Title: Fiscal Policy
Course: Macro Quiz Test

Q: Which of the following does NOT affect aggregate demand?
- Federal government spending.
- Tax rates on corporate investment.
- Crop failures due to weather events.
A: Crop failures due to weather events.

Q: Which of the following affects aggregate demand?
- Crop failures due to weather events.
- Corporate investment in infrastructure to boost productivity.
- Federal government spending.
A: Federal government spending.

Q: Which of the following is a concern of fiscal policy?
- Changes in interest rates.
- Changes in the money supply.
- Changes in taxes.
A: Changes in taxes.

Q: Fiscal policy is concerned with which of the following?
- Interest rate changes.
- Money supply changes.
- Government expenditure changes.
A: Government expenditure changes.

Q: A major concern of fiscal policy is
- how changes to the money supply affect aggregate demand.
- how changes to the budget affect the money supply.
- how federal government taxing and spending affects aggregate demand.
A: how federal government taxing and spending affects aggregate demand.

Q: How federal government taxing and spending affects aggregate demand is
- a major concern of international policy.
- a major concern of corporate policies.
- a major concern of fiscal policy.
A: a major concern of fiscal policy.

Q: Which of the following terms is used to describe the set of policies that relate to government spending, taxation, and borrowing?
- financial policies
- monetary policies
- fiscal policies
A: fiscal policies

Q: When the government increases its spending, it is conducting
- monetary policy.
- supply-side policy.
- fiscal policy.
A: fiscal policy.

Q: Assuming that income tax is the only source of revenue for the government, with tax revenue of $50 billion and government spending totaling $70 billion, which of the following is true of the government’s budget?
- The government has a budget surplus of $20 billion.
- The government has a balanced budget of $70 billion.
- The government has a budget deficit of $20 billion.
A: The government has a budget deficit of $20 billion.

Q: Assume that the only source of revenue for the government is income tax. With government spending totaling $93 and a total of $127 collected in tax revenue, which of the following correctly states the position of the government’s budget?
- The government has a budget deficit of $34 billion.
- The government has a balanced budget of $93 billion.
- The government has a budget surplus of $34 billion.
A: The government has a budget surplus of $34 billion.

Q: When does a balanced budget occur?
- When government spending exceeds government tax revenues.
- When the rate of increase in government spending equals the rate of increase in government tax revenue collections.
- When government spending equals government tax revenues.
A: When government spending equals government tax revenues.

Q: When does a budget surplus occur?
- When government spending exceeds government tax collections.
- When government spending equals government tax revenues.
- When the increase in the rate of government spending is smaller than the rate for government tax collections.
- When government tax revenues exceed government spending.
A: When government tax revenues exceed government spending.

Q: Which of the following are major components of US federal government spending?
- Foreign aid
- Education
- Medicare and social security expenditures
A: Medicare and social security expenditures

Q: Which of the following are NOT major components of US federal government spending?
- National Defense
- Social Security
- Community and regional development
A: Community and regional development

Q: Which of the following statements about government spending is true?
- The share of defense spending in GDP has increased substantially since the 1960’s.
- Interest payments on government debt are not counted as part of government spending.
- The shares of social security and health care spending in GDP have grown steadily since the 1960’s.
A: The shares of social security and health care spending in GDP have grown steadily since the 1960’s.

Q: Which of the following statements about government spending is true?
- Total government spending as a percentage of GDP has increased every year since the 1960’s.
- Interest payments on government debt as a percentage of GDP have steadily increased.
- The share of healthcare spending in GDP has increased substantially since the 1960’s.
A: The share of healthcare spending in GDP has increased substantially since the 1960’s.

Q: A government annually collects $320 billion in tax revenue and allocates $80 billion to education spending. What percentage of this government's budget is spent on education?
- 12%
- 30%
- 1%
- 25%
A: 25%

Q: A government annually collects $210 billion in tax revenue and allocates $70 billion to military spending. What percentage of this government's budget is spent on its military?
- 27%
- 36%
- 41%
- 33%
A: 33%

Q: State and local government spending goes predominantly towards
- national defense.
- Social Security.
- education.
A: education.

Q: Which category accounts for most of the the spending by state and local governments?
- national defense
- Social Security
- education
A: education

Q: Most spending on K-12, college, and universities is provided by:
- federal spending.
- federal, state, and local spending equally.
- state and local spending.
A: state and local spending.

Q: State and local governments provide ________ of the spending on education
- about 50%
- about 25%
- about 90%
A: about 90%

Q: If a state with a balanced budget law runs a budget surplus, its options include
- a tax increase.
- drawdown of previous budgetary savings.
- a spending increase.
A: a spending increase.

Q: The state of Montana has a balanced budget law runs a budget deficit. What are the state’s options to correct a deficit?
- an increasing in spending
- taking out a loan from state banks
- an increase in taxes
A: an increase in taxes

Q: Besides education, what other areas within its borders is a state responsible for funding?
- federal highways and parkes and religious organizations
- banks, weather mitigation equipment, stadiums and their security
- roads, parks, police and fire protection, libraries
A: roads, parks, police and fire protection, libraries

Q: Looking at a list of where tax revenue is being used for funding, it includes libraries, parks, police and fire protection, hospitals and roads. From this list, it can be accurately concluded that the funding entity for these services is
- the Federal government.
- from foreign and a state government.
- a State government.
A: a State government.

Q: The smaller share of federal tax revenues comes from
- individual income taxes.
- payroll taxes (for Social Security & Medicare).
- corporate income taxes.
A: corporate income taxes.

Q: Which of the following makes up the largest share of federal tax revenues comes?
- excise taxes
- estate taxes
- payroll taxes (for Social Security & Medicare)
A: payroll taxes (for Social Security & Medicare)

Q: What do goods like gasoline, tobacco, and alcohol typically have in common?
- A proportional tax is imposed on each of them.
- A regressive tax is imposed on each of them.
- They are all subject to government excise taxes.
A: They are all subject to government excise taxes.

Q: Tad just filled his truck with gas, grabbed a pack of cigarettes and a case of beer on his way to his fishing cabin. When looking at his receipts, what does Tad notice that all three of these goods have in common?
- Each of them have imposed on them a proportional tax.
- Each have an imposed regressive tax.
- All of them are subject to government excise taxes.
A: All of them are subject to government excise taxes.

Q: In 2010, Microsoft will pay corporate income tax to the federal government based on the company's ________.
- proportional tax rate
- progressive tax rate
- profits
A: profits

Q: Google runs a lucrative business and will pay corporate income tax to the federal government. On what is the corporate tax based?
- A proportional tax rate for Google.
- A progressive tax rate for Google.
- Google’s profits.
A: Google’s profits.

Q: State and local tax revenue sources do NOT include
- sales taxes.
- income taxes.
- revenues from the federal government.
- social security taxes.
A: social security taxes.

Q: The main sources of state and local revenue include property tax,
- social security tax, and federal funding.
- income tax, and taxes on interest.
- sales tax, and federal government assistance.
A: sales tax, and federal government assistance.

Q: An increase in corporate income tax from 20% to 24% would have the most impact on
- state governments’ budgets.
- the budgets for cities and counties.
- the federal government budget.
A: the federal government budget.

Q: If corporate income taxes increased from 23% to 28%, which of the following would be most impacted?
- state governments’ budgets
- cities and counties’ budgets
- the Federal government budget
A: the Federal government budget

Q: Which of the following examples describe a progressive tax?
- Social Security tax rate of 6.2% on earned income below $117,000 and 0% on income earned above $117,000.
- Medicare payroll tax of 2.9% of income for everyone, regardless of how much they earn.
- Income tax with a 10% tax rate on low income households and 20-30% tax rates on higher income households.
A: Income tax with a 10% tax rate on low income households and 20-30% tax rates on higher income households.

Q: An example of a progressive tax would be
- a Social Security tax rate of 5% on earned income below $100,000 and 0% on income earned above $100,000.
- the Medicare payroll tax of 2.9% of income for everyone, regardless of how much they earn.
- an income tax with a 10% tax rate on low income households and 20-30% tax rates on higher income households.
A: an income tax with a 10% tax rate on low income households and 20-30% tax rates on higher income households.

Q: Which of the following example(s) describe a regressive tax?
- Income tax with a 10% tax rate on low income households and 20-30% tax rates on higher income households
- Medicare payroll tax of 2.9% of income for everyone, regardless of how much they earn
- Social Security tax rate of 6.2% on earned income below $117,000 and 0% on income earned above $117,000
A: Social Security tax rate of 6.2% on earned income below $117,000 and 0% on income earned above $117,000

Q: An example of a regressive tax is a/an
- Income tax with a 10% tax rate on low income households and 20-30% tax rates on higher income households.
- Medicare payroll tax of 2.9% of income for everyone, regardless of how much they earn.
- Social Security tax rate of 6.2% on earned income below $117,000 and 0% on income earned above $117,000.
A: Social Security tax rate of 6.2% on earned income below $117,000 and 0% on income earned above $117,000.

Q: Which of the following example(s) describe a proportional tax?
- Social Security tax rate of 6.2% on earned income below $117,000 and 0% on income earned above $117,000.
- Income tax with a 10% tax rate on low income households and 20-30% tax rates on higher income households.
- Medicare payroll tax of 2.9% of income for everyone, regardless of how much they earn.
A: Medicare payroll tax of 2.9% of income for everyone, regardless of how much they earn.

Q: A tax that is a flat percentage of all wages earned is a
- regressive tax.
- progressive tax.
- proportional tax.
A: proportional tax.

Q: Ari’s income and federal income tax contributions are in the table below. What is the federal income tax in Ari’s country?

 | Taxable Income | Federal Income Tax Payment
2016 | $80,000 | $10,000
2017 | $94,000 | $11,750
- regressive.
- progressive.
- proportional.
A: proportional.

Q: Astor’s income and federal income tax contributions are in the table below. What is the federal income tax in Astor’s country?

 | Taxable Income | Federal Income Tax Payment
2016 | $75,000 | $9,000
2017 | $84,000 | $10,750
- regressive.
- progressive.
- proportional.
A: proportional.

Q: Property taxes are
- generally considered to be regressive.
- generally considered to be flat.
- imposed based on ownership of assets such as real estate and autos.
A: imposed based on ownership of assets such as real estate and autos.

Q: Property taxes are
- imposed based on income.
- generally considered to be progressive.
- generally considered to be regressive.
A: generally considered to be regressive.

Q: Sales taxes are
- generally considered to be progressive.
- a tax burden that is entirely paid by consumers.
- imposed as a percentage of the value of the purchase.
A: imposed as a percentage of the value of the purchase.

Q: Sales taxes are
- imposed based on ownership of assets.
- a tax burden that is entirely paid by consumers.
- generally considered to be regressive.
A: generally considered to be regressive.

Q: The ability to pay principle of taxation holds that
- people who receive more of the benefit of government spending should pay more taxes.
- taxes should be a flat rate regardless of income.
- people with more income should pay more taxes.
A: people with more income should pay more taxes.

Q: A flat tax
- imposes a regressive tax decreases with income.
- is a progressive tax.
- imposes a single, identical tax rate on the income of all taxpayers.
A: imposes a single, identical tax rate on the income of all taxpayers.

Q: Tom earns $33,000 per year. The income tax rate on incomes below $20,000 is 10 percent. The rate on income between $20,001 and $35,000 is 15 percent. Which of the following is true?
- The income tax is flat.
- The income tax is regressive.
- Tom’s marginal income tax rate is 15 percent.
A: Tom’s marginal income tax rate is 15 percent.

Q: Gloria earns $30,000 per year. The income tax rate on incomes below $20,000 is 10 percent. The rate on income between $20,001 and $35,000 is 15 percent. Which of the following is true?
- Gloria’s marginal income tax rate is 12 percent.
- The income tax is regressive.
- Gloria’s marginal income tax rate is 15 percent.
A: Gloria’s marginal income tax rate is 15 percent.

Q: A ________ is created each time the federal government spends more than it collects in taxes in a given year.
- budget surplus
- regressive tax
- budget deficit
A: budget deficit

Q: If in 2017, the government spent over $650 billion more from its budget than it brought in during that year. This is called the
- federal debt.
- budget surplus.
- budget deficit.
A: budget deficit.

Q: Which number is higher?
- U.S. budget deficit.
- U.S. budget surplus.
- U.S. federal debt.
A: U.S. federal debt.

Q: The U.S. ________ is higher than the ________.
- deficit; debt
- surplus; budget
- debt; deficit
A: debt; deficit

Q: If the federal government spends more than it collects in taxes in a given year, then there is a ________.
- budget surplus
- corporate tax
- budget deficit
A: budget deficit

Q: A ________ means that government spending and tax revenues are equal.
- fiscal budget
- discretionary fiscal policy
- balanced budget
A: balanced budget

Q: In 2016, the federal government spent $200 billion but collected $180 billion in taxes, therefore in 2016, the government accumulated
- a budget surplus of $20 billion.
- a federal debt of $666 billion.
- a budget deficit of $20 billion.
A: a budget deficit of $20 billion.

Q: In 2016, the government of Ostentia experienced a budget deficit of $40 billion and as a result
- the government of Ostentia’s debt would be $40 billion.
- the government of Ostentia’s debt would decrease by $40 billion.
- the government of Ostentia’s debt would increase by $40 billion.
A: the government of Ostentia’s debt would increase by $40 billion.

Q: Assume the government has a balanced budget and that the economy is experiencing a period of growth higher than predicted, tax receipts (collected) by the government are likely to
- increase and result in a budget deficit.
- decrease and result in a budget deficit.
- increase and result in a budget surplus.
A: increase and result in a budget surplus.

Q: Assume the government has a budget deficit and that the economy is experiencing a period of growth higher than predicted, tax receipts (collected) by the government are likely to
- increase and increase the budget deficit.
- decrease and increase the budget deficit.
- increase and reduce the budget deficit.
A: increase and reduce the budget deficit.

Q: Assume the government has a budget deficit and that the economy is experiencing a recession, tax receipts (collected) by the government are likely to
- increase and reduce the budget deficit.
- decrease and decrease the budget deficit.
- decrease and increase the budget deficit.
A: decrease and increase the budget deficit.

Q: Assume the government has a balanced budget and that the economy is experiencing a recession, the tax receipts (collected) of the government are likely to
- increase and lead to a budget deficit.
- decrease and lead to a budget surplus.
- decrease and lead to a budget deficit.
A: decrease and lead to a budget deficit.

Q: Assume that the government of country of Ostentia for its current budget plans to collect taxes in the amount of $10 billion and to spend $9 billion. A civil war breaks out and the government spends an additional $1 billion and tax collection is down by $1 billion. What is the result?
- The expected budget deficit turns in to a $1 billion surplus.
- The expected budget surplus turns in to a $2 billion deficit.
- The expected budget surplus turns in to a $1 billion deficit.
A: The expected budget surplus turns in to a $1 billion deficit.

Q: In the country of Ovriolio the government has a budget plan to collect taxes in the amount of $15 billion and to spend $12 billion. A surge in production boosts the economy and the government spends $2 billion less than planned and tax collection is up by $1 billion. What are the results of these actions?
- Ovriolio’s expected budget surplus becomes a $6 billion deficit.
- Ovriolio’s expected budget surplus becomes a $3 billion deficit.
- Ovriolio’s expected budget surplus becomes a $6 billion surplus.
A: Ovriolio’s expected budget surplus becomes a $6 billion surplus.

Q: What are some of the unexpected events in a economy that can contribute moving toward a national surplus rather than a deficit?
- The number of exported products from a country fall as imports increase.
- Personal income decreases and income taxes decline.
- An economy has unexpected growth that increases national payroll tax revenues.
A: An economy has unexpected growth that increases national payroll tax revenues.

Q: What are some of the unexpected events in a economy that can contribute moving toward a national deficit rather than a surplus?
- An economy has unexpected growth that increases national payroll tax revenues.
- The number of exported products from a country increase as imports decrease.
- Personal income decreases and income taxes decline.
A: Personal income decreases and income taxes decline.

Q: How would a balanced budget amendment affect a decision by Congress to grant a tax cut during a recession?
- The government would have to make up the revenue by either cutting taxes or increasing spending.
- The government would have to increase automatic stabilizers in the economy and reduce discretionary fiscal policy.
- The government would have to make up the revenue either by raising taxes in a different area or cutting spending.
A: The government would have to make up the revenue either by raising taxes in a different area or cutting spending.

Q: If Congress wanted to implement a tax cut during a recession but had to keep a balanced budget, what would need to do?
- The government would have to cut taxes in another area.
- The government would have to increase spending.
- The government would have to reduce spending.
A: The government would have to reduce spending.

Q: How would a balanced budget amendment change the effect of automatic stabilizer programs?
- They would increase in flexibility because they could kick in before Congress has time to adjust the budget.
- They could no longer exist because the government would not have a way to pay for these programs.
- They would lose flexibility because spending could not increase unless funds were there.
A: They would lose flexibility because spending could not increase unless funds were there.

Q: How would automatic stabilizer programs, such as unemployment benefits, be affected by a balanced budget amendments?
- They would increase in flexibility because they could kick in before Congress has time to adjust the budget.
- They could no longer exist because the government would not have a way to pay for these programs.
- They would lose flexibility because spending could not increase unless funds were there.
A: They would lose flexibility because spending could not increase unless funds were there.

Q: Assuming the government of country Balistan has a balanced budget requirement and collects $100 million more in taxes than expected in 2016. As a result, the government would have to
- reduce spending by $100 million.
- increase taxes by $100 million.
- increase spending by $100 million.
A: increase spending by $100 million.

Q: Swazilialand is a country where the government mandate is to have a balanced budget each year. This year the government’s tax collections brought in $50 million more than expected. Because of the balanced budget mandate, the government has to
- reduce spending by $50 million.
- increase taxes by $50 million.
- increase spending by $50 million.
A: increase spending by $50 million.

Q: The congress of the country of Delta is debating budget issues and decides to cancel $5 billion worth of tax cuts in order to balance the budget. An argument against a balanced budget rule would be
- the fact that the government of Delta should have reduced spending instead.
- that the budget deficits and debt do not have any impact on the economy.
- that benefits from the tax cut were forgone.
A: that benefits from the tax cut were forgone.

Q: In the country of Memphis, in order to balance the budget this year it’s parliament decides to cancel $7 million worth of planned spending on improving highways and national infrastructure. One reason that can be argued against a balanced budget law is
- that building for the future requires only accumulating debt today.
- budget deficits and debt have little impact on an economy.
- that the benefits from improved infrastructure were forgone.
A: that the benefits from improved infrastructure were forgone.

Q: Which of the following is an example of an automatic fiscal policy stabilizer?
- Tax revenues rise after Congress raises corporate tax rates.
- Congress decides to cut spending on national defense.
- Congress cuts individual income tax rates.
- Tax revenues fall as real GDP decreases.
A: Tax revenues fall as real GDP decreases.

Q: Of the following examples, which is an example of an automatic fiscal policy stabilizer?
- Tax revenues fall after Congress decreases corporate tax rates.
- Congress decides to cut spending on national parks.
- Congress increases individual income tax rates.
- Tax revenues increase as real GDP increases.
A: Tax revenues increase as real GDP increases.

Q: ________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional changes in legislation.
- Standardized employment budgets
- Discretionary fiscal policies
- Budget expenditures
- Automatic stabilizers
A: Automatic stabilizers

Q: ________ are a form of tax and spending rules that can affect aggregate demand in the economy without any changes in legislation.
- A new spending bill passed by Congress
- A new law mandating higher payroll taxes
- Automatic stabilizers
A: Automatic stabilizers

Q: If an economy moves into a recession, causing that country to produce less than potential GDP, then:
- automatic stabilizers will cause tax revenue to increase and government spending to decrease.
- tax revenue and government spending will be higher because of automatic stabilizers.
- tax revenue and government spending will be lower because of automatic stabilizers.
- automatic stabilizers will cause tax revenue to decrease and government spending to increase.
A: automatic stabilizers will cause tax revenue to decrease and government spending to increase.

Q: If an economy moves into an inflationary period, causing that country to produce more than potential GDP, then
- automatic stabilizers will cause tax revenue to decrease and government spending to increase.
- tax revenue and government spending will be higher because of automatic stabilizers.
- tax revenue and government spending will be lower because of automatic stabilizers.
- automatic stabilizers will cause tax revenue to increase and government spending to decrease.
A: automatic stabilizers will cause tax revenue to increase and government spending to decrease.

Q: If an economy moves into a recessionary period, examples of fiscal policies that act as automatic stabilizers include
- an increase in tax revenues as household incomes fall.
- a flat tax on households’ income.
- an increase in government defense spending.
- an increase in transfer spending, such as unemployment benefits.
A: an increase in transfer spending, such as unemployment benefits.

Q: If an economy moves into an inflationary period, examples of fiscal policies that act as automatic stabilizers include
- an decrease in tax revenues as household incomes fall.
- a flat tax on households’ income.
- an increase in government defense spending.
- an decrease in transfer spending, such as unemployment benefits.
A: an decrease in transfer spending, such as unemployment benefits.

Q: During a recession, automatic stabilizers include
- income tax rates.
- Social Security payments.
- unemployment benefits.
A: unemployment benefits.

Q: Automatic stabilizers during a recession include
- property tax rates.
- Social Security payments.
- food stamps.
A: food stamps.

Q: If the economy is producing less than its potential GDP, ________ will show a smaller deficit than the actual deficit.
- discretionary fiscal policy
- the automatic stabilizers
- expansionary fiscal policy
- the standardized employment deficit
A: the standardized employment deficit

Q: If the economy is producing more than its potential GDP, ________ will show a larger deficit than the actual deficit.
- discretionary fiscal policy
- the automatic stabilizers
- expansionary fiscal policy
- the standardized employment deficit
A: the standardized employment deficit

Q: When a country's economy is producing at a level that exceeds its potential GDP, the standardized employment deficit will show a ________ than the actual deficit.
- smaller surplus
- smaller deficit
- larger deficit
A: larger deficit

Q: When a country's economy is producing at a level that is less than its potential GDP, the standardized employment deficit will show a ________ than the actual deficit.
- smaller surplus
- larger deficit
- smaller deficit
A: smaller deficit

Q: In an attempt to boost the economy, the government's expansionary fiscal policy would include which of the following?
- increased taxation
- cutting government expenditure
- reducing the money supply
- cutting tax rates
A: cutting tax rates

Q: Expansionary fiscal policy might include which of the following?
- Increase in taxes or increased government spending.
- Reduction in taxes or lowered government spending.
- Reduction of taxes or increased government spending.
A: Reduction of taxes or increased government spending.

Q: An expansionary fiscal policy can increase the level of aggregate demand by all of the following EXCEPT
- cutting tax rates to increase disposable income and spending.
- reducing corporate tax rates to increase investment spending.
- decreasing government purchases.
A: decreasing government purchases.

Q: An expansionary fiscal policy can increase the level of aggregate demand by
- decreasing government purchases.
- reducing grants to state and local governments.
- reducing corporate tax rates to increase investment spending.
A: reducing corporate tax rates to increase investment spending.

Q: The government can use ________ in the form of ________ to increase the level of aggregate demand in the economy.
- a contractionary fiscal policy; a reduction in taxes
- an expansionary fiscal policy; an increase in corporate taxes
- an expansionary fiscal policy; an increase in government spending
A: an expansionary fiscal policy; an increase in government spending

Q: In order to increase the level of aggregate demand in the economy, the government can use ________ in the form of ________.
- a contractionary fiscal policy; an increase in taxes
- an expansionary fiscal policy; an increase in corporate taxes
- an expansionary fiscal policy; an increase in government spending
A: an expansionary fiscal policy; an increase in government spending

Q: If a government reduces tax rates in order to increase the level of aggregate demand, what type of fiscal policy is being used?
- contractionary and automatic
- automatic and expansionary
- discretionary and expansionary
A: discretionary and expansionary

Q: The goal of the government of Swansia last year was to increase the level of aggregate demand by reducing tax rates. What fiscal policy type did Swansia use?
- contractionary and automatic
- automatic and expansionary
- discretionary and expansionary
A: discretionary and expansionary

Q: Which of the following is NOT an example of an expansionary, discretionary fiscal policy?
- an increase in government purchases
- a reduction in tax rates.
- an increase in transfer payments.
- an increase in tax rates.
A: an increase in tax rates.

Q: Of the following examples, which one is excluded from being an expansionary, discretionary fiscal policy?
- an increase in government purchases
- a reduction in tax rates.
- an increase in transfer payments.
- an increase in tax rates.
A: an increase in tax rates.

Q: If the government of the country of LiLand want to promote economic activity and increase Aggregate Demand, it should
- cut funding to government agencies to reduce the budget deficit.
- increase taxes on imported products and gasoline.
- pass a new spending bill to fund new infrastructure projects.
A: pass a new spending bill to fund new infrastructure projects.

Q: The country of Latinivia has a goal to increase and foster economic activity and therefore increase Aggregate Demand. What actions would it take to achieve this goal?
- Cut funding to government departments to minimize the budget deficit.
- Increase taxes on imported services and oil.
- Fund new infrastructure projects by passing a new spending bill.
A: Fund new infrastructure projects by passing a new spending bill.

Q: When inflation begins to climb to unacceptable levels in the economy, the government should
- use contractionary fiscal policy to shift aggregate demand to the right.
- use expansionary fiscal policy to shift aggregate demand to the right.
- use expansionary fiscal policy to shift aggregate demand to the left.
- use contractionary fiscal policy to shift aggregate demand to the left.
A: use contractionary fiscal policy to shift aggregate demand to the left.

Q: A country’s government should ________ when inflation begins to climb to unacceptable levels in the economy.
- shift aggregate demand to the right by using contractionary fiscal policy
- shift aggregate demand to the right by using expansionary fiscal policy
- shift aggregate demand to the left by using expansionary fiscal policy
- shift aggregate demand to the left by using contractionary fiscal policy
A: shift aggregate demand to the left by using contractionary fiscal policy

Q: A typical ________ fiscal policy allows government to decrease the level of aggregate demand, through increases in tax rates.
- discretionary and expansionary
- contractionary and automatic
- discretionary and contractionary
A: discretionary and contractionary

Q: When the government passes a new law that explicitly increases overall tax rates and reduces spending levels, it is enacting:
- discretionary and expansionary
- contractionary and automatic
- discretionary and contractionary
A: discretionary and contractionary

Q: A decrease in government expenditure shifts the AD curve to the ________ and a decrease in taxes shifts the AD curve to the ________.
- right; left
- right; right
- left; left
- left; right
A: left; right

Q: A decrease in taxes will shift the AD curve to the ________, while a decrease in government expenditure will shift the curve to the ________.
- right; right
- left; right
- left; left
- right; left
A: right; left

Q: Contractionary fiscal policy is recommended when
- a recession has taken place.
- unemployment is on the rise.
- inflation has reached harmful levels.
A: inflation has reached harmful levels.

Q: When ________ contractionary fiscal policy is the recommended choice.
- a recession has taken place
- unemployment is on the rise
- inflation has reached harmful levels
A: inflation has reached harmful levels

Q: An increase in taxes through a new budget would
- shift the aggregate demand left and increase the Gross Domestic Product at the new equilibrium.
- shift the aggregate demand right as it rises and reduce the Gross Domestic Product at the new equilibrium.
- shift the aggregate demand left and reduce the Gross Domestic Product at the new equilibrium.
A: shift the aggregate demand left and reduce the Gross Domestic Product at the new equilibrium.

Q: If Congress passed a new budget that increased taxes it would
- increase the gross domestic product to a new equilibrium as aggregate demand shifted to the left
- reduce the gross domestic product to a new equilibrium as it rises and the aggregate demand shifts to the right.
- reduce the gross domestic product to a new equilibrium as aggregate demand shifted to the left.
A: reduce the gross domestic product to a new equilibrium as aggregate demand shifted to the left.

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.