Fiscal Policy Quiz

Economics Honors 1. Fiscal policy refers to a. the use of government spending and taxation to influence the level of economic growth and inflation. b. the adjustment of the GDP for inflation. c. the purchase and sale of U.S. go ernment securities to regulate the money supply. d. a policy action by !ongress to o errule unpopular budget cuts by the president. e. the use of fines to penali"e unfair business practices. #. $ncome ta%es affect aggregate demand a. indirectly by changing in estment spending. b. indirectly by changing consumption. c. indirectly by changing net e%ports. d. directly through go ernment spending. e. directly by changing disposable income. &. Fiscal policy affects 'hich t'o components of aggregate demand either directly or indirectly( a. !onsumption and in estment b. )a%es and consumption c. Government spending and consumption d. *et e%ports and sa ing e. $n estment and net e%ports

+. $f the federal go ernment of the United States decides to cut its spending by #,, million dollars- all else e.ual- 'hat 'ould happen to aggregate e%penditures /AE0( a. AE 'ould remain constant. b. AE 'ould e.ual potential real GDP. c. AE 'ould increase. d. AE would decrease. e. 1e cannot 2no' 'hat 'ould happen to AE 'ith the information gi en. 3. 1hich of the follo'ing is not a means to finance go ernment spending( a. b. c. d. e. Personal income ta%es Government subsidies 4oney creation Go ernment debt !apital gains ta%es

5. Fiscal policy in the United States is the result of a. a yearly budget process involving both the president and Congress. b. a fi e6year budget plan o erseen by the 7ffice of 4anagement and 8udget. c. a joint budget resolution by federal agencies. d. an act of !ongress. e. a decree by the president.

9. Economists define t'o components of fiscal policy. )hese are: a. Discretionary fiscal policy and automatic stabilizers. b. Discretionary fiscal policy and refle%i e fiscal policy. c. 7bligatory and refle%i e fiscal policies. d. 7bligatory fiscal policy and automatic fiscal actions. e. ;utomatic stabili"ers and refle%i e fiscal policy. <. ;n automatic stabili"er is a. a change in go ernment spending aimed at achie ing a policy goal. b. a deliberate change in ta%ation aimed at increasing real GDP. c. an element of monetary policy that automatically changes in alue as real GDP changes. d. an element of fiscal policy that automatically changes in value as real GDP changes. e. a decrease in ta% rates as the economy mo es into a recession. =. Starting 'ith a situation 'here there is a substantial budget deficit- 'hen ta% re enues gro' faster than federal e%penditures- the go ernment 'ill e%perience a. b. c. d. e. an increasing national debt. a balanced budget. an increasing budget deficit. a declining budget deficit. a declining budget surplus.

11. Discretionary fiscal policy is best defined as a. the deliberate change in tax laws and government spending to change e uilibrium income. b. the automatic change in certain fiscal instruments 'hen real GDP changes. c. the deliberate manipulation of the money supply to e%pand the economy. d. the policy action ta2en by !ongress to reduce the federal budget deficit. e. the arbitrary fluctuation in ta% la's and budget re.uirements. 1#. 8udget deficits tend to gro' during recessions because a. real GDP growth is negative! which reduces tax receipts in relation to government expenditures. b. real GDP gro'th is positi e'hich reduces both ta% receipts and transfer payments. c. real GDP gro'th is negati e'hich reduces transfer payments in relation to ta% receipts. d. real GDP gro'th is "ero- 'hich causes neither ta% receipts nor go ernment e%penditures to gro'. e. real GDP gro'th is positi e'hich increases ta% receipts in relation to go ernment e%penditures. 1&. !ro'ding out ta2es place 'hen the go ernment budget deficit a. b. c. d. e. reduces domestic investment. increases transfer payments. increases ta% rates. reduces sa ing. increases net e%ports.

1,. 1hich of the follo'ing is not related to fiscal policy( a. b. c. d. 1elfare $ncreasing ta%es 8alancing the budget deficit Foreign exchange market intervention e. ;ll of these

1+. )he national debt is a. the current budget deficit plus the interest outstanding. b. the stock of government bonds outstanding. c. smaller than the current budget deficit. d. a product of the go ernment spending less than the ta%es it collects. e. the current budget deficit. 13. ;ll the follo'ing are potential costs of the U.S. national debt except a. higher interest rates that discourage pri ate in estment. b. lower inflation in the future. c. foreign6held debt that must be repaid. d. reduced domestic 'ealth in the future. e. a higher international trade deficit. 15. )he gro'th of the federal budget deficit is lin2ed to all the follo'ing except a. b. c. d. e. the GDP gap. international trade patterns. the si"e of the national debt. the unemployment rate. the business cycle.

19. 1e 'ould e%pect the U.S. federal go ernment to recei e most of its ta% re enue from a. b. c. d. e. tariffs on foreign imports. state income ta%es. federal income taxes. sales ta%es. alue6added ta%es.

1<. 1hen go ernments issue debt to finance their spending- households and firms e%pect higher future ta% rates that 'ill be necessary to pay for the ne'ly adopted debt- and therefore consume and in est less in the present- and so this effect 'ill limit the increase in aggregate e%penditures. a. " b. F 1=. )he go ernment policy that emphasi"es ta% rate cuts to create incenti es for firms to produce more and hire more 'or2ers came to be 2no'n as a. b. c. d. e. demand6side economics. >affer establishment. >affer cur e politics. supply#side economics. aggregate supply chain.

#,. $f cro'ding out e%ists- the e%pansionary effect of go ernment spending 'ill be a. b. c. d. e. smaller than intended. larger than intended. negati e. infinite. unchanged.

?eference: @#&.#.9A @1A @;A ?eference: @#&.#.<A @#A @8A ?eference: @#&.#.=A @&A @!A ?eference: @#&.#.1#A @+A @DA ?eference: @#&.#.#9A @3A @8A ?eference: @#&.&.5<A @5A @;A ?eference: @#&.&.9+A @9A @;A ?eference: @#&.&.93A @<A @DA ?eference: @#&.&.95A @=A @DA ?eference: @#&.&.99A @1,A @DA ?eference: @#&.&.9<A @11A @;A ?eference: @#&.&.<1A @1#A @;A ?eference: @#&.&.=1A @1&A @;A ?eference: @#&.&.=5A @1+A @8A ?eference: @#&.&.==A @13A @8A ?eference: @#&.&.1,,A @15A @8A ?eference: @#&.+.1&#A @19A @!A

?eference: @#&.#.31A @1<A @;A ?eference: @#&.#.3+A @1=A @DA ?eference: @#&.#.3<A @#,A @;A