Title: Compare neoclassical and Keynesian approaches to Fiscal Policy
Course: TEST Course

Q: A supply side policy to address a recession would likely
- increase government spending rather than provide tax cuts.
- enact policies that stimulate aggregate demand rather than aggregate supply.
- provide tax cuts rather than increased government spending.
A: provide tax cuts rather than increased government spending.

Q: If an economy was in a recession and the government decided to use a supply side policy to address it, the government would most likely
- expand and increase government spending instead of enacting tax cuts.
- Enact stimulate aggregate demand through its policies instead of aggregate supply.
- institute cutting taxes rather than increasing spending by the government.
A: institute cutting taxes rather than increasing spending by the government.

Q: Former President Ronald Reagan was a supporter of supply side economics. Supply side economists believe that
- increasing tax rates decreases aggregate demand.
- reducing tax rates increases aggregate demand.
- reducing tax rates decreases aggregate supply.
- reducing tax rates increases aggregate supply.
A: reducing tax rates increases aggregate supply.

Q: In the 1980s President Ronald Reagan greatly supported supply side economics and implemented its policies in the economy. What do supply side economists believe?
- When tax rates are increased it decreases aggregate demand.
- When tax rates are reduced it increases aggregate demand.
- When tax rates are reduced it decreases aggregate supply.
- When tax rates are reduced it increases aggregate supply.
A: When tax rates are reduced it increases aggregate supply.

Q: Reducing tax rates encourages ________ according to a supply side economist.
- people to enjoy more time off
- consumers to spend less
- businesses to increase investment spending
A: businesses to increase investment spending

Q: A supply side economist would advocate reducing tax rates to encourage
- government to increase investment spending.
- consumers to spend less.
- people to work more.
A: people to work more.

Q: According to the Laffer curve, as tax rates rise
- Tax revenue first decrease but eventually rise as tax rates reach certain levels.
- Tax revenue increases faster first and then slower as tax rates reach certain levels.
- Tax revenue first increase but eventually fall as tax rates reach certain levels.
A: Tax revenue first increase but eventually fall as tax rates reach certain levels.

Q: How do rising tax rates affect tax revenue over time according to the Laffer curve?
- At first tax revenue decrease but eventually rise as tax rates reach certain levels.
- At first tax revenue increase faster then slower as tax rates reach certain levels.
- At first tax revenue increases but then falls as tax rates reach certain levels.
A: At first tax revenue increases but then falls as tax rates reach certain levels.

Q: A Keynesian increase in government purchases shifts the aggregate demand curve to the right by an amount equal to
- the increase in government purchases.
- the expenditure multiplier.
- the increase in government purchase divided by the expenditure multiplier.
- the increase in government purchases times the expenditure multiplier.
A: the increase in government purchases times the expenditure multiplier.

Q: When there is a Keynesian increase in government purchases it causes a shift in the aggregate demand curve to the right by an amount equal to
- the increase in government purchases.
- the expenditure multiplier.
- the increase in government purchase divided by the expenditure multiplier.
- the increase in government purchases times the expenditure multiplier.
A: the increase in government purchases times the expenditure multiplier.

Q: Which of the following can the government use as a tool of fiscal policy if it wants to increase the level of real GDP in the economy?
- a decrease in government expenditure
- a reduction in government transfer payments
- a cut in taxes
A: a cut in taxes

Q: Which of the following can the government use as a tool of fiscal policy if it wants to decrease the level of real GDP in the economy?
- a cut in taxes
- an increase in government expenditures
- a decrease in government expenditures
A: a decrease in government expenditures

Q: Congress’ Economic Council recommends avoiding budget deficits to avoid crowding out private investment. The council appears to follow
- the Keynesian approach to fiscal policy.
- the supply side approach to fiscal policy.
- the neoclassical approach to fiscal policy.
A: the neoclassical approach to fiscal policy.

Q: Congress’ Economic Council recommends additional government spending to stimulate the aggregate demand. The council appears to follow
- the neoclassical approach to fiscal policy.
- the supply side approach to fiscal policy.
- the Keynesian approach to fiscal policy.
A: the Keynesian approach to fiscal policy.

Q: According to the Keynesian approach to fiscal policy
- The crowding out effect is a significant problem that reduces the effectiveness of expansionary fiscal policy.
- The crowding out effect is a significant problem that reduces the aggregate demand.
- The crowding out effect is quite limited as the demand for private loans is low in times of recessions.
A: The crowding out effect is quite limited as the demand for private loans is low in times of recessions.

Q: According to the neoclassical approach to fiscal policy
- The crowding out effect is quite limited as the demand for private loans is low in times of recessions
- The crowding out effect is a significant problem that reduces the aggregate demand
- The crowding out effect is a significant problem that reduces the effectiveness of expansionary fiscal policy
A: The crowding out effect is a significant problem that reduces the effectiveness of expansionary fiscal policy

Q: Holding all else constant, while government is borrowing to cover budget deficits, the crowding out concept suggests that interest rates ________ borrowing and spending by business and households.
- rise and encourage
- fall and discourage
- fall and encourage
- rise and discourage
A: rise and discourage

Q: If government borrows to cover budget deficits, and everything else is held constant, what is proposed by the crowding out concept is that ________interest rates ________ spending and borrowing by households and businesses.
- rising; encourages
- falling; discourages
- falling; encourages
- rising; discourages
A: rising; discourages

Q: A country’s economic data indicates that there has been a substantial reduction in the financial capital available to be borrowed by private sector firms. Which of the following is the most likely cause of this situation?
- Particularly large and sustained household saving.
- Increased influx of funds by foreign financial investors.
- Especially large and sustained government borrowing.
A: Especially large and sustained government borrowing.

Q: The country of Bagernat’s analyzes its economic data and discovers a substantial decrease in the financial capital accessible to private sector companies. What is the most likely cause of this circumstance?
- Households savings have become large.
- Foreign financial funds have increased their presence.
- The government’s continued extensive borrowing.
A: The government’s continued extensive borrowing.

Q: An increase in government borrowing can
- increase the incentive for private investment.
- cause a substantial decrease in interest rates.
- crowd out private investment.
A: crowd out private investment.

Q: A reduction in government borrowing can
- decrease the incentive to invest.
- increase the interest rate.
- crowd out private investment.
- give private investment an opportunity to expand.
A: give private investment an opportunity to expand.

Q: An increase in government autonomous spending may result in which of the following?
- a decline in the interest rate
- deficit reduction
- reduced government borrowing
- crowding out of private investment
A: crowding out of private investment

Q: A contractionary fiscal policy by a government may result in which of the following?
- crowding out of private investment
- a reduced deficit
- a reduction in government borrowing
- lower interest rates
A: lower interest rates

Q: Which of the following is likely to lead to economic growth in the long term?
- interest payment on debt
- spending on printing new dollar bills.
- new highways to serve new neighborhoods and business parks
A: new highways to serve new neighborhoods and business parks

Q: Which of the following is likely to lead to economic growth in the long term?
- legal fees for contract negotiations
- spending on printing new dollar bills
- funds for colleges and grants to students in higher education
A: funds for colleges and grants to students in higher education

Q: An argument to promote research and development in technology is that it will
- lead to many patents on innovations.
- lead to a more equitable (fair) distribution of income.
- promote economic growth in the long run.
A: promote economic growth in the long run.

Q: An argument to promote education is that it will
- create jobs for teachers
- increase capital accumulation or deepening in the economy
- increase labor productivity and economic growth in the long run
A: increase labor productivity and economic growth in the long run

Q: An argument to promote capital deepening is that it will
- lead to a more stable economy.
- lead to a more equitable (fair) distribution of income.
- increase productivity and economic growth in the long run.
A: increase productivity and economic growth in the long run.

Q: The government spends $150 million to develop new communication technologies with the aim of
- improving income distribution.
- creating jobs for computer programmers.
- increasing productivity and growth.
A: increasing productivity and growth.

Q: Of the following examples, which is associated with government spending for investment?
- The federal government spends $2 million on updating and improving the security for the White House.
- The federal government spends $5 million on office supplies for federal offices.
- The federal government spends $400 million on fixing airports and upgrading control tower software and technology.
A: The federal government spends $400 million on fixing airports and upgrading control tower software and technology.

Q: Which of the examples below is a true example of government spending for investment?
- The federal government spends $1 million on printing new maps of the Smithsonian museums.
- The federal government spends $2 million on new paint for three federal office buildings.
- The federal government grants $10 million to a university’s engineering program to develop more durable highway bridges.
A: The federal government grants $10 million to a university’s engineering program to develop more durable highway bridges.