Principles of Economics: Fiscal Policy Flashcards


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1

According to Keynesian theory:
a. fiscal policy can be used to move the economy toward Natural Real GDP
b. to close a recessionary gap, contractionary fiscal policy should be used
c. to close an inflationary gap, expansionary fiscal policy should be used
d. All of the above

a.

2

Which of the following would be expansionary fiscal policy?
a. an increases in taxation
b. an increase in government expenditures
c. an increase in the money supply
d. All of the above

b.

3

According to Keynesian theory, during a recessionary gap the government's budget:
a. should be balanced
b. should be in deficit
c. should be in surplus

b.

4

A decrease in government expenditures:
a. would tend to cause a budget deficit
b. would be expansionary fiscal policy
c. would be proper fiscal policy during an inflationary gap, according to Keynesian theory
d. All of the above

c.

5

If Real GDP is $15,950 billion and Natural Real GDP is $15,500 billion, and the MPC is .667, how large a change in government purchases would be necessary to close the inflationary gap?
a. $450 billion decrease
b. $225 billion decrease
c. $150 billion decrease
d. $150 billion increase

c.

6

Automatic stabilizers:
a. require legislative changes in fiscal policy
b. will tend to move equilibrium Real GDP toward Natural Real GDP
c. Both of the above
d. Neither of the above

b.

7

During a recessionary gap:
a. unemployment compensation payments will increase, acting as an automatic stabilizer
b. corporate income tax payments will increase, acting as an automatic stabilizer
c. Both of the above
d. Neither of the above

a.

8

Crowding out:
a. occurs when increases in government spending lead to decreases in private spending
b. can be caused by a decrease in the money supply
c. does not occur when the government deficit spends
d. All of the above

a.

9

Fiscal policy may be mistimed because of:
a. the jet lag
b. the putting lag
c. the impact lag
d. All of the above

c.

10

Since World War II:
a. recessions have been eliminated by proper use of Keynesian fiscal policy
b. recessions have occurred predictably every five years
c. recession have lasted on average a little more than ten months
d. None of the above

c.

11

Which of the following is a potential problem with fiscal policy?
a. crowding out may cause an increase in private spending
b.there may a political bias toward contractionary fiscal policy
c. fiscal policy may be miscalculated
d. All of the above

c.

12

Since Keynesian theory was introduces in 1936, the federal government:
a. has had budget deficits in most years
b. has grown relative to the size of the economy
c. Both of the above
d. Neither of the above

c.

13

Supply-side economists argue that Keynesian fiscal policy:
a. has had a beneficial effect on the supply side of the economy
b. has made deficit spending politically acceptable
c. has led to a shrinking federal acceptable
d. All of the above

b.

14

According to supply-side fiscal policy, a decrease in marginal tax rates:
a. will always result in more tax revenues
b. will increase incentives
c. will increase production in the short run, but not in the long run
d. All of the above

b.

15

The supply-side tax cuts of 1981 and 1986:
a. resulted in less tax revenue
b. increased the taxes paid by lower income taxpayers
c. increased the taxes paid by the highest income taxpayers
d. Both a. and b. above

c.

16

Supply-side economists:
a. believe Keynesian fiscal policy harms the economy
b. favor lower marginal tax rates
c. favor a smaller government
d. All of the above

d.

17

Between 1961 and 1997, the federal government's nominal expenditures increased by:
a. more than 5-fold
b. more than 9-fold
c. more than 13-fold
d. more than 16-fold

d.

18

Between 1969 and 1997, the federal government's budget was in surplus:
a. one year
b. three years
c. seven years
d. nine years

a.

19

According to Steven Landsburg, most of economics cab be summarized in these four words:
a. "Demand and supply equal:
b. "People respond to incentives"
c. "The rich get richer"
d. "According to Adam Smith"

b.