The Government and Fiscal Policy Sample Questions

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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...
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