|
|
In macroeconomics, the debate over the role of government includes the views of Keynesian economists who believe that:
|
| The government is incapable of stabilizing the economy. |
| The government could intervene to smooth out fluctuations in the business cycle, but it is preferable to leave the economy alone and wait for self-correction. |
| The government could increase aggregate expenditure and thereby stimulate aggregate output by manipulating the money supply. |
| The government could increase aggregate expenditure and thereby stimulate aggregate output by manipulating taxes and spending. |
| The government could manipulate consumption and investment to bring the economy out of a recession. |
|
|
|
All of the following except one are tools of fiscal policy. Which one?
|
| Policies regarding the government purchase of goods and services. |
| Policies regarding taxes. |
| Policies regarding transfer payments. |
| Policies regarding the nation's money supply. |
| None of the above. All of the above are tools of fiscal policy. |
|
|
|
What is the form of the consumption function when taxes (T) create a difference between income (Y) and disposable income (Yd)?
|
| C = a + bY + bT |
| C = a + b - T |
| C = a + b (Yd – T) |
| C = a + bYd - T |
| C = a + b (Y – T) |
|
|
|
Refer to the graph below. Assume that there are no taxes in this economy. Y = C + I + G. (The amount of government spending is financed by a gift from Saudi Arabia). What is the value of autonomous expenditures? 
|
| There is insufficient information to provide an answer. |
| 200 |
| 250 |
| 700 |
| 1,000 |
|
|
|
Refer to the graph below. Assume that there are no taxes in this economy. Y = C + I + G. (The amount of government spending is financed by a gift from Saudi Arabia). What is the value of equilibrium output (Y0)?
|
| There is insufficient information to provide an answer. |
| 1,000 |
| 1,666 |
| 700 |
| 1,875 |
|
|
|
Refer to the graph below. Assume that the government imposes a lump-sum tax of $100, while embracing a balanced-budget fiscal policy strategy. How much is the value of autonomous expenditures under these circumstances? 
|
| 175 |
| 250 |
| 200 |
| 1,000 |
| There is insufficient information to arrive at an answer. |
|
|
|
Refer to the graph below. Assume that the government imposes a lump-sum tax of $100, while embracing a balanced-budget fiscal policy strategy. How much is the value of Y0 under these circumstances?
|
| 1,300 |
| 700 |
| 175 |
| 1,000 |
| There is insufficient information to arrive at an answer. |
|
|
|
What happens when there is a simultaneous increase in government spending of $100 and a lump-sum tax of $100?
|
| Nothing happens. Equilibrium income remains the same because the amount of government spending (G) is compensated by the amount of taxation (T). |
| Equilibrium income would increase by $100, or the amount of increase in G. |
| Equilibrium income would decrease by $100, or the amount of increase in T. |
| Equilibrium income would decrease by $200, or double the amount of the increase in T. |
|
|
|
The leakages/injections approach to determining equilibrium, given the impact of government spending and taxation, states that:
|
| Y = a + b(Y - T) + I + G |
| Y = 1/(1 - b) * (a - bT + I + G) |
| S + T = I + G |
| -  T * (b/(1 - b) |
| C + S = I + G |
|
|
|
The impact of higher government spending on equilibrium income is identical to the impact of:
|
| An increase in investment |
| A decrease in taxation. |
| An increase in the marginal propensity to consume. |
| A decrease in autonomous spending. |
| All of the above. |
|
|
|
Fill in the blanks. The positive stimulus of an increase in government spending is __________ than the negative stimulus of a tax increase because the effect of the increase in government spending on planned aggregate expenditure is __________ and the effect of the tax is __________.
|
| greater; direct; direct |
| greater; direct; indirect |
| less; indirect; direct |
| less; direct; indirect |
| less; direct; direct |
|
|
|
Which of the following statements about the international sector is/are correct?
|
| Exports are considered a leakage from the circular flow, and imports an injection into the circular flow. |
| The choices of goods and services available to consumers and business firms tend to diminish in an open economy. |
| The multiplier effect of additional spending is smaller in an open economy. |
| A large decrease in exports may cause inventories to rise and output to fall. |
| All of the above. |
|
|
|
Fill in the blanks. The largest receipts for the U.S. federal government come from __________ and __________.
|
| personal income taxes; contributions for social insurance |
| sales taxes; income taxes |
| personal income taxes; corporate taxes |
| indirect business taxes; contributions to social insurance |
| personal income taxes; indirect business taxes |
|
|
|
The large federal government deficits of the 1980s were the result of:
|
| Lower personal income tax rates. |
| Higher interest payments as a percentage of GDP. |
| A large defense buildup. |
| All of the above. |
| None of the above. |
|
|
|
Which of the following statements is/are correct about the U.S. federal debt?
|
| Some of the securities that the government issues end up being held by the federal government itself. |
| To finance the debt, the government issues government securities to the public, or pieces of paper promising to pay a certain amount, with interest, in the future. |
| The federal debt rose substantially during the 1980s, and the deficit has fallen sharply since the mid-1990s. |
| The federal debt is the sum of accumulated budget deficits minus surpluses over time. |
| All of the above. |
|
|
|
Which of the following statements is correct about the government's control over its budget?
|
| The government has complete control over the revenue side of the budget, but not complete control over the expenditure side. |
| The government has complete control over the expenditure side of the budget, but not complete control over the revenue side. |
| The government does not have complete control of either the revenue side or the expenditure side of the budget. |
| The side and balance (surplus or deficit) of the government budget is controlled entirely by Congress, not the economy. |
| Higher inflation and higher interest rates tend to decrease the size of the government budget. |
|
|
|
Automatic stabilizers refer to:
|
| Inherent stock market mechanisms that automatically cause stock market gains to be cancelled out by losses, which make expected long-run returns equal to zero. |
| Invisible hand mechanisms to automatically bring the economy out of a recession. |
| Government revenue and expenditure items that change automatically in response to changes in economic activity. |
| Discretionary monetary policy maneuvers designed to keep inflation automatically under control. |
| None of the above. |
|
|
|
What is the meaning of the term fiscal drag?
|
| Fiscal drag refers to the drag of budget deficits on the economy. |
| Fiscal drag refers to the impact of taxes on the economy, which may put a drag on economic expansions. |
| Fiscal drag explains how higher government spending makes planned investment spending drag. |
| Fiscal drag refers to the time it takes to discover a problem in the economy, determine the correct action, and implement policies to deal with it. |
| None of the above. |
|
|
|
The structural budget deficit is the size of the budget deficit when:
|
| The unemployment rate equals zero. |
| Real and potential GDP are equal. |
| The economy falls into a recession. |
| There is a spending balance, or balanced budget. |
| The balance of trade is in balance. |
|
|
|
When the economy reaches full employment, the budget deficit is:
|
| A combination of cyclical and structural deficits. |
| Zero. |
| Equal to the cyclical deficit. |
| Equal to the structural deficit. |
| Always averted by higher tax revenues. |
