Question 1

What are three advantages and disadvantages of expansionary fiscal policy?

Accepted Answer

Three advantages of expansionary fiscal ...

Question 2

Crowding out:

Accepted Answer

A)  increases the multiplier effect, so that an increase in government spending raises income by more.
B)  increases the multiplier effect, so that an increase in government spending raises income by less.
C)  decreases the multiplier effect, so that an increase in government spending raises income by more.
D)  decreases the multiplier effect, so that an increase in government spending raises income by less.E) A) and B)
F) C) and D)

Question 3

The concept of fiscal policy refers to the:

Accepted Answer

A)  running of a deficit or surplus to affect the level of output in the economy.
B)  changing of interest rates to affect the level of output in the economy.
C)  management of exchange rates to affect the trade deficit in the economy.
D)  setting of wage policies by institutions to affect spending in the economy.E) A) and B)
F) B) and D)

Question 4

Automatic stabilizers are government programs or policies that will counteract the business cycle without any new government action.

Accepted Answer

A) True 
 B)False

Question 5

Sound finance holds that government spending should be directed toward sound investment.

Accepted Answer

A) True 
 B)False

Question 6

A decrease in the budget deficit will have a:

Accepted Answer

A)  more negative effect on income when crowding out is strong.
B)  more positive effect on income when crowding out is weak.
C)  less negative effect on income when crowding out is strong.
D)  less positive effect on income when crowding out is weak.E) C) and D)
F) All of the above

Question 7

Crowding out will be less likely to occur if:

Accepted Answer

A)  interest rates rise when the budget deficit increases.
B)  interest rates fall when the budget deficit decreases.
C)  business investment does not depend on interest rates.
D)  business investment depends on interest rates.E) A) and C)
F) B) and D)

Question 8

Which of the following policies would reduce the procyclical nature of fiscal policy at the state level?

Accepted Answer

A)  The establishment of "rainy-day funds"
B)  The introduction of price controls
C)  The institution of balanced budget requirements
D)  The elimination of automatic stabilizersE) All of the above
F) A) and C)

Question 9

If interest rates adjust to equate savings and investment, then an expansionary fiscal policy is:

Accepted Answer

A)  more likely to increase interest rates and less likely to crowd out investment.
B)  more likely to increase interest rates and more likely to crowd out investment.
C)  less likely to increase interest rates and less likely to crowd out investment.
D)  less likely to increase interest rates and more likely to crowd out investment.E) A) and B)
F) A) and C)

Question 10

Empirical evidence over the past two decades suggests that the percentage of unemployed who receive unemployment insurance has been declining,and in 2017 only about 27% of unemployed persons collected benefits.What does this decline do to the impact of unemployment insurance as an automatic stabilizer?

Accepted Answer

Unemployment insurance is intended to ma...

Question 11

Which of the following issues will economists likely agree about?

Accepted Answer

A)  The long-run achievable target rate of unemployment
B)  Estimates of potential income
C)  The relationship between the level of economic activity and inflation
D)  Outside of some unemployment range, too much spending causes inflation and too little causes a recessionE) B) and C)
F) None of the above

Question 12

What is the difference between "sound finance" and "functional finance"? Why did the advocates of each view of public finance take such different positions?

Accepted Answer

Sound finance was a view of public finan...

Question 13

Refer to the graph shown. Assume the economy is in short-run equilibrium at point A below potential output. The government opts for an expansionary fiscal policy that shifts the AD curve from AD0 to AD1 in an attempt to pull the economy out of the recession. An economist with a functional finance view, who also recognizes that there will be a certain degree of crowding out, would conclude that the economy will likely end up at point: 0 to AD1 in an attempt to pull the economy out of the recession. An economist with a functional finance view, who also recognizes that there will be a certain degree of crowding out, would conclude that the economy will likely end up at point:   A) A. B) B. C) C. D) D." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  A.
B)  B.
C)  C.
D)  D.E) None of the above
F) A) and B)

Question 14

In terms of fiscal policy, which of the following is an example of a fiscal automatic stabilizer?

Accepted Answer

A)  The reduction in the money supply that occurs as banks become less willing to make loans during a recession
B)  The reduction in wages that occurs as the economy goes into a recession
C)  The increase in government spending that occurs as the result of new spending bills passed by Congress
D)  The rise in tax revenue that occurs as a result of growth in real GDPE) B) and D)
F) A) and D)

Question 15

Refer to the graph shown. Assume the economy is in short-run equilibrium at point A below potential output. The government opts for an expansionary fiscal policy in an attempt to pull the economy out of the recession. An economist with a Classical view holding the Ricardian equivalence theorem to be practically true would conclude that the economy will most likely end up at point:

Accepted Answer

A)  A.
B)  B.
C)  C.
D)  D.E) None of the above
F) A) and B)

Question 16

Because automatic stabilizers increase government spending and decrease tax revenue during a recession and have the opposite effect during a recovery, they tend to create budget:

Accepted Answer

A)  deficits throughout the business cycle.
B)  surpluses throughout the business cycle.
C)  deficits during the recovery phase of the business cycle and budget surpluses during the recession phase.
D)  deficits during the recession phase of the business cycle and budget surpluses during the recovery phase.E) B) and C)
F) C) and D)

Question 17

Using fiscal policy to stabilize the economy is difficult because:

Accepted Answer

A)  potential income is known.
B)  the effects of policy changes are known with certainty.
C)  there are time lags involved in the use of fiscal policy.
D)  the size of the government debt doesn't matter.E) All of the above
F) C) and D)

Question 18

Financing expansionary fiscal policy by increasing the deficit does not generally affect interest rates.

Accepted Answer

A) True 
 B)False

Question 19

Generally speaking, the government implements fiscal policy in a:

Accepted Answer

A)  fast and accurate manner.
B)  slow and inaccurate manner.
C)  fast but inaccurate manner.
D)  slow but accurate manner.E) B) and D)
F) A) and B)

Question 20

It is generally true that elected officials find it easier to:

Accepted Answer

A)  cut taxes.
B)  cut government spending.
C)  raise taxes and cut government spending.
D)  raise both taxes and government spending.E) None of the above
F) All of the above

Exam 32: The Fiscal Policy Dilemma

Automatic stabilizers are government programs or policies that will counteract the business cycle without any new government action.

Correct Answer
verified

It is generally true that elected officials find it easier to:

Correct Answer
verified

Crowding out:

Correct Answer
verified

Correct Answer
verified
Unemployment insurance is intended to ma...
View Answer

Generally speaking, the government implements fiscal policy in a:

Correct Answer
verified

In terms of fiscal policy, which of the following is an example of a fiscal automatic stabilizer?

Correct Answer
verified

What is the difference between "sound finance" and "functional finance"? Why did the advocates of each view of public finance take such different positions?

Correct Answer
verified
Sound finance was a view of public finan...
View Answer

Correct Answer
verified

Because automatic stabilizers increase government spending and decrease tax revenue during a recession and have the opposite effect during a recovery, they tend to create budget:

Correct Answer
verified

Correct Answer
verified

Which of the following issues will economists likely agree about?

Correct Answer
verified

If interest rates adjust to equate savings and investment, then an expansionary fiscal policy is:

Correct Answer
verified

Sound finance holds that government spending should be directed toward sound investment.

Correct Answer
verified

A decrease in the budget deficit will have a:

Correct Answer
verified

Crowding out will be less likely to occur if:

Correct Answer
verified

Which of the following policies would reduce the procyclical nature of fiscal policy at the state level?

Correct Answer
verified

The concept of fiscal policy refers to the:

Correct Answer
verified

Financing expansionary fiscal policy by increasing the deficit does not generally affect interest rates.

Correct Answer
verified

What are three advantages and disadvantages of expansionary fiscal policy?

Correct Answer
verified
Three advantages of expansionary fiscal ...
View Answer

Using fiscal policy to stabilize the economy is difficult because:

Correct Answer
verified

Exam 32: The Fiscal Policy Dilemma

Automatic stabilizers are government programs or policies that will counteract the business cycle without any new government action.

Correct AnswerverifiedShow Answer

It is generally true that elected officials find it easier to:

Correct AnswerverifiedShow Answer

Crowding out:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedUnemployment insurance is intended to ma...View AnswerShow Answer

Generally speaking, the government implements fiscal policy in a:

Correct AnswerverifiedShow Answer

In terms of fiscal policy, which of the following is an example of a fiscal automatic stabilizer?

Correct AnswerverifiedShow Answer

What is the difference between "sound finance" and "functional finance"? Why did the advocates of each view of public finance take such different positions?

Correct AnswerverifiedSound finance was a view of public finan...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Because automatic stabilizers increase government spending and decrease tax revenue during a recession and have the opposite effect during a recovery, they tend to create budget:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following issues will economists likely agree about?

Correct AnswerverifiedShow Answer

If interest rates adjust to equate savings and investment, then an expansionary fiscal policy is:

Correct AnswerverifiedShow Answer

Sound finance holds that government spending should be directed toward sound investment.

Correct AnswerverifiedShow Answer

A decrease in the budget deficit will have a:

Correct AnswerverifiedShow Answer

Crowding out will be less likely to occur if:

Correct AnswerverifiedShow Answer

Which of the following policies would reduce the procyclical nature of fiscal policy at the state level?

Correct AnswerverifiedShow Answer

The concept of fiscal policy refers to the:

Correct AnswerverifiedShow Answer

Financing expansionary fiscal policy by increasing the deficit does not generally affect interest rates.

Correct AnswerverifiedShow Answer

What are three advantages and disadvantages of expansionary fiscal policy?

Correct AnswerverifiedThree advantages of expansionary fiscal ...View AnswerShow Answer

Using fiscal policy to stabilize the economy is difficult because:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Unemployment insurance is intended to ma...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Sound finance was a view of public finan...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Three advantages of expansionary fiscal ...
View Answer

Correct Answer
verified