21) Automatic stabilizers decrease the impact of a recession on the level of economic
activity because they
A) reduce the interest rate and so allow irms to increase their level of investment.
B) increase taxes so the budget is always balanced.
C) raise the exchange rate so U.S. exports become more attractive to foreigners.
D) mean disposable income does not change by as much as real GDP.
E) increase the quantity of money in circulation.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
22) Which of the following is true?
A) Automatic stabilizers are used to eliminate recessions.
B) Discretionary iscal policy cannot eliminate a recession.
C) Automatic stabilizers help to reduce the impact of a recession.
D) Discretionary iscal policy can automatically eliminate a recession.
E) Automatic stabilizers make discretionary policy more efective by increasing the
magnitude of the multipliers.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
23) Automatic stabilizers
A) increase the magnitude of the government expenditure multiplier.
B) decrease the magnitude of the government expenditure multiplier.
C) have no efect on the magnitude of the government expenditure multiplier.
D) reduce the government expenditure multiplier to zero.
E) increase the magnitude of the tax multiplier.
Skill: Level 5: Critical thinking
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
21
24) The structural deicit or surplus is the
A) diference between actual government outlays and actual government revenues.
B) change in national debt that will result from current budgetary policies.
C) government budget deicit or surplus that would occur if the economy were at full
employment.
D) diference between actual government outlays and what would be government revenues
if the economy were at full employment.
E) actual government budget deicit or surplus minus expenditures for capital
improvements.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
25) The structural deicit is the deicit
A) during a recession.
B) during an expansion.
C) that would occur at full employment.
D) caused by the business cycle.
E) that does not increase the national debt.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
26) The structural surplus
A) equals the actual surplus plus the cyclical surplus.
B) is the government budget surplus that would exist if the economy was at full
employment.
C) is, by deinition, equal to the negative of the cyclical deicit.
D) is legally required to be positive.
E) luctuates over the business cycle.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
22
27) The cyclical deicit is the portion of the deicit
A) created by luctuations in real GDP.
B) that is the result of nondiscretionary federal spending.
C) that would exist if the economy were at full employment.
D) that is the result of discretionary federal spending.
E) that does not add to the national debt.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
28) When an economy is above full employment and the government has a budget deicit,
that deicit
A) exceeds the structural deicit.
B) is equal to the cyclical deicit.
C) is equal to the structural deicit minus the cyclical deicit.
D) is equal to the cyclical deicit minus the structural deicit.
E) is less than the structural deicit.
Skill: Level 3: Using models
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
29) The actual budget deicit is equal to the
A) structural deicit.
B) cyclical deicit.
C) structural deicit minus the cyclical deicit.
D) cyclical deicit minus the structural deicit.
E) structural deicit plus the cyclical deicit.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
23
30) If the budget deicit is $50 billion and the structural deicit is $10 billion, the cyclical
deicit is
A) $10 billion.
B) $40 billion.
C) $60 billion.
D) $50 billion.
E) More information is need to answer the question.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Analytical thinking
31) If the economy has a structural deicit of $25 billion and a cyclical deicit of $75, we
can conclude that the current budget deicit is ________ billion.
A) $0
B) $25
C) $50
D) $75
E) $100
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Analytical thinking
32) Discretionary iscal policy is deined as iscal policy
A) left to the discretion of military authorities.
B) initiated by an act of Congress.
C) initiated by a Presidential proclamation.
D) triggered by the state of the economy.
E) with multiplier efects.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
24
33) In 2009, Congress passed tax laws to reduce income tax rates for some taxpayers. This
action is called
A) a discretionary iscal policy.
B) a discretionary revenue policy.
C) an automatic iscal policy.
D) an annual tax policy.
E) induced tax policy.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
34) Discretionary iscal policy is a iscal policy action, such as
A) an interest rate cut, initiated by an act of Congress.
B) an increase in payments to the unemployed, initiated by the state of the economy.
C) a tax cut, initiated by an act of Congress.
D) a decrease in tax receipts, initiated by the state of the economy.
E) an increase in the quantity of money.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
35) The government expenditure multiplier is used to determine the
A) extra scrutiny government action receives.
B) amount aggregate demand is afected by a change in government expenditure.
C) amount aggregate supply is afected by a change in government expenditure.
D) amount private consumption is decreased by government expenditure.
E) extent to which automatic stabilizers must be changed in order to avoid recessions.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
25
36) The magnitude of the government expenditure multiplier is ________ the magnitude of
the tax multiplier.
A) greater than
B) equal to
C) less than
D) not comparable to
E) greater than for expansionary policy and less than for contractionary policy
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
37) If government expenditures on goods and services increases by $20 billion, then
aggregate demand
A) increases by $20 billion.
B) increases by more than $20 billion.
C) decreases by $20 billion.
D) decreases by more than $20 billion.
E) increases by less than $20 billion.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
38) If government expenditure on goods and services increase by $100 billion, then
aggregate demand
A) increases by $100 billion.
B) increases by less than $100 billion.
C) increases by more than $100 billion.
D) remains unchanged.
E) decreases by more than $100 billion.
Skill: Level 3: Using models
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
26
39) A $100 million decrease in government expenditure on goods and services leads to an
even larger decrease in aggregate demand because of
A) induced changes in consumption expenditures.
B) automatic iscal policy.
C) induced changes in aggregate supply.
D) discretionary iscal policy.
E) the reinforcing efect of monetary policy.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
40) If government expenditure on goods and services increase by $10 billion, then
aggregate demand
A) increases by $10 billion.
B) increases by $10 billion multiplied by the government expenditure multiplier.
C) increases by $10 billion multiplied by the tax multiplier.
D) decreases by $10 billion.
E) decreases by $10 billion multiplied by the government expenditure multiplier.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
41) If the government reduces expenditure on goods and services by $30 billion, then
aggregate demand
A) decreases by more than $30 billion and real GDP decreases.
B) decreases by $30 billion and real GDP decreases.
C) increases by $30 billion and real GDP increases.
D) increases and potential GDP increases.
E) increases by more than $30 billion and real GDP increases.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Analytical thinking
27
42) The tax multiplier is the
A) magniication efect of a change in taxes on aggregate demand.
B) magniication efect of a change in taxes on the budget deicit.
C) magniication efect of a change in taxes on government expenditures.
D) magniication efect of a change in taxes on aggregate supply.
E) magniication efect of a change in taxes on the national debt.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
43) The magnitude of the tax multiplier is smaller than the magnitude of the government
expenditure multiplier because
A) a change in taxes does not change expenditures.
B) an increase in taxes decreases expenditures.
C) a decrease in government expenditure decreases tax revenue.
D) a change in taxes does not change expenditures by as much as the same size change in
government expenditure.
E) a change in taxes creates additional induced taxes.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Analytical thinking
44) If a change in the tax laws leads to a $100 billion decrease in tax revenue, then
aggregate demand
A) increases by $100 billion.
B) increases by less than $100 billion.
C) increases by more than $100 billion.
D) decreases by $100 billion.
E) decreases by more than $100 billion.
Skill: Level 3: Using models
Section: Checkpoint 16.2
Status: Old
AACSB: Analytical thinking
28
45) If federal taxes are cut by $10 billion, aggregate demand
A) increases by $10 billion.
B) increases by $10 billion multiplied by the government expenditure multiplier.
C) increases by $10 billion multiplied by the tax multiplier.
D) decreases by $10 billion
E) decreases by $10 billion multiplied by the tax multiplier.
Skill: Level 3: Using models
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
46) The government expenditure multiplier and the tax multiplier are
A) identical in size.
B) diferent in size and the tax multiplier is larger.
C) diferent in size and the government expenditure multiplier is larger.
D) not comparable because the government expenditure multiplier applies to aggregate
demand and the tax multiplier applies to aggregate supply.
E) not comparable because the government expenditure multiplier applies to aggregate
supply and the tax multiplier applies to aggregate demand.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
47) Ignoring any supply-side efects, suppose the government is considering cutting taxes
by $100 billion or increasing government expenditures on goods and services by $100
billion. Then
A) both policies would increase aggregate demand by the same amount.
B) both policies would increase aggregate demand but the tax cut has a smaller efect.
C) both policies would increase aggregate demand but the increase in government
expenditure has a smaller efect.
D) the tax cut would decrease aggregate demand and the increase in government
expenditure would increase aggregate demand.
E) the tax cut would increase aggregate demand and the increase in government
expenditure would decrease aggregate demand.
Skill: Level 4: Applying models
Section: Checkpoint 16.2
Status: Old
AACSB: Analytical thinking
29
48) The balanced budget multiplier is
A) positive because the magnitude of government expenditure multiplier is larger than the
magnitude of tax multiplier.
B) negative because the magnitude of government expenditure multiplier is larger than the
magnitude of the tax multiplier.
C) positive because the magnitude of government expenditure multiplier is smaller than
the magnitude of tax multiplier.
D) equal to zero.
E) negative because the magnitude of the tax multiplier is larger than the magnitude of the
government expenditure multiplier.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
49) When comparing a $100 billion increase in government expenditure to a $100 billion
decrease in tax revenue, the efect of the increase in government expenditure on aggregate
demand is
A) greater than the efect of the tax decrease.
B) equal to the efect of the tax decrease.
C) less than the efect of the tax decrease.
D) positive whereas the efect of the tax decrease is negative.
E) negative whereas the efect of the tax decrease is positive.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Analytical thinking
50) The balanced budget multiplier is
A) equal to zero because taxes and government expenditure are changed to leave the
budget balanced.
B) misnamed because it does not leave the budget balanced.
C) greater than zero and less than the government expenditure multiplier.
D) greater than zero and greater than the government expenditure multiplier.
E) less than zero, that is, it is negative.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
30