Chapter 13 – Fiscal Policy, Deficits, and Debt
1. The group of three economists appointed by the President to provide fiscal policy
recommendations is the:
2. Discretionary fiscal policy refers to:
Chapter 13 – Fiscal Policy, Deficits, and Debt
3. Countercyclical discretionary fiscal policy calls for:
4. Fiscal policy refers to the:
5. Discretionary fiscal policy is so named because it:
Chapter 13 – Fiscal Policy, Deficits, and Debt
6. Expansionary fiscal policy is so named because it:
7. Contractionary fiscal policy is so named because it:
8. An economist who favors smaller government would recommend:
Chapter 13 – Fiscal Policy, Deficits, and Debt
9. If the MPS in an economy is .1, government could shift the aggregate demand curve
rightward by $40 billion by:
10. If the MPC in an economy is .8, government could shift the aggregate demand curve
rightward by $100 billion by:
11. An economist who favored expanded government would recommend:
Chapter 13 – Fiscal Policy, Deficits, and Debt
12. If the MPS in an economy is .4, government could shift the aggregate demand curve
leftward by $50 billion by:
13. If the MPC in an economy is .75, government could shift the aggregate demand curve
leftward by $60 billion by:
14. Discretionary fiscal policy will stabilize the economy most when:
Chapter 13 – Fiscal Policy, Deficits, and Debt
15. The effect of a government surplus on the equilibrium level of GDP is substantially the
same as:
16. Assume the economy is at full employment and that investment spending declines
dramatically. If the goal is to restore full employment, government fiscal policy should be
directed toward:
17. Suppose that the economy is in the midst of a recession. Which of the following policies
would most likely end the recession and stimulate output growth?
Chapter 13 – Fiscal Policy, Deficits, and Debt
18. In a certain year the aggregate amount demanded at the existing price level consists of
$100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20
billion of government purchases. Full-employment GDP is $120 billion. To obtain price level
stability under these conditions the government should:
19. In a certain year the aggregate amount demanded at the existing price level consists of
$100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20
billion of government purchases. Full-employment GDP is $200 billion. To obtain full
employment under these conditions the government should:
20. An appropriate fiscal policy for a severe recession is:
Chapter 13 – Fiscal Policy, Deficits, and Debt
21. An appropriate fiscal policy for severe demand-pull inflation is:
22. In an aggregate demand-aggregate supply diagram, equal decreases in government
spending and taxes will:
23. Which of the following represents the most expansionary fiscal policy?
Chapter 13 – Fiscal Policy, Deficits, and Debt
24. Which of the following represents the most contractionary fiscal policy?
25. A contractionary fiscal policy is shown as a:
26. An expansionary fiscal policy is shown as a:
Chapter 13 – Fiscal Policy, Deficits, and Debt
27. A tax reduction of a specific amount will be more expansionary, the:
28. A specific reduction in government spending will dampen demand-pull inflation by a
greater amount, the:
Chapter 13 – Fiscal Policy, Deficits, and Debt
29. Refer to the above diagram, in which Qf is the full-employment output. A contractionary
fiscal policy would be most appropriate if the economy’s present aggregate demand curve
were at:
30. Refer to the above diagram, in which Qf is the full-employment output. An expansionary
fiscal policy would be most appropriate if the economy’s present aggregate demand curve
were at:
Chapter 13 – Fiscal Policy, Deficits, and Debt
31. Refer to the above diagram, in which Qf is the full-employment output. If the economy’s
present aggregate demand curve is AD2:
32. Refer to the above diagram, in which Qf is the full-employment output. If the economy’s
current aggregate demand curve is AD0, it is experiencing:
33. Refer to the above diagram, in which Qf is the full-employment output. If the economy’s
current aggregate demand curve is AD3, it is experiencing:
Chapter 13 – Fiscal Policy, Deficits, and Debt
34. Refer to the above diagram, in which Qf is the full-employment output. If the economy’s
current aggregate demand curve is AD0, it would be appropriate for the government to:
35. Refer to the above diagram, in which Qf is the full-employment output. If the economy’s
current aggregate demand curve is AD3, it would be appropriate for the government to:
Chapter 13 – Fiscal Policy, Deficits, and Debt
36. Refer to the above diagram, in which Qf is the full-employment output. If aggregate
demand curve AD1 describes the current situation, appropriate fiscal policy would be to:
37. Refer to the above diagram, in which Qf is the full-employment output. If aggregate
demand curve AD3 describes the current situation, appropriate fiscal policy would be to:
Chapter 13 – Fiscal Policy, Deficits, and Debt
38. Refer to the above diagram, in which Qf is the full-employment output. If aggregate
demand curve AD2 describes the current situation, appropriate fiscal policy would be to:
39. Refer to the above diagram, in which Qf is the full-employment output. The shift of the
aggregate demand curve from AD3 to AD2 is consistent with:
Chapter 13 – Fiscal Policy, Deficits, and Debt
40. Refer to the above diagram, in which Qf is the full-employment output. The shift of the
aggregate demand curve from AD1 to AD2 is consistent with:
41. Refer to the above diagram, in which Qf is the full-employment output. The shift in the
aggregate demand curve from AD3 to AD2 could result from which of the following fiscal
policy actions?
42. Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $80 billion.
To achieve full-employment output (exactly), government should:
Chapter 13 – Fiscal Policy, Deficits, and Debt
43. Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $100
billion. To achieve full-employment output (exactly), government should:
44. Suppose the price level is fixed, the MPC is .8, the GDP gap is a negative $200 billion. To
achieve full-employment output (exactly), government should:
Chapter 13 – Fiscal Policy, Deficits, and Debt
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45. Refer to the above figure. Suppose that the economy is currently operating at the
intersection of AS and AD2, and that the full employment level of output is Y. If
contractionary fiscal policy and accompanying multiplier effects move aggregate demand
from AD2 to AD1, what will be the effect on real GDP and the price level?
Chapter 13 – Fiscal Policy, Deficits, and Debt
46. Refer to the above figure. Suppose that the economy is currently operating at the
intersection of AS and AD2, and that the full employment level of output is Y. Because of the
ratchet effect:
47. Refer to the above figure. Suppose that the economy is currently operating at the
intersection of AS and AD2, and that the full employment level of output is Y. If the
government wants to move the level of real GDP back to Y and reduce demand-pull inflation,
in the presence of a ratchet effect, it should:
Chapter 13 – Fiscal Policy, Deficits, and Debt
48. Refer to the above diagram. If the full-employment level of GDP is D, then it would be
appropriate fiscal policy for government to:
49. Refer to the above diagram. If the full-employment level of GDP is A, then it would be
appropriate fiscal policy for government to: