Question 1

The effectiveness lag is the time between

Accepted Answer

The effectiveness lag refers to the time it takes for a policy to have an impact after it has been implemented. This lag can be influenced by a variety of factors, such as the complexity of the policy and the time required for changes to take effect.

Question 2

When a decrease in one or more components of private spending completely offsets an increase in government spending, there is

Accepted Answer

When an increase in government spending leads to a decrease in one or more components of private spending that completely offset the increase, it is known as complete crowding out. In this scenario, the net effect of the increase in government spending is zero as it is completely offset by the decrease in private spending. This is often seen as a limitation to the effectiveness of fiscal policy in stimulating economic growth.

Question 3

An example of expansionary fiscal policy is

Accepted Answer

Expansionary fiscal policy aims to stimulate economic growth and increase aggregate demand. One way to achieve this is by increasing government spending, which can create jobs and increase demand for goods and services in the economy. Another way is by decreasing taxes, which can increase disposable income and incentivize consumer spending. Therefore, the correct choice is C, as it includes both an increase in government spending and a decrease in taxes.

Question 4

The Laffer curve makes the point that cutting a very high marginal tax rate can __________ the tax base enough so that tax revenues __________.

Accepted Answer

The Laffer curve illustrates that reducing a very high marginal tax rate can expand the tax base enough to increase overall tax revenues, as people are incentivized to work more or declare more income.

Question 5

The Laffer curve illustrates that

Accepted Answer

The Laffer curve illustrates that there are two tax rates at which zero tax revenues are raised (a 0% rate and a 100% rate), that a decrease in tax rates can cause an increase in tax revenues (if the initial rate is on the decreasing side of the curve), that an increase in tax rates can cause an increase in tax revenues (if the initial rate is on the increasing side of the curve), and that an increase in tax rates can cause a decrease in tax revenues (if the initial rate is on the decreasing side of the curve).

Question 6

An example of expansionary fiscal policy is

Accepted Answer

Expansionary fiscal policy involves measures to stimulate the economy, which include increasing government expenditures and decreasing taxes to boost aggregate demand.

Question 7

The transmission lag is the time between

Accepted Answer

The answer of The transmission lag is the time between
...

Question 8

To eliminate a recessionary gap, Keynesian theory indicates that government should

Accepted Answer

To eliminate a recessionary gap, Keynesian theory suggests that the government should either decrease taxes (to increase disposable income and thus consumption) or increase government purchases (to directly stimulate demand). Both actions are designed to increase aggregate demand, which can help bring the economy out of a recession.

Question 9

The data lag is the time between

Accepted Answer

The answer of The data lag is the time between
...

Question 10

An example of contractionary fiscal policy is

Accepted Answer

Contractionary fiscal policy involves decreasing government expenditures and/or increasing taxes in order to decrease aggregate demand and control inflation. Choice D is the only option that involves both a decrease in government expenditures and an increase in taxes.

Question 11

Keynesians

Accepted Answer

Keynesians believe in the use of fiscal policy to stabilize the economy and also believe that equilibrium may exist at less than full employment. They do not advocate for a laissez-faire approach.

Question 12

A permanent marginal tax decrease is likely to

Accepted Answer

A permanent marginal tax decrease will increase the incentives for individuals and firms to work and invest, leading to an increase in aggregate supply. This will shift both the short-run and the long-run aggregate supply curves to the right. The shift will be larger in the long run, as firms can increase their productive capacity over time. Therefore, choice D is the best option.

Question 13

Some economists believe that permanently lower marginal income tax rates __________ the incentive to work and thus shift the __________.

Accepted Answer

Permanently lower marginal income tax rates increase the incentive to work, which can lead to an increase in the potential output of an economy. This is represented by a shift of the Long-Run Aggregate Supply (LRAS) curve to the right, as it reflects a change in the productive capacity of the economy.

Question 14

Complete crowding out implies that as government increases purchases by $1,

Accepted Answer

Complete crowding out occurs when an increase in government spending leads to an equal decrease in private spending, leaving the overall level of Real GDP unchanged. This means that for every dollar the government spends, there is a dollar less spent by the private sector, which includes households, businesses, and investors. This scenario encompasses all the elements described in options A, B, and C.

Question 15

If an economist recommends that the government reduce the tax rate in order to increase tax revenues (based on the Laffer curve), she is implicitly assuming that the economy is currently operating at a point

Accepted Answer

The Laffer curve illustrates the relationship between tax rates and tax revenue, suggesting that there is an optimal tax rate that maximizes revenue. If reducing tax rates is recommended to increase revenue, it implies the economy is on the downward-sloping portion of the curve, where higher tax rates lead to lower total revenue.

Question 16

If there is complete crowding out, the change in Real GDP that results from a given change in autonomous spending will be

Accepted Answer

Complete crowding out occurs when an increase in government spending is fully offset by a decrease in private spending, resulting in no net change in total spending or real GDP. Therefore, the change in real GDP from a given change in autonomous spending would be zero.

Question 17

An example of contractionary fiscal policy is

Accepted Answer

Contractionary fiscal policy aims to reduce inflation and slow down the economy. It includes increasing taxes (B) to reduce consumer spending and decreasing government spending (C) to reduce the fiscal deficit and slow economic growth.

Question 18

Suppose that in a certain nation the flat income tax rate of 40 percent is reduced to 35 percent and as a result the tax base rises from $400 billion to $600 billion. As a result, ax revenues __________, indicating the nation is on the __________ portion of its Laffer curve.

Accepted Answer

The answer of Suppose that in a certain nation the...

Question 19

To eliminate an inflationary gap, Keynesian theory indicates that government should

Accepted Answer

To eliminate an inflationary gap, Keynesian theory suggests that the government should either increase taxes or decrease government purchases. Both actions would reduce the aggregate demand in the economy, helping to control inflation.

Question 20

Some economists believe that higher marginal income tax rates __________ the incentive to work and thus shift the __________.

Accepted Answer

The answer of Some economists believe that higher marginal income...

Quiz 11: Fiscal Policy and the Federal Budget

The effectiveness lag is the time between

When a decrease in one or more components of private spending completely offsets an increase in government spending, there is

An example of expansionary fiscal policy is

The Laffer curve makes the point that cutting a very high marginal tax rate can the tax base enough so that tax revenues .

The Laffer curve illustrates that

An example of expansionary fiscal policy is

The transmission lag is the time between

To eliminate a recessionary gap, Keynesian theory indicates that government should

The data lag is the time between

An example of contractionary fiscal policy is

Keynesians

A permanent marginal tax decrease is likely to

Some economists believe that permanently lower marginal income tax rates the incentive to work and thus shift the .

Complete crowding out implies that as government increases purchases by $1,

If an economist recommends that the government reduce the tax rate in order to increase tax revenues (based on the Laffer curve) , she is implicitly assuming that the economy is currently operating at a point

If there is complete crowding out, the change in Real GDP that results from a given change in autonomous spending will be

An example of contractionary fiscal policy is

Suppose that in a certain nation the flat income tax rate of 40 percent is reduced to 35 percent and as a result the tax base rises from $400 billion to $600 billion. As a result, ax revenues , indicating the nation is on the portion of its Laffer curve.

To eliminate an inflationary gap, Keynesian theory indicates that government should

Some economists believe that higher marginal income tax rates the incentive to work and thus shift the .