Economics 2e, Self-Test Quizzes Ch29
NAME: _____________________________
1.
a.
b.
c.
d.
Discretionary fiscal policy is
the use of interest rate changes to affect aggregate demand.
the use of interest rate changes to affect aggregate supply.
the use of government spending or tax policy to manage aggregate demand.
the use of government spending or tax policy to manage aggregate supply.
2.
a.
b.
c.
d.
The largest categories of government purchases of goods and services are
national defense and education.
scientific research and foreign aid.
border patrol and interstate highway maintenance.
law enforcement and environmental protection.
3. When the government makes a payment to an individual for which no good or service is provided in
return, this is referred to as a
a. public exchange.
b. private exchange.
c. reverse tax.
d. transfer payment.
4.
a.
b.
c.
d.
Social Security, Medicare, and Medicaid are the three main
tools of discretionary fiscal policy.
social insurance programs.
sources of aggregate demand.
sources of disposable income.
5.
a.
b.
c.
d.
Disposable income
is the amount of household income collected as tax revenue.
is the total income households have available to spend.
is the portion of household income saved.
is the portion of household income invested.
6.
a.
b.
c.
d.
A recessionary gap occurs when
aggregate output falls below potential output.
potential output falls below aggregate output.
transfer payments undermine incentives to work.
taxes on corporate profits undermine incentives to invest.
7.
a.
b.
c.
d.
To address a recessionary gap, the appropriate fiscal policy would be
an increase in personal taxes.
an increase in corporate taxes.
an increase in government spending.
an increase in interest rates.
8.
a.
b.
c.
d.
The effect of expansionary fiscal policy is to
shift aggregate supply to the left.
shift aggregate supply to the right.
shift aggregate demand to the left.
shift aggregate demand to the right.
9.
a.
b.
c.
d.
Which of the following is NOT an example of contractionary fiscal policy?
decreasing the money supply
decreasing government spending
decreasing transfer payments
increasing taxes
10. Which of the following would shift aggregate demand to the left?
a. an increase in government transfer payments that affects disposable income
b. a decrease in taxes that affects disposable income
c. an increase in taxes that affects disposable income
d. an increase in private investment spending, funded by tax cuts
11. Lags that arise in the implementation of fiscal policy mean that
a. expansionary fiscal policy will actually shift aggregate demand to the left, rather than to the right.
b. expansionary fiscal policy will actually shift aggregate supply, rather than aggregate demand.
c. increases in government spending will actually have a contractionary effect.
d. it can actually be destabilizing.
12. The expansionary fiscal policy in Japan in the 1990s has
a. increased the government debt.
b. caused interest rates to fall to 0%.
c. shifted aggregate demand to the left.
d. produced a full economic recovery.
13. The 2008 stimulus package was an example of
a. shifting aggregate demand to the left.
b. shifting short-run aggregate supply to the right.
c. contractionary fiscal policy.
d. expansionary fiscal policy.
14. The amount of the aggregate demand shift in response to an increase in government spending
depends on
a. the slope of the short-run aggregate supply curve.
b. the slope of the long-run aggregate supply curve.
c. the size of the multiplier.
d. whether the increase in government spending is supported by both political parties.
15. A $75 billion tax cut will
a. increase GDP by the same amount as a $75 billion increase in government purchases of goods and
services.
b. increase GDP by a smaller amount than would a $75 billion increase in government purchases of
goods and services.
c. not affect aggregate demand, as it will only shift aggregate supply.
d. increase the marginal propensity to consume, thereby decreasing the value of the multiplier.
16. Because transfer payments rise when the economy is contracting and fall when it is expanding, they
are referred to as
a. automatic stabilizers
b. discretionary policy measures.
c. fiscal lags.
d. zero-balance accounts.
17. Which of the following statements is true?
a. The presence of a budget deficit is proof that government is trying to expand aggregate demand.
b. Tax cuts will not boost aggregate demand unless the money is saved by consumers and then invested
by businesses.
c. Because transfer payments typically rise during an economic recovery, they destabilize the economy.
d. An increase in government spending will have a greater effect on aggregate demand when the
marginal propensity to consume is greater.
18. The government budget deficit is most likely to rise when
a. the interest rate falls.
b. the interest rate rises.
c. the unemployment rate rises.
d. the economy recovers from a recession.
19. A requirement to have an annually balanced federal budget would mean
a. that there would be no more recessionary gaps or inflationary gaps.
b. that the role of taxes and transfers as automatic stabilizers would be undermined.
c. that total household disposable income would be the same every year.
d. that actual GDP would equal potential GDP every year.
20. The implicit liabilities of the U.S. government
a. cannot continually be honored as they are designed, given demographic trends.
b. are a problem in the short run, but not in the long run.
c. are not a cause for worry unless they lead to crowding out.
d. are designed to offset an inflationary gap when it arises.