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213.
Refer to the accompanying graph. What combination would most likely cause a shift from AD1 to
AD3?
214. Which combination of fiscal policy actions would most likely offset each other?
33-122
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Difficulty: 01 Easy
Learning Objective: 33-01 Identify and explain the purposes, tools, and limitations of
fiscal policy.
Test Bank: II
Topic: Fiscal Policy and the AD-AS Model
215.
Refer to the figure. The economy is at equilibrium at point A. What fiscal policy would be most
appropriate to control demand-pull inflation?
216.
Refer to the figure. The economy is at equilibrium at point B. What would expansionary fiscal
policy do?
217.
Refer to the figure. The economy is at equilibrium at point C, which is below potential output.
What fiscal policy would increase real GDP?
218.
If the economy is in a recession and prices are relatively stable, then the discretionary fiscal
policy or policies that would most likely be recommended to correct
this macroeconomic
problem would be
33-125
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 33-01 Identify and explain the purposes, tools, and limitations of
fiscal policy.
Test Bank: II
Topic: Fiscal Policy and the AD-AS Model
219.
The economy starts out with a balanced Federal budget. If the government then implements
expansionary fiscal policy, then there will be a
220.
Contractionary fiscal policy would tend to make a budget deficit become
221.
Refer to the graph. Assume that the economy is in a recession with a price level of P1 and output
level Q1. The government then adopts an appropriate discretionary
fiscal policy. What will be
the most likely new equilibrium price level and output?
222.
Refer to the graph. Assume that the economy initially has a price level of P1 and output level Q1.
If the government implements expansionary fiscal policy, and the
full multiplier effect is felt, it
will bring the economy to
223.
You are given the following information about aggregate demand at the existing price level
for an economy: (1) consumption = $500 billion, (2) investment = $50
billion, (3) government
purchases = $100 billion, and (4) net export = $20 billion. If the full-employment level of GDP
for this economy is $620 billion, then what combination of actions would be most consistent
with closing the GDP gap here?
33-128
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written consent of McGraw-Hill Education.
C. decrease government spending and increase taxes
D. increase government spending and decrease taxes
AACSB: Knowledge Application
A c c e s s i b i l i t y : Keyboard Navigation
Blooms: Remember
Difficulty:
01 Easy
Learning Objective: 33-01 Identify and explain the purposes, tools, and limitations of
fiscal policy.
Test Bank: II
Topic:
Fiscal Policy and the AD-AS Model
224.
You are given the following information about aggregate demand at the existing price level
for an economy: (1) consumption = $400 billion, (2) investment = $40
billion, (3) government
purchases = $90 billion, and (4) net export = $25 billion. If the full-employment level of GDP
for this economy is $600 billion, then what combination of actions would be most consistent with
closing the GDP gap here?
225.
When government spending is increased, the amount of the increase in aggregate demand
primarily depends on
33-129
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 33-01 Identify and explain the purposes, tools, and limitations of
fiscal policy.
Test Bank: II
Topic:
Fiscal Policy and the AD-AS Model
226.
If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size
will be more expansionary when the
227.
A given reduction in government spending will dampen demand-pull inflation by a greater
amount when the
228.
Which of the following fiscal policy changes would be the most expansionary?
33-130
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D.
a $40 billion tax cut
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 33-01 Identify and explain the purposes, tools, and limitations of
fiscal policy.
Test Bank: II
Topic:
Fiscal Policy and the AD-AS Model
229.
Which of the following expansionary fiscal policy changes would be most favored by those
economists who think that the government is too large and inefficient?
230.
Which of the following fiscal policy changes would be the most contractionary?
231.
An economy is experiencing a high rate of inflation. The government wants to reduce
consumption by $36 billion to reduce inflationary pressure. The MPC is 0.75.
By how much
should the government raise taxes to achieve its objective?
232.
The economy is in a recession. The government enacts a policy to increase spending by $2
billion. The MPS is 0.2. What would be the full increase in real GDP
from the change in
government spending, assuming that the aggregate supply curve is horizontal across the range of
GDP being considered?
233.
In an economy, the government wants to increase aggregate demand by $50 billion at each
price level to increase real GDP and reduce unemployment. If the MPS is
0.4, then it could
increase government spending by
33-132
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D.
$40.50 billion.
AACSB: Knowledge Application
A c c e s s i b i l i t y : Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 33-01 Identify and explain the purposes, tools, and limitations of
fiscal policy.
Test Bank: II
Topic: Fiscal Policy and the AD-AS Model
234.
In an economy, the government wants to decrease aggregate demand by $48 billion at each
price level to decrease real GDP and control demand-pull inflation. If the
MPS is 0.25, then it
could
235.
As the economy declines into recession, the collection of personal income tax revenues
automatically falls. This phenomenon best illustrates how a progressive
income-tax system
33-133
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Topic:
Built-In Stability
236.
Which of the following is an example of built-in stability? As real GDP decreases, income
tax revenues
237.
The so-called negative taxes are better known as
238.
Due to automatic stabilizers, when the nation's total income rises, government transfer
spending
33-134
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Di f ficult y: 02 Medium
Learning Objective: 33-02 Explain the role of built-in stabilizers in moderating business
cycles.
Test Bank: II
Topic:
Built-In Stability
239.
Automatic stabilizers smooth fluctuations in the economy because they produce changes in
the government's budget that
240.
One advantage of automatic fiscal policy over discretionary fiscal policy is that automatic
fiscal policy
241.
If the economy is to have significant built-in stability, then when real GDP increases, the tax
revenues should
242.
Refer to the graph. A budget surplus would be associated with GDP level
33-136
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 33-02 Explain the role of built-in stabilizers in moderating business
cycles.
Test Bank: II
Topic:
Built-In Stability
243.
In the graph, tax revenues vary
244.
Refer to the graph. Automatic stability in this economy could be enhanced by
245.
The more progressive the tax system, the
33-138
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 33-02 Explain the role of built-in stabilizers in moderating business
cycles.
Test Bank: II
Topic:
Built-In Stability
246.
Actions by the federal government that decrease the progressivity of the tax system
247.
The built-in stabilizers in the economy tend to
248.
Which of the following serves as an automatic stabilizer in the economy?
33-139
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Di f ficult y: 02 Medium
Learning Objective: 33-02 Explain the role of built-in stabilizers in moderating business
cycles.
Test Bank: II
Topic:
Built-In Stability
249.
The cyclically adjusted budget estimates the Federal budget deficit or surplus if
250.
The cyclically adjusted budget deficit in an economy is zero. If this economy goes into
recession, then the actual government budget will be
251.
If the cyclically adjusted budget shows a deficit of zero and the actual budget shows a deficit
of about $150 billion, it can be concluded that there is
252.
In Year 1, the actual budget deficit was $200 billion and the cyclically adjusted deficit was
$150 billion. In Year 2, the actual budget deficit was $225 billion and
the cyclically adjusted
deficit was $175 billion. It can be concluded that fiscal policy from Year 1 to Year 2 became
more
253.
In Year 1, the actual budget deficit was $150 billion and the cyclically adjusted deficit was
$125 billion. In Year 2, the actual budget deficit was $130 billion and
the cyclically adjusted
deficit was $125 billion. It can be concluded that from Year 1 to Year 2,
