Question 1

The tax rebate of 2008 had a relatively small impact because taxpayers primarily used the rebate to

Accepted Answer

A)   purchase their annual Christmas gifts.
B)   take vacations.
C)   reduce their debts.
D)   Each of these answers is correct.E) B) and C)
F) A) and B)

Question 2

In a recession, automatic stabilizers cause

Accepted Answer

A)   an increase in tax revenues and a decrease in government spending.
B)   a decrease in tax revenues and an increase in government spending.
C)   an increase in both tax revenues and government spending.
D)   a decrease in both tax revenues and government spending.E) A) and B)
F) C) and D)

Question 3

After a real negative shock, government spending only improves growth minimally and aggregate demand doesn't fully recover because of

Accepted Answer

A)   crowding out.
B)   Ricardian equivalence.
C)   effectiveness lags.
D)   wealth effects.E) B) and C)
F) A) and D)

Question 4

What are the multiplier and crowding out effects? Using a dynamic AD-AS diagram, contrast the implications for fiscal policy multiplier effects in the presence of crowding out.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> The multiplier effect occurs when fisca...

Question 5

Explain the difference between a tax cut and a tax rebate.

Accepted Answer

A tax cut refers to a reduction in the t...

Question 6

Raising taxes and government spending is most effective at improving short-term aggregate demand when

Accepted Answer

A)   private sector spending is very low.
B)   wages stay low.
C)   banks are not lending.
D)   consumers are increasing their spending.E) All of the above
F) A) and B)

Question 7

A decrease in consumption growth will cause the Solow growth curve to

Accepted Answer

A)   shift inward.
B)   shift outward.
C)   remain unchanged.
D)   first shift outward and then shift inward.E) C) and D)
F) None of the above

Question 8

What, if any, timing challenges exist with the use of discretionary fiscal policy? If there are any, compare and contrast them with the timing challenges of monetary policy.

Accepted Answer

The same timing challenges, or lags, exi...

Question 9

The multiplier effect is the

Accepted Answer

A)   subsequent consumer spending that increases AD from expansionary fiscal policy.
B)   subsequent consumer spending that increases AD from contractionary fiscal policy.
C)   increase in GDP from an increase in the money supply and decrease in taxes.
D)   increase in GDP from increased consumer savings and private investment.E) B) and C)
F) A) and D)

Question 10

Which federal government policy influences business cycle fluctuations by taking action on taxes, spending, and borrowing?

Accepted Answer

A)   real business cycle policy
B)   fiscal policy
C)   monetary policy
D)   growth policyE) C) and D)
F) A) and C)

Question 11

When the government sells bonds to finance government expenditures, it actually encourages more household saving.

Accepted Answer

A) True 
 B)False

Question 12

The time necessary to recognize that an economic problem exists is called a(n)

Accepted Answer

A)   legislative lag.
B)   recognition lag.
C)   implementation lag.
D)   Each of these answers is correct.E) All of the above
F) B) and C)

Question 13

As the government builds new schools, the construction workers and material vendors employed on the project spend more in the community where they work. What is the economic term for this effect?

Accepted Answer

A)   hastening
B)   multiplier
C)   duplicator
D)   spendingE) A) and B)
F) C) and D)

Question 14

Suppose the federal government gives taxpayers a tax rebate financed by borrowing. If taxpayers use the tax rebate to pay off their debts, total spending will

Accepted Answer

A)   increase.
B)   decrease.
C)   remain unchanged.
D)   first increase and then decrease.E) None of the above
F) B) and C)

Question 15

Which of the following is NOT a lag associated with fiscal policy?

Accepted Answer

A)   the time it takes to implement a policy once it's decided
B)   the time to recognize a recession once the data are collected
C)   the time it takes to assess whether the policy has worked
D)   the time it takes to assess whether to use fiscal or monetary policyE) A) and D)
F) B) and C)

Question 16

Which of the following is the most effective fiscal policy to fight a recession if people react to uncertainty by saving all additional money that they earn or receive?

Accepted Answer

A)   a tax cut
B)   a tax rebate
C)   an increase in government spending
D)   a do-nothing strategy that relies on automatic stabilizers.E) A) and D)
F) A) and C)

Question 17

When the government sells more bonds, what else happens?

Accepted Answer

A)   Interest rates go down and consumer spending rises.
B)   Interest rates go down and savings go up.
C)   Interest rates go up and consumer spending rises.
D)   Interest rates go up and savings go up.E) C) and D)
F) B) and D)

Question 18

When consumers reduce spending, the reduction in velocity of money is split between

Accepted Answer

A)   a decrease in growth and an increase in inflation.
B)   a decrease in growth and a decrease in inflation.
C)   a decrease in money supply and a decrease in growth.
D)   a decrease in money supply and decrease in inflation.E) B) and C)
F) B) and D)

Question 19

What primary benefit can a temporary investment tax credit have?

Accepted Answer

A)   It can accelerate capital outlay in an economic downturn.
B)   It can encourage workers to work extra hours.
C)   It can encourage consumers to save more.
D)   It can encourage firms to hire more workers.E) C) and D)
F) B) and D)

Question 20

Fiscal policy is most desirable if the economy returns to the long-run equilibrium immediately after a shock occurs.

Accepted Answer

A) True 
 B)False

Exam 35: Monetary Policy

Which federal government policy influences business cycle fluctuations by taking action on taxes, spending, and borrowing?

Correct AnswerverifiedShow Answer

In a recession, automatic stabilizers cause

Correct AnswerverifiedShow Answer

Explain the difference between a tax cut and a tax rebate.

Correct AnswerverifiedA tax cut refers to a reduction in the t...View AnswerShow Answer

What, if any, timing challenges exist with the use of discretionary fiscal policy? If there are any, compare and contrast them with the timing challenges of monetary policy.

Correct AnswerverifiedThe same timing challenges, or lags, exi...View AnswerShow Answer

After a real negative shock, government spending only improves growth minimally and aggregate demand doesn't fully recover because of

Correct AnswerverifiedShow Answer

When the government sells bonds to finance government expenditures, it actually encourages more household saving.

Correct AnswerverifiedShow Answer

The multiplier effect is the

Correct AnswerverifiedShow Answer

Suppose the federal government gives taxpayers a tax rebate financed by borrowing. If taxpayers use the tax rebate to pay off their debts, total spending will

Correct AnswerverifiedShow Answer

When consumers reduce spending, the reduction in velocity of money is split between

Correct AnswerverifiedShow Answer

A decrease in consumption growth will cause the Solow growth curve to

Correct AnswerverifiedShow Answer

Raising taxes and government spending is most effective at improving short-term aggregate demand when

Correct AnswerverifiedShow Answer

Which of the following is the most effective fiscal policy to fight a recession if people react to uncertainty by saving all additional money that they earn or receive?

Correct AnswerverifiedShow Answer

When the government sells more bonds, what else happens?

Correct AnswerverifiedShow Answer

What are the multiplier and crowding out effects? Using a dynamic AD-AS diagram, contrast the implications for fiscal policy multiplier effects in the presence of crowding out.

Correct Answerverified The multiplier effect occurs when fisca...View AnswerShow Answer

The time necessary to recognize that an economic problem exists is called a(n)

Correct AnswerverifiedShow Answer

The tax rebate of 2008 had a relatively small impact because taxpayers primarily used the rebate to

Correct AnswerverifiedShow Answer

What primary benefit can a temporary investment tax credit have?

Correct AnswerverifiedShow Answer

As the government builds new schools, the construction workers and material vendors employed on the project spend more in the community where they work. What is the economic term for this effect?

Correct AnswerverifiedShow Answer

Fiscal policy is most desirable if the economy returns to the long-run equilibrium immediately after a shock occurs.

Correct AnswerverifiedShow Answer

Which of the following is NOT a lag associated with fiscal policy?

Correct AnswerverifiedShow Answer

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A tax cut refers to a reduction in the t...
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The same timing challenges, or lags, exi...
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Correct Answer
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Correct Answer
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The multiplier effect occurs when fisca...
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Correct Answer
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