect of government spending or tax cuts on national income is measured by the:

A)multiplier.
B)substractor.
C)aggregator.
D)divisor.

Question 79

In a booming economy,discretionary fiscal policy:

A)can be added to the automatic contractionary effects of policies already in place.
B)often act 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.

Question 80

With the economy booming,the government starts to worry about the increasing rate of inflation,and decides to cut its spending on highway maintenance and defer it to sometime in the future.This is an example of:

A)an automatic stabilizer.
B)discretionary fiscal policy.
C)expansionary fiscal policy.
D)None of these is true.