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| 1 | |
Suppose the full-employment level of GDP is $250 billion. Currently, aggregate expenditures total $220 billion. Which of the following would be most in accord with appropriate fiscal policy? |
| | A) | Reduce tax rates on personal income |
| | B) | Reduce government expenditures |
| | C) | Raise the tax on corporate income to discourage investment |
| | D) | Raise the interest rate on government bonds to encourage saving |
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| 2 | |
Which of the following discretionary policies both restrains the growth of government and stabilizes the economy at full-employment? |
| | A) | A tax cut in a recession |
| | B) | A tax increase during inflation |
| | C) | An increase in government spending during a recession |
| | D) | A decrease in government spending in a recession |
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| 3 | |
An increase in the tax rate, all else equal, will: |
| | A) | reduce the size of cyclical deficits |
| | B) | increase the regressivity of the tax system |
| | C) | increase the built-in stability of the economy |
| | D) | reduce the built-in stability of the economy |
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| 4 | |
Suppose the government's actual budget is in balance but its standardized budget shows a surplus. It can be concluded that: |
| | A) | the government's fiscal policy is expansionary |
| | B) | the economy is actually operating at full employment |
| | C) | the economy is experiencing demand-pull inflation |
| | D) | The economy is currently operating below its potential |
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| 5 | |
In 2002, the Federal government spent $2472 billion while its revenues were $2154 billion. The $318 billion difference is the: |
| | A) | full-employment budget |
| | B) | deficit |
| | C) | surplus |
| | D) | public debt |
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| 6 | |
Answer the next question using the following graph:
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Refer to the graph. If AD1 represents the current level of expenditures and Q2 is the full-employment level of GDP the economy is: |
| | A) | in a recession and expansionary fiscal policy is in order |
| | B) | in a recession and contractionary fiscal policy is in order |
| | C) | experiencing demand-pull inflation and expansionary fiscal policy is in order |
| | D) | experiencing demand-pull inflation and contractionary fiscal policy is in order |
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| 7 | |
Approximately what proportion of the U.S. public debt is "owed to ourselves," either as securities held by the U.S. public or by U.S. governments? |
| | A) | less than 25% |
| | B) | 25% to 50% |
| | C) | 50% to 70% |
| | D) | more than 70% |
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| 8 | |
Built-in stabilizers: |
| | A) | automatically increase the size of deficits when the economy experiences demand-pull inflation |
| | B) | avoid the problems associated with the administrative lag of discretionary fiscal policy |
| | C) | automatically produce a cyclically balanced budget |
| | D) | tend to offset the impact of discretionary fiscal policy |
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| 9 | |
If the MPC is .6, a $100 billion lump-sum tax cut would shift the aggregate demand curve to the right by: |
| | A) | $25 billion |
| | B) | $60 billion |
| | C) | $150 billion |
| | D) | $250 billion |
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| 10 | |
Congressional changes in taxes and spending intended to stabilize the economy: |
| | A) | are mandated by the Federal Reserve Act of 1913 |
| | B) | is referred to as discretionary fiscal policy |
| | C) | offsets the economy's built-in stabilizers |
| | D) | are designed to expand GDP in times of demand-pull inflation |
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