Question 1

A cut in the income tax rate _{--------------------}the tax wedge and employment, saving, and_{--------------------} investment.

Accepted Answer

A cut in the income tax rate decreases the tax wedge, which can lead to increased employment, saving, and investment by making work and investment more attractive.

Question 2

In order to reduce inflationary pressure on the economy, what fiscal policy can the government use?

Accepted Answer

Raising taxes can reduce consumer spending and decrease aggregate demand, which can help to reduce inflationary pressures in the economy.

Question 3

A tax cut that increases the budget deficit results in_{--------------------}in the _{--------------------} loanable funds.

Accepted Answer

A tax cut that increases the budget deficit typically leads to an increase in the demand for loanable funds, as the government needs to borrow more to finance the deficit.

Question 4

The last U.S. president to be in office when the government had a budget surplus was

Accepted Answer

Bill Clinton was the last U.S. president to preside over a budget surplus, which occurred in the late 1990s.

Question 5

- The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. In the figure above, the_{--------------------}gap is equal to_{--------------------}

Accepted Answer

The recessionary gap is the difference between potential GDP and actual GDP when actual GDP is less than potential GDP. The gap is $1 trillion.

Question 6

Ignoring any supply-side effects, when taxes are hiked, real GDP_{--------------------} and the price level_{--------------------} .

Accepted Answer

When taxes are increased, disposable income decreases, leading to a reduction in consumer spending and aggregate demand, which typically causes real GDP to decrease and the price level to fall.

Question 7

Which of the following is a limitation of discretionary fiscal policy?
I. law-making lags
Ii. estimating potential GDP
Iii. income gap

Accepted Answer

Discretionary fiscal policy is limited by law-making lags, as it takes time for policymakers to enact changes, and by the difficulty in accurately estimating potential GDP, which can lead to inappropriate policy measures.

Question 8

Which of the following is an example of an automatic fiscal policy action?

Accepted Answer

Automatic fiscal policy actions are those that occur without new government intervention, such as increased unemployment benefits that automatically rise when unemployment increases.

Question 9

The balanced budget multiplier is

Accepted Answer

The balanced budget multiplier is positive because an increase in government spending has a larger impact on aggregate demand than an equivalent increase in taxes, due to the direct injection of spending into the economy.

Question 10

Discretionary fiscal policy is defined as fiscal policy

Accepted Answer

Discretionary fiscal policy involves deliberate changes in government spending or taxation initiated by legislative action, typically through an act of Congress.

Question 11

In a recession, needs-tested spending_{--------------------}and induced taxes_{--------------------}

Accepted Answer

In a recession, needs-tested spending increases because more people qualify for assistance programs, while induced taxes decrease due to lower incomes and reduced economic activity.

Question 12

When the government's expenditures exceed its tax revenues, the budget

Accepted Answer

When the government's expenditures exceed its tax revenues, it results in a budget deficit, which typically leads to an increase in the national debt as the government borrows money to cover the shortfall.

Question 13

The quantity of employment is determined in the_{--------------------} market and that quantity, along with the _{--------------------}, determines potential GDP

Accepted Answer

The quantity of employment is determined in the labor market, and this quantity, along with the production function, determines potential GDP.

Question 14

Mainstream economists believe that Keynesian economists overstate the effect of the multiplier effect. Which of the following statements would mainstream economists NOT consider to be accurate?

Accepted Answer

Mainstream economists often argue that the multiplier effect is overstated by Keynesians and that fiscal stimulus may not be as effective as claimed. They would not agree with the statement that fiscal stimulus is a vital tool due to the multiplier effect, as they believe its impact is limited.

Question 15

If we compare the United States to France, the U.S. tax wedge is_{--------------------}the French tax wedge.

Accepted Answer

The U.S. tax wedge is generally smaller than the French tax wedge due to lower overall tax rates and social security contributions in the United States compared to France.

Question 16

The government expenditure multiplier and the tax multiplier are

Accepted Answer

The government expenditure multiplier is larger because it directly affects aggregate demand, while the tax multiplier is smaller as it indirectly affects demand through changes in disposable income.

Question 17

Discretionary fiscal policy is a fiscal policy action, such as

Accepted Answer

Discretionary fiscal policy involves deliberate actions by the government, such as a tax cut initiated by an act of Congress, to influence the economy.

Question 18

- According to the figure above, if there is no income tax, the equilibrium real wage rate is and the equilibrium hours of labor are_{--------------------} .

Accepted Answer

The equilibrium real wage rate and hours of labor are determined where the labor supply and demand curves intersect. The figure indicates this intersection at a real wage rate of $30 and 250 billion hours of labor.

Question 19

If we compare the United States to France, we see that potential GDP per person in France is_{--------------------} that in the United States because the French tax wedge is _{--------------------} the U.S. tax wedge.

Accepted Answer

Potential GDP per person in France is less than that in the United States because the French tax wedge is larger than the U.S. tax wedge, which can discourage labor participation and investment, leading to lower potential GDP.

Question 20

The government expenditure multiplier is used to determine the

Accepted Answer

The government expenditure multiplier measures the change in aggregate demand resulting from a change in government spending.

Quiz 16: Fiscal Policy

A cut in the income tax rate --------------------the tax wedge and employment, saving, and-------------------- investment.

In order to reduce inflationary pressure on the economy, what fiscal policy can the government use?

A tax cut that increases the budget deficit results in--------------------in the -------------------- loanable funds.

The last U.S. president to be in office when the government had a budget surplus was

- The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. In the figure above, the--------------------gap is equal to--------------------

Ignoring any supply-side effects, when taxes are hiked, real GDP-------------------- and the price level-------------------- .

Which of the following is a limitation of discretionary fiscal policy? I. law-making lags Ii. estimating potential GDP Iii. income gap