978-1259723223 Test Bank TBChap033 Part 7

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?

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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

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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?

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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

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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?

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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

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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

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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

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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

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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

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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?

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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,