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Chapter 9 The Government and Fiscal Policy
Principles of Macroeconomics, Case/Fair, 8e
9.1 Government in the Economy
Multiple Choice
1)
Fiscal policy refers to
A)
the techniques used by a business firm to reduce its tax liability. B)
the behavior of the nation's central bank, the Federal Reserve, regarding the nation's money supply. C)
the spending and taxing policies used by the government to influence the economy. D)
the government's ability to regulate a firm's behavior in the financial markets. Answer:
C
Diff: 1
Skill: D
2)
Which of the following is NOT a category of fiscal policy?
A)
Government policies regarding the purchase of goods and services B)
Government policies regarding taxation
C)
Government policies regarding money supply in the economy
D)
Government policies regarding transfer payments and welfare benefits Answer:
C
Diff: 1
Skill: F
3)
What determines tax revenues?
A)
The income tax rate
B)
The income of households
C)
The money supply in the economy
D)
Both A and B are correct.
Answer:
D
Diff: 2
Skill: C
4)
Which of the following is INCORRECT regarding tax revenues?
A)
They increase during recessions.
B)
They change with changes in the tax rate.
C)
They are a revenue source in the government's budget.
D)
None of the above.
Answer:
A
Diff: 2
Skill: C
5)
During recessions, government spending usually
A)
decreases because unemployment payments decrease.
B)
increases because unemployment payments increase.
C)
decrease because unemployment payments increase.
D)
increases because unemployment payments decrease.
Answer:
B
Diff: 1
Skill: C
6)
Disposable income
A)
increases when net taxes increase.
B)
increases when income increases.
C)
decreases when saving increases.
D)
All of the above
Answer:
B
Diff: 1
Skill: C
7)
Bill's income is $1,000 and his net taxes are $350. His disposable income is A)
$1,350.
B)
$650.
C)
-$350.
D)
$750.
Answer:
B
Diff: 1
Skill: A
8)
When the government sector is included in the income-expenditure model, the equation for aggregate income is A)
Y = C + S - T.
B)
Y = C + I.
C)
Y = C + I + G.
D)
Y = C + S + I.
Answer:
C
Diff: 1
Skill: D
9)
The difference between what a government spends and what it collects in taxes in a year is A)
net revenue.
B)
net taxes.
C)
the government budget deficit or surplus.
D)
the government debt.
Answer:
C
Diff: 1
Skill: D
10)
In 1998, the city of Canfield collected $500,000 in taxes and spent $450,000. In 1998, the city of Canfield had a A)
budget surplus of $450,000.
B)
budget surplus of $50,000.
C)
budget deficit of $50,000.
D)
budget surplus of $5,000.
Answer:
B
Diff: 1
Skill: A
11)
In 1999, the city of Miketown collected $250,000 in taxes and spent $350,000. In 1999, the city of Miketown had a A)
budget surplus of $100,000.
B)
budget surplus of 57%.
C)
budget deficit of $100,000.
D)
budget deficit of $200,000.
Answer:
C
Diff: 1
Skill: A
12)
When the government sector is included in the income-expenditure model, planned aggregate expenditure A)
increases.
B)
decreases.
C)
stays the same.
D)
depends.
Answer:
A
Diff: 2
Skill: C
13)
After government is added to the income-expenditure model, the formula for the aggregate consumption function is A)
C = a - b(Y - T).
B)
C = a - b(T - Y).
C)
C = a + b(Y + T).
D)
C = a + b(Y - T).
Answer:
D
Diff: 2
Skill: D
14)
The aggregate consumption function is C = 100 + .6Yd. If income is $1,000 and net taxes are $300, consumption equals A)
800.
B)
520.
C)
580.
D)
700.
Answer:
B
Diff: 2
Skill: A
15)
The aggregate consumption function is C = 800 + .8Yd. If income is $2,000 and net taxes are $500, consumption equals A)
2,000.
B)
1,500.
C)
2,150.
D)
2,050.
Answer:
A
Diff: 2
Skill: A
16)
The aggregate consumption function is C = 100 + .8Yd. If income is $600 and net taxes are zero, consumption equals A)
zero.
B)
460.
C)
580.
D)
360.
Answer:
C
Diff: 2
Skill: A
17)
The aggregate consumption function is C = 1,000 + .9Yd. If income is $3,600 and net taxes are $600, consumption equals A)
3,400.
B)
3,700.
C)
2,400.
D)
4,000.
Answer:
B
Diff: 2
Skill: A
18)
If output is less than planned aggregate expenditure, there will be A)
an unplanned increase in inventories.
B)
an unplanned decrease in inventories.
C)
no change in inventories.
D)
a planned increase in inventories.
Answer:
B
Diff: 2
Skill: C
Refer to the information provided in Table 9.1 below to answer the questions that follow.
Table 9.1
[pic]
19)
Refer to Table 9.1. At an output level of $600 billion, the level of aggregate expenditure is A)
$500 billion.
B)
$600 billion.
C)
$700 billion.
D)
$900 billion.
Answer:
C
Diff: 1
Skill: A
20)
Refer to Table 9.1. At an output level of $600 billion, there is an unplanned inventory change of A)
positive $10 billion.
B)
zero.
C)
negative $100 billion.
D)
positive $100 billion.
Answer:
C
Diff: 2
Skill: A
21)
Refer to Table 9.1. At an output level of $1000 billion, the level of aggregate expenditure is A)
$700 billion.
B)
$800 billion.
C)
$900 billion.
D)
$1,000 billion.
Answer:
C
Diff: 1
Skill: A
22)
Refer to Table 9.1. At an output level of $1000 billion, there is an unplanned inventory change of A)
positive $100 billion.
B)
positive $10 billion.
C)
negative $100 billion.
D)
zero.
Answer:
A
Diff: 2
Skill: A
23)
Refer to Table 9.1. The equilibrium level of output is ________ billion. A)
$600
B)
$700
C)
$800
D)
$1,000
Answer:
C
Diff: 1
Skill: A
24)
Refer to Table 9.1. At an output level of $400 billion, disposable income equals ________ billion. A)
$400
B)
$300
C)
$200
D)
$100
Answer:
B
Diff: 1
Skill: A
25)
Refer to Table 9.1. At an output level of $1,000 billion, the value of saving A)
cannot be determined from the given information.
B)
is $300 billion.
C)
is $200 billion.
D)
is $100 billion.
Answer:
B
Diff: 2
Skill: A
26)
Refer to Table 9.1. At the equilibrium level of income, leakages equal ________ billion. A)
$0
B)
$100
C)
$200
D)
$300
Answer:
D
Diff: 3
Skill: A
27)
Refer to Table 9.1 At an output level of $600 billion, there is a tendency for output A)
to fall.
B)
to increase.
C)
to remain constant.
D)
to either increase or decrease.
Answer:
B
Diff: 3
Skill: A
Refer to the information provided in Table 9.2 below to answer the questions that follow.
Table 9.2
[pic]
28)
Refer to Table 9.2. At an output level of $1,500 billion, the level of aggregate expenditure is ________ billion. A)
$1,300
B)
$1,400
C)
$1,500
D)
$1,600
Answer:
B
Diff: 1
Skill: A
29)
Refer to Table 9.2. At an output level of $1,500 billion, there is an unplanned inventory A)
decrease of $200 billion.
B)
change of $0.
C)
increase of $100 billion.
D)
increase of $150 billion.
Answer:
C
Diff: 2
Skill: A
30)
Refer to Table 9.2. At an output level of $2,500, the level of aggregate expenditure is ________ billion. A)
$1,500
B)
$2,000
C)
$2,300
D)
$2,200
Answer:
D
Diff: 1
Skill: A
31)
Refer to Table 9.2. At an output level of $2,500, there is an unplanned inventory A)
increase of $300 billion.
B)
decrease of $200 billion.
C)
change of $0.
D)
increase of $200 billion.
Answer:
A
Diff: 2
Skill: A
32)
Refer to Table 9.2. The equilibrium level of output is ________ billion. A)
$1000
B)
$1,500
C)
$2,000
D)
$2,500
Answer:
A
Diff: 1
Skill: A
33)
Refer to Table 9.2. At an output level of $1,500, disposable income A)
is $1,000.
B)
is $1,200.
C)
is $1,400.
D)
cannot be determined from this information.
Answer:
C
Diff: 1
Skill: A
34)
Refer to Table 9.2. At an output level of $2,500, the level for saving A)
is $300.
B)
is $400.
C)
is $500.
D)
cannot be determined from this information.
Answer:
B
Diff: 2
Skill: A
35)
Refer to Table 9.2 At the equilibrium level of income, leakages equal ________ billion. A)
$0
B)
$300
C)
$500
D)
$200
Answer:
D
Diff: 3
Skill: A
36)
Refer to Table 9.2. At an output level of $2,500, there is a tendency for output A)
to increase.
B)
to remain constant.
C)
to either increase or decrease.
D)
to fall.
Answer:
D
Diff: 2
Skill: A
The Italian economy can be characterized by Equation 9.1.
EQUATION 9.1:
C = 200 + .75Yd
G = 500
T = 200
I = 200
37)
Refer to Equation 9.1. The equilibrium level of output for the Italian economy is A)
$2,533.3.
B)
$3,000.
C)
$2,678.9.
D)
$3,500.
Answer:
B
Diff: 2
Skill: A
38)
Refer to Equation 9.1. At the equilibrium level of output in Italy, consumption equals A)
$2,300.
B)
...