Question 1

Assume that European interest rates fall as a result of decreased deficit spending by the governments of the European Union. We would expect all of the following, except:

Accepted Answer

A)   a depreciation of the euro with respect to the U.S. dollar.
B)   increased European demand for American government securities.
C)   a higher level of U.S. imports from Europe.
D)   higher U.S. net exports to Europe.
E)   higher French exports to the United States.F) B) and E)
G) C) and D)

Question 2

If the price level falls as real GDP decreases, the multiplier effects of any given change in aggregate expenditures are smaller than they would be if the price level remained constant.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is an example of a transfer payment by the government?

Accepted Answer

A)   The government provides unemployment benefits to its citizens
B)   The local government invests in building a community center.
C)   The government raises funds in order to build bridges and roads.
D)   The government provides healthcare to its citizens at a subsidized price.
E)   The government provides concessional rates to senior citizens who use public transport.F) None of the above
G) B) and E)

Question 4

Which of the following would not be considered an indirect tax?

Accepted Answer

A)   A value-added tax
B)   A tax on wheat export
C)   A tax on imported automobiles
D)   A tax on the income of a computer manufacturer
E)   A sales tax on cigarettesF) A) and E)
G) None of the above

Question 5

Which of the following is true about automatic stabilizers?

Accepted Answer

A)   Automatic stabilizers are a part of discretionary fiscal policy.
B)   The federal funds rate is an example of an automatic stabilizer.
C)   An automatic stabilizer is any program that responds to fluctuations in the business cycle in a way that moderates the effects of those fluctuations.
D)   Any kind of trade policy adopted by the government will be considered as an automatic stabilizer.
E)   When income rises, automatic stabilizers increase/boost spending.F) B) and D)
G) A) and B)

Question 6

If government spending in a country declines by $10 billion and, at the same time, taxes increase by an equal amount, what is the total effect in the economy?

Accepted Answer

A)   Equilibrium real GDP increases
B)   Equilibrium real GDP decreases by $20 billion
C)   Equilibrium real GDP is unchanged
D)   Equilibrium real GDP decreases by more than $10 billion and less than $20 billion
E)   Equilibrium real GDP decreases by more than $20 billionF) None of the above
G) B) and E)

Question 7

Compared to the government in the typical industrial country, the government in the typical developing country:

Accepted Answer

A)   plays the same role in investment spending.
B)   plays a larger role in investment spending.
C)   plays a smaller role in investment spending.
D)   plays no role in investment spending.
E)   plays a more negative role in investment spending.F) A) and B)
G) C) and E)

Question 8

If fewer businesses offer new bonds to raise investment funds when government borrowing increases interest rates, this would be an example of:

Accepted Answer

A)   Ricardian equivalence.
B)   overestimating the tax multiplier.
C)   crowding out.
D)   increased consumption.
E)   the balanced-budget multiplier.F) D) and E)
G) A) and C)

Question 9

Which of the following can be categorized under fiscal policy?

Accepted Answer

A)   Increase in money supply
B)   Decrease in money supply
C)   Increase in federal funds rate
D)   Decrease in reserve requirement
E)   Increase in tax ratesF) A) and B)
G) None of the above

Question 10

The sum of the unemployment rate and the inflation rate is known as:

Accepted Answer

A)   the macroeconomic index.
B)   the mortality rate.
C)   the market index.
D)   the misery index.
E)   a coincident indicator.F) A) and D)
G) A) and C)

Question 11

Increased domestic imports and higher international trade deficits are possible results of government surpluses.

Accepted Answer

A) True 
 B)False

Question 12

The figure given below depicts the tax revenue for different tax rates applied by the government.
Figure 11.2
 
-Refer to Figure 11.2. If you were a member of the Congress that aims to increase tax revenue collections, what would you recommend if the current tax rate were 80 percent?

Accepted Answer

A)   Increasing the tax rate to 100 percent
B)   Decreasing the tax rate to 30 percent
C)   Decreasing the tax rate to 70 percent
D)   Increasing the tax rate to 90 percent
E)   Decreasing the tax rate to zero percentF) A) and C)
G) A) and B)

Question 13

A U.S. federal budget deficit that raises real interest rates is most likely to:

Accepted Answer

A)   lead to a depreciation of the dollar on the foreign exchange market.
B)   encourage foreign investment in U.S. securities.
C)   lead to an increase in exports.
D)   lead to an appreciation of other currencies relative to the U.S. dollar.
E)   discourage imports of foreign goods.F) A) and E)
G) B) and E)

Question 14

When the government uses taxes and spending to affect national economy, it is engaging in:

Accepted Answer

A)   fiscal policy.
B)   monetary policy.
C)   interest rate policy.
D)   trade policy.
E)   exchange rate policy.F) None of the above
G) B) and C)

Question 15

An increase in deficit spending tends to raise interest rates, thereby resulting in a multiplier effect that is higher than would be associated with an equivalent increase in consumption spending.

Accepted Answer

A) True 
 B)False

Question 16

Higher taxes affect real GDP indirectly through both the consumption channel and the output supply channel.

Accepted Answer

A) True 
 B)False

Question 17

Assume that French budget deficits have raised the French prime interest rate relative to the U.S. T-bill rate. As a result, we would expect the U.S. dollar to depreciate and U.S. net exports to rise.

Accepted Answer

A) True 
 B)False

Question 18

_____ refers to the changes in government spending and taxation that are aimed at achieving a policy goal.

Accepted Answer

A)   Discretionary monetary policy
B)   Discretionary fiscal policy
C)   Discretionary foreign trade policy
D)   Discretionary exchange rate policy
E)   Discretionary interest rate policyF) B) and E)
G) A) and B)

Question 19

Which of the following taxes are more easier to collect in industrial countries than in developing countries?

Accepted Answer

A)   Sales tax
B)   Capital gains tax
C)   Personal income tax
D)   Business tax
E)   Export taxF) A) and B)
G) A) and C)

Question 20

Which of the following is a form of a direct tax?

Accepted Answer

A)   Personal income taxes
B)   Sales taxes
C)   Excise taxes
D)   Import tariffs
E)   Value-added taxesF) None of the above
G) A) and D)

Exam 11: Fiscal Policy

A U.S. federal budget deficit that raises real interest rates is most likely to:

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Assume that French budget deficits have raised the French prime interest rate relative to the U.S. T-bill rate. As a result, we would expect the U.S. dollar to depreciate and U.S. net exports to rise.

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When the government uses taxes and spending to affect national economy, it is engaging in:

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Higher taxes affect real GDP indirectly through both the consumption channel and the output supply channel.

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Which of the following is an example of a transfer payment by the government?

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An increase in deficit spending tends to raise interest rates, thereby resulting in a multiplier effect that is higher than would be associated with an equivalent increase in consumption spending.

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Which of the following would not be considered an indirect tax?

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If government spending in a country declines by $10 billion and, at the same time, taxes increase by an equal amount, what is the total effect in the economy?

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Which of the following taxes are more easier to collect in industrial countries than in developing countries?

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If fewer businesses offer new bonds to raise investment funds when government borrowing increases interest rates, this would be an example of:

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Increased domestic imports and higher international trade deficits are possible results of government surpluses.

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Assume that European interest rates fall as a result of decreased deficit spending by the governments of the European Union. We would expect all of the following, except:

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Which of the following is a form of a direct tax?

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The sum of the unemployment rate and the inflation rate is known as:

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_____ refers to the changes in government spending and taxation that are aimed at achieving a policy goal.

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The figure given below depicts the tax revenue for different tax rates applied by the government. Figure 11.2 -Refer to Figure 11.2. If you were a member of the Congress that aims to increase tax revenue collections, what would you recommend if the current tax rate were 80 percent?

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Which of the following can be categorized under fiscal policy?

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Compared to the government in the typical industrial country, the government in the typical developing country:

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Which of the following is true about automatic stabilizers?

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If the price level falls as real GDP decreases, the multiplier effects of any given change in aggregate expenditures are smaller than they would be if the price level remained constant.

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