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Question 1
Question
Ch.15 P2 Q1. Which of the following is an example of expansionary fiscal policy?
Answer
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A) increase taxes
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B) decrease government spending
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c) increase government
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d) increase taxes and decrease government spending equally
Question 2
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Ch.15 P2 Q2. In the ___ range of the aggregate supply curve, expansionary fiscal policy causes aggregate ___ to increase, which results in a higher price level and a higher equilibrium level of real GDP.
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a) Keynesian, supply
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b) classical ,demand
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c) intermediate, demand
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d) intermediate, supply
Question 3
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Ch.15 P2 Q3. An expansionary fiscal policy-
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A) may include increases in government spending
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b) may include discretionary increases in transfer payments
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c) may include reductions in taxes
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d) all of the answers above are correct
Question 4
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Ch.15 P2 Q5. Beginning at equilibrium E1 in Exhibit 15-11, when the government increases spending or cut taxes the economy will experience -
Answer
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a) an inflationary recession
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b) stagflation
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c) cost-push inflation
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d) demand-pull inflation
Question 5
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Ch.15 P2 Q7. Mathematically, the value of the tax multiplier in terms of the marginal propensity to consume (MPC) is given by the formula
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A) MPC-1
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b) (MPC-1) / MPC
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c) 1/MPC
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d) 1-[1/(1-MPC)]
Question 6
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Ch.15 P2 Q8. A tax multiplier equal to -4.30 would imply that a $100 tax increase would lead to a-
Answer
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a) $430 decline in real GDP
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b) $430 increase in real GDP
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c) 4.3 percent increase in real GDP
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d) 4.3% decrease in real GDP
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e) 43% decrease in real GDP
Question 7
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Ch.15 P2 Q9. Equal increases in government spending and taxes will-
Answer
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a) cancel each other out so that the equilibrium level of real GDP will remain unchanged
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b) lead to an equal decrease in the equilibrium level of real GDP
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c) lead to an equal increase in the equilibrium level of real GDP
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d) lead to an increase in the equilibrium level of real GDP output that is larger than the initial change in government spending and taxes
Question 8
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Ch.15 P2 Q10. When the economy enters a recession, automatic stabilizers create-
Answer
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a) higher taxes
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b) more discretionary spending
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c) budget deficits
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d) budget surpluses
Question 9
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Ch.15 P2 Q11. Automatic stabilizers "lean against the prevailing wind" of the business cycle because-
Answer
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A) wages are controlled by the minimum wage law
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b) federal expenditures and tax revenues change as the level of real GDP changes
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c) the spending and tax multipliers are constant
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d) they include the power of special interests
Question 10
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Ch.15 P2 Q12. Unemployment compensation payments-
Answer
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a) rise during a recession and thus reduce the severity of the recession
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b) rise during a recession and thus increase the severity of the recession
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c) rise during an inflationary and thus reduce the severity of the inflation
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d) fall during a recession and thus increase the severity of the recession
Question 11
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Ch.15 P2 Q13. According to supply-side fiscal policy, reducing tax rates on wages and profits will-
Answer
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a) create demand-pull inflation
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b) lower the price level but may trigger a recession.
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c) result in stagflation
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d) reduce both unemployment and inflation
Question 12
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Ch.15 P2 Q14. Supply-side economics calls for-
Answer
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a) lower taxes on businesses and individuals
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b) regulatory reforms to increase productivity
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c) result in stagflation
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d) reduce both unemployment and inflation
Question 13
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Ch.15 P2 Q15. In exhibit 15-13, supply-siders claimes that the shift from AS1 to AS2 would occur if the government-
Answer
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a) increased tax rates and increased the amount of government regulations
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b) increased tax rates and decreased the amount of government regulations
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c) decreased tax rates and increased the amount of government regulations
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d) decreased tax rates and decreased the amount of government regulation
Question 14
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Ch.15 P2 Q17. According to the Laffer curve, when the tax rate is 100% tax revenue will be-
Answer
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a) 0
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b) at the maximum level
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c) the same as it would be at a 50% tax rate
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d) greater than it would be at a 50% tax rate
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e) the same as it would be at a 20% tax rate
Question 15
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Ch.15 P2 Q18. Assume the marginal propensity to consume (MPC) is 0.75 and the government increases taxes by $250 billion. The aggregate demand curve will shift to the-
Answer
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a)left by the $1,000 billion
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b)right by $1,000 billion
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c) left by $750 billion
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d) right by $750 billion
Question 16
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Ch.15 P2 Q19. When the government levies a $100 million tax on people's income and puts the $100 million back into the economy in the form of a spending program, such as new interstate highway construction, the-
Answer
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A) tax, then, generates a $100 million decline in real GDP
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b) level of real GDP expands by $100 million
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c) effect on real GDP is uncertain
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d) tax multiplier overpowers the income multiplier, triggering a rollback in real GDP
Question 17
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Ch.15 P2 Q20. Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC) is 0.75, and the government follows Keynesian economics by using expansionary fiscal policy to increase aggregate demand (total spending). If an increase of $1,000 billion aggregate demand can restore full employment, the government should-
Answer
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a) increase spending by $250 billion
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b) decrease spending by $750 billion
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c) increase spending by $1,000 billion
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d) increase spending by $750 billion
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