Question 1

At the beginning of the Vietnam War, increased military spending in the United States decreased unemployment.

Accepted Answer

The increased military spending during the Vietnam War led to the creation of new jobs in the defense industry, which decreased unemployment rates in the United States.

Question 2

In 2003, the Bush administration revised the tax bill to include provisions to

Accepted Answer

The Bush administration revised the tax bill in 2003 to lower taxes on dividends, implementing a maximum rate of 15% on qualified dividends. This provision was intended to encourage stock ownership and boost the economy.

Question 3

The federal deficit _______ in 2006 and 2007, and _______ in 2008.

Accepted Answer

The word "and" implies that there are two separate parts to this statement. The first part indicates that the deficit decreased in both 2006 and 2007, which rules out answer choices B and D. The second part indicates that the deficit increased in 2008, which rules out answer choice A. Therefore, the best choice is C - decreased in 2006 and 2007, and increased in 2008.

Question 4

An estimate of a householdʹs long-run average income is called permanent income.

Accepted Answer

Permanent income is an estimate of a household's expected long-run average income, taking into account both current income and expected future income.

Question 5

The prospect of future deficits

Accepted Answer

The prospect of future deficits limits the ability of the government to conduct fiscal policy in the near future because it may make markets and investors hesitant to invest in government debt or may increase interest rates, making it more expensive for the government to borrow money. As a result, the government may need to focus on reducing the deficit rather than enacting expansionary fiscal policies or increasing discretionary spending. Eliminating all entitlement spending is unlikely and unrealistic as many entitlement programs are considered essential by a large portion of the population.

Question 6

Temporary tax cuts tend to stimulate consumer spending at the same rate as permanent tax cuts.

Accepted Answer

Temporary tax cuts may not stimulate consumer spending at the same rate as permanent tax cuts because consumers may anticipate that the tax cuts will expire soon and may be hesitant to increase their spending. Additionally, the uncertainty surrounding temporary tax cuts may lead to businesses and investors delaying investments and hiring decisions, which could offset any potential positive impact on consumer spending.

Question 7

Recall the Application about the effectiveness of the Obama stimulus package on economic recovery to
answer the following question(s).
-According to the Application, the Council of Economic Advisers used three different ways to evaluate the effectiveness of the stimulus package. These included all of the following EXCEPT

Accepted Answer

The Council of Economic Advisers did not use standard economic methods to measure the effectiveness of tax increases and spending increases on unemployment and deflation, as the stimulus package focused on tax cuts and spending increases, not tax increases.

Question 8

Consumers often base their spending on their estimated permanent income.

Accepted Answer

This is true. Consumers tend to make spending decisions based on their expected long-term or permanent income rather than their temporary or fluctuating income. This is because they want to maintain a certain standard of living and avoid overextending their finances.

Question 9

Recall the Application about the effectiveness of the Obama stimulus package on economic recovery to
answer the following question(s).
-According to this Application, the Council of Economic Advisers estimated that the stimulus package

Accepted Answer

The Council of Economic Advisers estimated that the stimulus package avoided the loss of about 1 million jobs by August 2009.

Question 10

The tax cuts of 2008 were valued at approximately one percent of GDP.

Accepted Answer

The tax cuts of 2008 were part of the Economic Stimulus Act and were valued at approximately $152 billion, which was approximately one percent of GDP at the time.

Question 11

President George W. Bush used part of the budget surplus inherited from the Clinton administration to

Accepted Answer

President George W. Bush used part of the budget surplus to fund tax cuts and stimulate the economy, which was slowing down after the end of the high-tech investment boom.

Question 12

Recall the Application about the effectiveness of the Obama stimulus package on economic recovery to
answer the following question(s).
-The Obama stimulus package included fiscal policy actions designed to assist the economy in its recovery from recession. These fiscal policy actions would include _______ government spending and _______ taxes.

Accepted Answer

The Obama stimulus package aimed to boost economic recovery by increasing government spending and decreasing taxes to stimulate demand and economic activity.

Question 13

Recall the Application about the effectiveness of the Obama stimulus package on economic recovery to
answer the following question(s).
-The Obama stimulus package was implemented to assist the economy in its recovery from recession. This package was designed to shift

Accepted Answer

The Obama stimulus package was designed to shift aggregate demand to the right by increasing government spending and cutting taxes, which would increase consumer and business spending, and ultimately lead to an increase in economic activity and output.

Quiz 15: Fiscal Policy