Professional Documents
Culture Documents
Chapter 15 Fiscal Policy 15.1 What Is Fiscal Policy?: Exercise 9 Answer Key
Chapter 15 Fiscal Policy 15.1 What Is Fiscal Policy?: Exercise 9 Answer Key
4) The increase in the amount that the government collects in taxes when the economy
expands and the decrease in the amount that the government collects in taxes when
the economy goes into a recession is an example of
A) automatic stabilizers.
B) discretionary fiscal policy.
C) discretionary monetary policy.
D) automatic monetary policy.
Answer: A
Comment: Recurring
Diff: 2 Page Ref: 900/496
Topic: Automatic Stabilizers versus Discretionary Fiscal Policy
Objective: LO1: Define fiscal policy.
AACSB: Reflective Thinking
Special Feature: None
5) Which of the following would not be considered an automatic stabilizer?
A) legislation increasing funding for job retraining passed during a recession
B) decreasing unemployment insurance payments due to decreased jobless during an
expansion
C) rising income tax collections due to rising incomes during an expansion
D) declining food stamp payments due to more persons finding jobs during an
expansion
Answer: A
Comment: Recurring
Diff: 2 Page Ref: 900/496
Topic: Automatic Stabilizers versus Discretionary Fiscal Policy
Objective: LO1: Define fiscal policy.
AACSB: Reflective Thinking
Special Feature: None
6) Federal government purchases, as a percentage of GDP,
A) have risen since the early 1950s.
B) have fallen since the early 1950s.
C) have remained roughly the same since the early 1950s.
D) rose from the early 1950s until the mid 1980s, and then fell.
Answer: B
Comment: Recurring
Diff: 2 Page Ref: 901/497
Topic: Government Spending and Taxes
Objective: LO1: Define fiscal policy.
AACSB: Reflective Thinking
Special Feature: None
15.2 The Effects of Fiscal Policy on Real GDP and the Price Level
1) Automatic stabilizers refer to government spending and taxing which automatically
increase and decrease to
A) stabilize interest rates.
B) stabilize foreign-exchange rates.
Comment: Recurring
Diff: 2 Page Ref: 905/501
Topic: Expansionary and Contractionary Fiscal Policy
Skill: Graphing
Objective: LO2: Explain how fiscal policy affects aggregate demand and how the
government can use fiscal policy to stabilize the economy.
AACSB: Analytic Skills
Special Feature: None
4) Refer to Figure 15-1. Suppose the economy is in a recession and expansionary
fiscal policy is pursued. Using the static AD-AS model in the figure above, this would
be depicted as a movement from
A) A to B.
B) B to C.
C) C to B.
D) B to A.
E) A to E.
Answer: A
Comment: Recurring
Diff: 2 Page Ref: 905/501
Topic: Expansionary and Contractionary Fiscal Policy
Skill: Graphing
Objective: LO2: Explain how fiscal policy affects aggregate demand and how the
government can use fiscal policy to stabilize the economy.
AACSB: Analytic Skills
Special Feature: None
5) Refer to Figure 15-1. Suppose the economy is in short-run equilibrium below
potential GDP and Congress and the president lower taxes to move the economy back
to long-run equilibrium. Using the static AD-AS model in the figure above, this would
be depicted as a movement from
A) A to B.
B) B to C.
C) C to B.
D) B to A.
E) A to E.
Answer: A
Comment: Recurring
Diff: 2 Page Ref: 905/501
Topic: Expansionary and Contractionary Fiscal Policy
Skill: Graphing
Objective: LO2: Explain how fiscal policy affects aggregate demand and how the
government can use fiscal policy to stabilize the economy.
AACSB: Analytic Skills
Special Feature: None
6) Refer to Figure 15-1. Suppose the economy is in short-run equilibrium below
potential GDP and no fiscal or monetary policy is pursued. Using the static AD-AS
model in the figure above, this would be depicted as a movement from
A) A to B.
B) B to C.
C) C to B.
D) B to A.
E) A to E.
Answer: E
Comment: Recurring
Diff: 3 Page Ref: 905/501
Topic: Expansionary and Contractionary Fiscal Policy
Skill: Graphing
Objective: LO2: Explain how fiscal policy affects aggregate demand and how the
government can use fiscal policy to stabilize the economy.
AACSB: Analytic Skills
Special Feature: None
7) Refer to Figure 15-1. Suppose the economy is in short-run equilibrium above
potential GDP and automatic stabilizers move the economy back to long-run
equilibrium. Using the static AD-AS model in the figure above, this would be
depicted as a movement from
A) D to C.
B) A to E.
C) C to B.
D) B to A.
E) E to A.
Answer: C
Comment: Recurring
Diff: 3 Page Ref: 905/501
Topic: Expansionary and Contractionary Fiscal Policy
Skill: Graphing
Objective: LO2: Explain how fiscal policy affects aggregate demand and how the
government can use fiscal policy to stabilize the economy.
AACSB: Analytic Skills
Special Feature: None
8) Refer to Figure 15-1. Suppose the economy is in short-run equilibrium above
potential GDP and no policy is pursued. Using the static AD-AS model in the figure
above, this would be depicted as a movement from
A) D to C.
B) A to E.
C) C to D.
D) C to B.
E) E to A.
Answer: C
Comment: Recurring
Diff: 3 Page Ref: 905/501
Topic: Expansionary and Contractionary Fiscal Policy
Skill: Graphing
Objective: LO2: Explain how fiscal policy affects aggregate demand and how the
government can use fiscal policy to stabilize the economy.
AACSB: Analytic Skills
Special Feature: None
3) The aggregate demand curve will shift to the right ________ the initial decrease in
taxes.
A) by less than
B) by more than
C) by the same amount
D) sometimes by more than and other times by less than
Answer: B
Comment: Recurring
Diff: 2 Page Ref: 910/506
Topic: Tax Multiplier
Objective: LO4: Explain how the government purchases and tax multipliers work.
AACSB: Reflective Thinking
Special Feature: None
4) A change in consumption spending caused by income changes is ________ change
in spending, and a change in government spending that occurs to improve roads and
bridges is ________ change in spending.
A) an induced; an autonomous
B) an expansionary; a contractionary
C) an autonomous; an induced
D) a contractionary; an expansionary
Answer: A
Comment: Recurring
Diff: 2 Page Ref: 908-909/504-505
Topic: Government Purchases Multiplier
Objective: LO4: Explain how the government purchases and tax multipliers work.
AACSB: Reflective Thinking
Special Feature: None
5) The tax multiplier equals the change in ________ divided by the change in
________.
A) taxes; equilibrium real GDP
B) equilibrium real GDP; taxes
C) taxes; consumption spending
D) consumption spending; taxes
Answer: B
Comment: Recurring
Diff: 1 Page Ref: 910/506
Topic: Tax Multiplier
Objective: LO4: Explain how the government purchases and tax multipliers work.
AACSB: Reflective Thinking
Special Feature: None
6) If the tax multiplier is -1.5 and a $200 billion tax increase is implemented, what is
the change in GDP, holding everything else constant? (Assume the price level stays
constant.)
A) a $300 billion decrease in GDP
B) a $300 billion increase in GDP
C) a $30 billion increase in GDP
D) a $133.33 billion decrease in GDP
resulting in a new equilibrium with a higher price level and lower real GDP.
A) decreased; increase
B) decreased; decrease
C) increased; increase
D) increased; decrease
Answer: B
Diff: 2 Page Ref: 930/526
Topic: Tax Policy
Objective: LO7: Discuss the effects of fiscal policy in the long run.
AACSB: Reflective Thinking
Special Feature: An Inside LOOK at Policy: Obama Uses Fiscal Policy to Stimulate
the Economy