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Week 6 - Quiz Review
Test Description: This should help you review for the Week 6 In-Class Quiz.
Instructions: Answer all questions to get your test result.
1) When changes to taxes and spending occur in the economy without explicit action by the Federal government, such policy is:
A
Discretionary
B
Nondiscretionary
C
Cyclical
D
Variable
2) Discretionary fiscal policy refers to:
A
changes in taxes and government expenditures made by Congress to stabilize the economy.
B
changes in taxes and transfers that occur as GDP changes.
C
the authority that the President has to change personal income tax rates.
D
any change in government spending or taxes that destabilizes the economy.
3) Fiscal policy refers to the:
A
altering of the interest rate to change aggregate demand.
B
manipulation of government spending and taxes to achieve greater equality in the distribution of income.
C
fact that equal increases in government spending and taxation will be contractionary.
D
manipulation of government spending and taxes to stabilize domestic output, employment, and the price level.
4) Which are contractionary fiscal policies?
A
Decreased taxation and no change in government spending
B
Increased taxation and increased government spending
C
Increased taxation and decreased government spending
D
No change in taxation and increased government spending
5) Expansionary fiscal policy is so named because it:
A
is aimed at achieving greater price stability.
B
involves an expansion of the nation's money supply.
C
necessarily expands the size of government.
D
is designed to expand real GDP.
6) Contractionary fiscal policy is so named because it:
A
necessarily reduces the size of government.
B
is aimed at reducing aggregate demand and thus achieving price stability.
C
is expressly designed to contract real GDP.
D
involves a contraction of the nation's money supply.
7) In an aggregate demand and aggregate supply graph, an expansionary fiscal policy can be illustrated by a:
A
Leftward shift in the aggregate demand curve
B
Change in the price level
C
Leftward shift in the aggregate supply curve
D
Rightward shift in the aggregate demand curve
8) Which combination of fiscal policy actions would be most stimulative for an economy in a deep recession?
A
Increase taxes and government spending
B
Decrease taxes and increase government spending
C
Increase taxes and decrease government spending
D
Decrease taxes and government spending
9) As the economy declines, the collection of personal income tax revenues automatically falls. This relationship best describes how the progressive income tax system:
A
Provides built-in stability for the economy
B
Decreases real interest rates in the economy
C
Offsets the timing problem for fiscal policy
D
Increases crowding out in the economy
10) Which is an example of an automatic stabilizer? As real GDP decreases, income tax revenues:
A
And transfer payments increase
B
And transfer payments decrease
C
Increase and transfer payments decrease
D
Decrease and transfer payments increase
11) Automatic stabilizers smooth fluctuations in the economy because they produce changes in government's deficit that:
A
Produce a standardized budget
B
Help offset changes in GDP
C
Reinforce changes in GDP
D
Produce a cyclically-adjusted budget
12) One advantage of automatic fiscal policy over discretionary fiscal policy is that automatic fiscal policy:
A
Is not subject to the timing problems of discretionary policy
B
Does not produce a cyclical deficit as discretionary policy does
C
Has a greater multiplier effect than discretionary policy
D
Makes the actual budget a better reflection of the condition of the economy than the standardized budget
13) Which is regarded as an automatic stabilizer in the economy?
A
The progressive income tax
B
Exchange rates
C
The inflation rate
D
Interest rates
14) One timing problem with fiscal policy to counter a recession is a recognition lag that occurs between the:
A
Time the need for the fiscal action is recognized and the time that the action is taken
B
Time fiscal action is taken and the time that the action has its effect on the economy
C
End of the recession and the time it takes to recognize that the recession has ended
D
Start of the recession and the time it takes to recognize that the recession has started
15) One timing problem with fiscal policy to counter a recession is an administrative lag that occurs between the:
A
Time the need for the fiscal action is recognized and the time that the action is taken
B
Time fiscal action is taken and the time that the action has its effect on the economy
C
Start of the recession and the time it takes to recognize that the recession has started
D
End of the recession and the time it takes to recognize that the recession has ended
16) The crowding-out effect works through interest rates to:
A
Decrease the effectiveness of contractionary fiscal policy
B
Increase the effectiveness of expansionary fiscal policy
C
Increase the effectiveness of contractionary fiscal policy
D
Decrease the effectiveness of expansionary fiscal policy
17) A Federal budget deficit exists when:
A
Federal government taxation is decreasing
B
Federal government assets are less than liabilities
C
Federal government spending exceeds tax revenues
D
Federal government spending is increasing
18) A budget surplus means that:
A
Government expenditures are falling and government revenues are rising
B
Government revenues are greater than expenditures in a given year
C
Government revenues are greater than expenditures throughout time
D
Government expenditures are greater than revenues in a given year
19) A person states that: A large public debt will bankrupt the United States government. An economist is likely to respond:
A
Yes, because a large public debt means that the United States government will not be able to meet its financial obligations
B
No, because the government can refinance the public debt by selling new bonds
C
No, because most of the public debt is held by foreign nations
D
Yes, because this public debt will reduce our ability to borrow the necessary funds from foreign nations
20) Which is an important consequence of the public debt of the United States?
A
It leads to fewer incentives to bear risk and innovate
B
It transfers a portion of output from foreign nations to the U.S
C
It decreases the inequality in the distribution of income in the U.S
D
It will threaten to bankrupt the Federal government
*select an answer for all questions
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