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FIU ECO 3041 - Chapter 12 Review Questions

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Chapter 12 Review QuestionsQuestions:1. Fiscal policy is carried out primarily by: A) the Federal government. B) state and local governments working together.C) state governments alone. D) local governments alone. 2. Fiscal policy refers to the: A) manipulation of government spending and taxes to stabilize domestic output, employment, and the price level. B) manipulation of government spending and taxes to achieve greater equality in the distribution of income. C) altering of the interest rate to change aggregate demand. D) fact that equal increases in government spending and taxation will be contractionary. 3. If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by: A) increasing government spending by $4 billion. B) increasing government spending by $40 billion.C) decreasing taxes by $4 billion. D) increasing taxes by $4 billion. 4. If the MPC in an economy is .8, government could shift the aggregate demand curve rightward by $100 billion by: A) increasing government spending by $25 billion. B) increasing government spending by $80 billion.C) decreasing taxes by $25 billion. D) decreasing taxes by $100 billion. 5. The effect of a government surplus on the equilibrium level of GDP is substantially the same as: A) a decrease in saving. B) an increase in saving.C) an increase in consumption. D) an increase in investment. 6. 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? A) a Congressional proposal to incur a Federal surplus to be used for the retirement of public debt B) a reduction in agricultural subsidies and veterans' benefits C) a postponement of a highway construction program D) a reduction in Federal tax rates on personal and corporate income 1 | P a g eChapter 12 Review Questions7. Which of the following represents the most expansionary fiscal policy? A) a $10 billion tax cut B) a $10 billion increase in government spendingC) a $10 billion tax increase D) a $10 billion decrease in government spending 8. A contractionary fiscal policy is shown as a: A) rightward shift in the economy's aggregate demand curve. B) rightward shift in the economy's aggregate supply curve. C) movement along an existing aggregate demand curve. D) leftward shift in the economy's aggregate demand curve. 9. If the economy has a standardized budget surplus, this means that: A) the public sector is exerting an expansionary impact on the economy. B) tax revenues would exceed government expenditures if full employment were achieved. C) the actual budget is necessarily also in surplus. D) the economy is actually operating at full employment. 10. The amount by which government expenditures exceed revenues during a particular year is the:A) public debt. B) budget deficit. C) full-employment. D) GDP gap.11. The amount by which Federal tax revenues exceed Federal government expenditures during a particular year is the:A) Federal reserve. B) budget deficit. C) budget surplus. D) public debt.12. The Social Security trust fund currently is in:A) deficit, and it inclusion in the Federal budget increases the stated size of the budget deficit.B) deficit, and it inclusion in the Federal budget reduces the stated size of the budget deficit.C) surplus, and its inclusion in the Federal budget reduces the stated size of the budget deficit. D) surplus, and it inclusion in the Federal budget increases the stated size of the Federal budget deficit.2 | P a g eChapter 12 Review Questions13. The crowding-out effect of expansionary fiscal policy suggests that: A) tax increases are paid primarily out of saving and therefore are not an effective fiscal device. B) increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. C) it is very difficult to have excessive aggregate spending in the U.S. economy. D) consumer and investment spending always vary inversely. 14. Which of the following fiscal policy actions is most likely to increase aggregate supply? A) An increase in personal income tax rates. B) A reduction in interest rates that encourages consumers to purchase more durable goods. C) An increase in transfer payments to unemployed workers.D) An increase in government spending on infrastructure that increases private sector productivity. Answers:1. A2. A3. A4. C5. B6. D7. B8. D9. B10. B11. C12. C13. B14. D3 | P a g


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