Chapter 13 Self-Test Quiz

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Points Awarded  4
Points Missed  5
Percentage  44%

1. Discretionary fiscal policy is

A. the use of interest rate changes to affect aggregate demand.

B. the use of interest rate changes to affect aggregate supply.
C. the use of government spending or tax policy to manage aggregate demand.
D. the use of government spending or tax policy to manage aggregate supply.
Correct: Congress may elect to enact fiscal policy measures when the economy is either
sluggish or overheated.
Points Earned: 1/1
Your Response: C

2. A recessionary gap occurs when

A. aggregate output falls below potential output.

B. potential output falls below aggregate output.
C. transfer payments undermine incentives to work.
D. taxes on corporate profits undermine incentives to invest.
Correct: Unemployment is likely to arise in this situation, and there will be pressure on the
federal government to stimulate economic activity.
Points Earned: 1/1
Your Response: A

3. To address a recessionary gap, the appropriate fiscal policy would

be

A. an increase in personal taxes.

B. an increase in corporate taxes.
C. an increase in government spending.
D. an increase in interest rates.
Correct: Added government spending will increase aggregate demand.
Points Earned: 1/1
Your Response: C
 4. The effect of expansionary fiscal policy is to

A. shift aggregate supply to the left.

B. shift aggregate supply to the right.
C. shift aggregate demand to the left.
D. shift aggregate demand to the right.
Incorrect: Expansionary fiscal policy will lead to higher total spending either in the private
sector, the public sector, or in both.
Points Earned: 0/1
Your Response: B

5. The 2008 stimulus package was an example of

A. shifting aggregate demand to the left.

B. shifting short-run aggregate supply to the right.
C. contractionary fiscal policy.
D. expansionary fiscal policy.
Correct: The stimulus package consisted of a combination of tax decreases and increased
government spending.
Points Earned: 1/1
Your Response: D

6. The amount of the aggregate demand shift in response to an

increase in government spending depends on

A. the slope of the short-run aggregate supply curve.

B. the slope of the long-run aggregate supply curve.
C. the size of the multiplier.
D. whether the increase in government spending is supported by
both political parties.
Incorrect: Recall that the total aggregate demand shift will be the result of the cumulative
rounds of spending that unfold as the added income makes it way through the economy.
Points Earned: 0/1
Your Response: A

7. A $75 billion tax cut will

A. increase GDP by the same amount as a $75 billion increase in

government purchases of goods and services.
B. increase GDP by a smaller amount than would a $75 billion
increase in government purchases of goods and services.
 C. not affect aggregate demand, as it will only shift aggregate
supply.
D. increase the marginal propensity to consume, thereby
decreasing the value of the multiplier.
Incorrect: The tax cut will increase disposable income by $75 billion, but only a portion of
that will be spent.
Points Earned: 0/1
Your Response: A

8. Because transfer payments rise when the economy is contracting

and fall when it is expanding, they are referred to as

A. automatic stabilizers.
B. discretionary policy measures.
C. fiscal lags.
D. zero-balance accounts.
Incorrect: Examples of transfer payments are Medicaid and food stamps. What term is used
to describe them in the chapter?
Points Earned: 0/1
Your Response: C

9. A requirement to have an annually balanced federal budget would

mean

A. that there would be no more recessionary gaps or inflationary

gaps.
B. that the role of taxes and transfers as automatic stabilizers
would be undermined.
C. that total household disposable income would be the same
every year.
D. that actual GDP would equal potential GDP every year.
Incorrect: To balance the budget on an annual basis, policymakers would have to reduce
transfer payments during years of an economic downturn.
Points Earned: 0/1
Your Response: D