Question 1

In the _______ range of the aggregate supply curve, expansionary fiscal policy that causes aggregate ______ to increase will lead to a higher price level and a higher equilibrium level of real GDP.

Accepted Answer

In the intermediate range of the aggregate supply curve, expansionary fiscal policy that causes aggregate demand to increase will result in both a higher price level and a higher equilibrium level of real GDP. This is because in this range, there is still some idle capacity in the economy that can be used to produce more output in response to increased demand, but as output approaches potential GDP, firms may start to experience cost pressures and increase their prices. This is why it's called the "intermediate" range - it represents a transitional period where the economy is starting to move towards full capacity but is not quite there yet.

Question 2

An expansionary fiscal policy may include:

Accepted Answer

An expansionary fiscal policy involves measures to stimulate the economy by increasing government spending, transfer payments and reducing taxes to increase aggregate demand. Therefore, all the options A, B, and C are correct.

Question 3

Which of the following statements is true ?

Accepted Answer

Discretionary fiscal policy involves intentional changes in government spending and taxes to stabilize the economy. The other statements are not true. A is describing monetary policy, C describes the spending multiplier, and D defines a budget surplus, not a deficit.

Question 4

If the marginal propensity to consume (MPC) is 0.75, and if policy makers wish to increase real GDP by $300 million, then by how much would they have to change taxes?

Accepted Answer

The answer of If the marginal propensity to consume (MPC)...

Question 5

Contractionary fiscal policy is deliberate government action to influence aggregate demand and the level of real GDP through:

Accepted Answer

Contractionary fiscal policy involves decreasing government spending or increasing taxes in order to reduce aggregate demand and control inflation. By taking these actions, the government decreases the amount of disposable income available to people and businesses, which can lead to a decrease in consumption and investment spending. This can ultimately lead to a decrease in real GDP growth, but it can also help to control inflation and prevent the economy from overheating.

Question 6

The government is pursuing an expansionary policy if it:

Accepted Answer

An expansionary policy involves increasing government spending and/or reducing taxes to stimulate economic growth and boost aggregate demand. Option D is the only choice that includes these actions. The other options either involve contractionary policies or a mix of expansionary and contractionary policies.

Question 7

Which of the following is an example of expansionary fiscal policy?

Accepted Answer

Expansionary fiscal policy involves increasing government spending to stimulate economic activity and encourage growth.

Question 8

Fiscal policy is concerned with:

Accepted Answer

Fiscal policy involves the government's decisions regarding changes in spending and/or tax revenues in order to influence the economy. The goal is to either stimulate economic growth or slow it down in response to various economic conditions. A is incorrect because that is a goal of monetary policy, not fiscal policy. B and D are also incorrect because they are not direct concerns of fiscal policy.

Question 9

Suppose that the economy is operating in full-employment equilibrium along the vertical section of the aggregate supply curve. If the aggregate demand curve is reduced by $100 billion in order for the price level to decline by 5 percent, and if the marginal propensity to consume (MPC) is 0.75, then what change in taxes would generate the desired price reduction?

Accepted Answer

Since the economy is operating at full-employment equilibrium along the vertical section of the aggregate supply curve, output is fixed and any changes in demand will only affect the price level. Therefore, a decrease in aggregate demand by $100 billion will result in a 5% decrease in the price level.

The MPC of 0.75 indicates that for every $1 decrease in taxes, consumption spending will increase by $0.75. To achieve the desired $100 billion decrease in aggregate demand, we need to use the following formula:

Change in Taxes = (Desired Change in Aggregate Demand) / MPC

= $100 billion / 0.75

= $133.3 billion

However, we are looking for the change in taxes needed to achieve a 5% decrease in the price level, which is smaller than the desired $100 billion decrease in aggregate demand. This means that we need a smaller change in taxes than the calculated $133.3 billion.

To find the exact change in taxes needed, we can use the following formula:

Change in Price Level = (Change in Aggregate Demand / Aggregate Demand) x (1 / Marginal Propensity to Consume)

-5% = (-$100 billion / Aggregate Demand) x (1 / 0.75)

Aggregate Demand = $2 trillion

The initial level of aggregate demand is $2 trillion, and we need to decrease it by $100 billion to achieve the desired 5% decrease in the price level. Therefore, the new level of aggregate demand is $1.9 trillion.

To find the change in taxes needed, we can use the formula:

Change in Taxes = (Change in Aggregate Demand) / MPC

= ($1.9 trillion - $2 trillion) / 0.75

= -$133.3 billion / 0.75

= -$177.3 billion

However, this answer is in terms of a decrease in taxes, and we are looking for the absolute value of the change in taxes. Therefore, the answer is:

Answer: C

The change in taxes needed to achieve the desired 5% decrease in the price level is -$33.3 billion.

Question 10

If the spending multiplier is 3 and the desired amount of increase in real GDP is $90 million, then by how much would government spending have to increase? ​

Accepted Answer

The spending multiplier formula is 1/(1-MPC) or simply the multiplier itself in this context. To find the increase in government spending needed to achieve a certain increase in GDP, divide the desired increase in GDP by the multiplier. Here, $90 million / 3 = $30 million.

Question 11

The Keynesian analysis of fiscal policy argues that:

Accepted Answer

The Keynesian analysis of fiscal policy argues that the federal budget should be used to maintain aggregate demand at a level consistent with full employment. This means that fiscal policy should be used to stimulate the economy during periods of economic recession and to restrain the economy during inflationary booms. The idea is to use government spending and taxation policies to stabilize the economy and promote long-term economic growth. The Keynesian approach supports deficit spending during recessions, as long as the budget is balanced over the economic cycle.

Question 12

When the federal government is running a budget deficit:

Accepted Answer

When the federal government is running a budget deficit, it means that government expenditures exceed government tax revenues. This leads to an increase in the national debt as the government borrows money to finance its deficit spending. The economy may or may not be in a recession during this time.

Question 13

If the marginal propensity to consume (MPC) is 0.75 and if policy makers wish   to increase real GDP by $300 million to fight a recession, then by how much would taxes have to change?​

Accepted Answer

The spending multiplier (1/MPC) can be used to determine how much the government would need to change taxes to achieve a desired increase in real GDP. In this case, the spending multiplier would be 1/0.75 = 1.33. To increase GDP by $300 million, taxes would need to change by -$300 million/1.33 = -$225 million. Therefore, the closest answer choice is answer choice C, which is -$100 million.

Question 14

A balanced budget is present when:

Accepted Answer

A balanced budget exists when government revenues (taxes) equate to government expenditures. This implies that a government is not running a deficit, but rather has sufficient revenues to cover its spending commitments.

Question 15

Suppose the economy is on the classical range of the aggregate supply curve and has a problem with inflation. According to Keynesian theory, which of the following is an appropriate discretionary fiscal policy to use in this situation?

Accepted Answer

According to Keynesian theory, when the economy is on the classical range of the aggregate supply curve and facing inflationary pressures, the appropriate discretionary fiscal policy is to increase taxes. This is because higher taxes reduce disposable income, which in turn leads to a decrease in aggregate demand and helps to reduce inflationary pressures. A reduction in the money supply would be a monetary policy, not a fiscal policy, and it may not be effective in the short run. Less government regulation and an increase in federal spending may aggravate inflationary pressures, rather than reduce them.

Question 16

If the marginal propensity to consume (MPC) is 0.75, and if the goal is to increase real GDP by $400 million, then by how much would government spending have to change to generate this increase in real GDP?

Accepted Answer

The answer of If the marginal propensity to consume (MPC)...

Question 17

Fiscal policy is government action to influence aggregate demand and in turn to influence the level of real GDP and the price level, through:

Accepted Answer

Fiscal policy involves changes in government spending and/or tax revenues in order to influence aggregate demand. This can be seen in the form of increased government spending on infrastructure projects or tax cuts to stimulate consumer spending. By increasing aggregate demand, fiscal policy can positively impact real GDP and the price level. The other options listed (expanding and contracting the money supply, regulation of net exports, and encouraging businesses to invest) are related to other economic policies such as monetary policy and trade policy.

Question 18

Changes in government spending and/or taxes as the result of legislation, is called:

Accepted Answer

Discretionary fiscal policy involves deliberate changes in government spending and/or taxes as the result of legislation. Open market operations refer to the buying and selling of government securities by the Federal Reserve, while discretionary monetary policy involves changes in the money supply and interest rates. Balanced budget operations refer to a budget in which government spending equals tax revenue.

Question 19

A government spending and taxation policy to achieve macroeconomic goals is known as:

Accepted Answer

Fiscal policy involves using government spending and taxation to achieve macroeconomic goals such as stabilizing the economy, reducing unemployment, and controlling inflation. Countercyclical policy refers to using government intervention to counteract economic fluctuations, and fiscal policy can be countercyclical in nature. Monetary policy involves manipulating interest rates and the money supply to achieve economic goals. A balanced budget refers to a situation where government spending equals government revenue, but it does not necessarily reflect a macroeconomic policy goal.

Question 20

Expansionary fiscal policy consists of:

Accepted Answer

Expansionary fiscal policy involves increasing government spending in order to stimulate economic growth and combat recession. Options B, C and D are not expansionary fiscal policies because they involve either reducing government spending or increasing taxes, which tend to slow down economic growth.

Quiz 15: Fiscal Policy

In the _ range of the aggregate supply curve, expansionary fiscal policy that causes aggregate to increase will lead to a higher price level and a higher equilibrium level of real GDP.

An expansionary fiscal policy may include:

Which of the following statements is true ?

If the marginal propensity to consume (MPC) is 0.75, and if policy makers wish to increase real GDP by $300 million, then by how much would they have to change taxes?

Contractionary fiscal policy is deliberate government action to influence aggregate demand and the level of real GDP through:

The government is pursuing an expansionary policy if it:

Which of the following is an example of expansionary fiscal policy?

Fiscal policy is concerned with:

If the spending multiplier is 3 and the desired amount of increase in real GDP is $90 million, then by how much would government spending have to increase?

The Keynesian analysis of fiscal policy argues that:

When the federal government is running a budget deficit:

If the marginal propensity to consume (MPC) is 0.75 and if policy makers wish to increase real GDP by $300 million to fight a recession, then by how much would taxes have to change?

A balanced budget is present when:

Suppose the economy is on the classical range of the aggregate supply curve and has a problem with inflation. According to Keynesian theory, which of the following is an appropriate discretionary fiscal policy to use in this situation?

If the marginal propensity to consume (MPC) is 0.75, and if the goal is to increase real GDP by $400 million, then by how much would government spending have to change to generate this increase in real GDP?

Fiscal policy is government action to influence aggregate demand and in turn to influence the level of real GDP and the price level, through:

Changes in government spending and/or taxes as the result of legislation, is called:

A government spending and taxation policy to achieve macroeconomic goals is known as:

Expansionary fiscal policy consists of:

Quiz 15: Fiscal Policy

In the _______ range of the aggregate supply curve, expansionary fiscal policy that causes aggregate ______ to increase will lead to a higher price level and a higher equilibrium level of real GDP.

An expansionary fiscal policy may include:

Which of the following statements is true ?

If the marginal propensity to consume (MPC) is 0.75, and if policy makers wish to increase real GDP by $300 million, then by how much would they have to change taxes?

Contractionary fiscal policy is deliberate government action to influence aggregate demand and the level of real GDP through:

The government is pursuing an expansionary policy if it:

Which of the following is an example of expansionary fiscal policy?

Fiscal policy is concerned with:

If the spending multiplier is 3 and the desired amount of increase in real GDP is $90 million, then by how much would government spending have to increase? ​

The Keynesian analysis of fiscal policy argues that:

When the federal government is running a budget deficit:

If the marginal propensity to consume (MPC) is 0.75 and if policy makers wish to increase real GDP by $300 million to fight a recession, then by how much would taxes have to change?​

A balanced budget is present when:

Suppose the economy is on the classical range of the aggregate supply curve and has a problem with inflation. According to Keynesian theory, which of the following is an appropriate discretionary fiscal policy to use in this situation?

If the marginal propensity to consume (MPC) is 0.75, and if the goal is to increase real GDP by $400 million, then by how much would government spending have to change to generate this increase in real GDP?

Fiscal policy is government action to influence aggregate demand and in turn to influence the level of real GDP and the price level, through:

Changes in government spending and/or taxes as the result of legislation, is called:

A government spending and taxation policy to achieve macroeconomic goals is known as:

Expansionary fiscal policy consists of:

In the _ range of the aggregate supply curve, expansionary fiscal policy that causes aggregate to increase will lead to a higher price level and a higher equilibrium level of real GDP.

If the spending multiplier is 3 and the desired amount of increase in real GDP is $90 million, then by how much would government spending have to increase?

If the marginal propensity to consume (MPC) is 0.75 and if policy makers wish to increase real GDP by $300 million to fight a recession, then by how much would taxes have to change?