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Practice Quiz for Fiscal Policy


Multiple Choice
Enter your name above. Select the best answer from the drop-down box next to the question. When you have answered all of the questions, submit them for grading using the button at the bottom of the page. This is just for practive, not for a grade.
 

 1. 
Discretionary fiscal policy works by shifting the short-run aggregate supply curve.
A)
True
B)
False
 

 2. 
If the government increases its purchases by $100 and the multiplier is 4, then equilibrium real GDP demanded
A)
increases by $25
C)
increases by $100
E)
decreases by $400
B)
decreases by $25
D)
increases by $400
 

 3. 
If the government decreases net autonomous taxes by $100 billion and the MPC = 0.75, then equilibrium real GDP demanded will
A)
remain the same
B)
increase by $300 billion
C)
decrease by $300 billion
D)
increase by $400 billion
E)
decrease by $400 billion
 

 4. 
Assume autonomous net taxes fall by $300; the MPC = 2/3. Net exports, planned investment, taxes, and government purchases are autonomous and remain fixed. Disposable income will initially
A)
remain unchanged
B)
rise by $300
C)
rise by $200
D)
rise by $900
E)
fall by $300
 

 5. 
When the short-run aggregate supply (SRAS) curve has a positive slope, effective fiscal policy to correct for an expansionary gap will
A)
only reduce the price level
B)
only reduce real GDP
C)
only increase the price level
D)
only increase real GDP
E)
reduce both the price level and real GDP
 

 6. 
A decrease in government purchases closes an expansionary gap by shifting the aggregate demand curve.
A)
True
B)
False
 

 7. 
What set of policies could the government use to close an expansionary gap?
A)
decrease taxes, increase government purchases and transfer payments
B)
increase taxes, government purchases, and transfer payments
C)
increase taxes and transfer payments and decrease government purchases
D)
increase taxes, decrease transfer payments and government purchases
E)
decrease taxes, transfer payments, and government purchases
 

 8. 
Because the income tax is progressive, the amount of taxes paid is a
A)
constant fraction of income throughout the business cycle (i.e., as the economy experiences considerable fluctuation)
B)
larger fraction of income in expansions than in contractions
C)
smaller fraction of income in expansions than in contractions
D)
decreasing function of income in both expansions and contractions
E)
constant amount
 

 9. 
The tax cut of 1964 (proposed by President Kennedy)
A)
was the last time fiscal policy was used
B)
was the greatest failure as a demand-management tool
C)
actually increased investment, consumption, and employment
D)
shifted the aggregate demand curve leftward
E)
was the first time the focus moved away from managing aggregate demand to focus exclusively on aggregate supply
 

 10. 
Evidence assembled at Yale University suggests that
A)
George Bush was elected president in 1992 partly because the unemployment rate was so low that year
B)
the state of the economy has a clear impact on the outcomes of U.S. presidential elections
C)
Bill Clinton was elected president in 1992 partly because the unemployment rate was so low that year
D)
incumbent U.S. presidents are more likely to be reelected when the unemployment rate is high than when the inflation rate is high
E)
strong GDP growth during election years favors the political party that is not currently in office
 

 11. 
The BEA’s final estimate of the annual rate of growth in US real GDP in the fourth quarter of 2008 was
A)
- 6.3%
B)
-5.8%
C)
-3.8%
D)
1.2%
E)
7.2%
 

 12. 
The US civilian unemployment rate for February  2009 was closest to
A)
2%
B)
4%
C)
6%
D)
8%
E)
10%
 

 13. 
The number of unemployed people in the US in February 2009 was closest to
A)
1 million
B)
4 million
C)
8 million
D)
12 million
E)
16 million
 

 14. 
Current-dollar US Gross Domestic Product in 2008 was closest to
A)
  $10 Billion
B)
$100 Billion
C)
  $1 Trillion
D)
$10 Trillion
E)
$100 Trillion
 



 
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