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Questions and Answers
What indicates that a budget is balanced?
What indicates that a budget is balanced?
When does a budget surplus occur?
When does a budget surplus occur?
Which of the following describes a budget deficit?
Which of the following describes a budget deficit?
What is fiscal policy primarily concerned with?
What is fiscal policy primarily concerned with?
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Which statement about transfer payments is correct?
Which statement about transfer payments is correct?
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Under which condition is monetary policy said to work against fiscal policy?
Under which condition is monetary policy said to work against fiscal policy?
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What is most likely to result from persistent budget deficits?
What is most likely to result from persistent budget deficits?
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Which situation does NOT illustrate a successful fiscal policy?
Which situation does NOT illustrate a successful fiscal policy?
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What action does Keynesian theory suggest to eliminate a recessionary gap?
What action does Keynesian theory suggest to eliminate a recessionary gap?
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According to Keynesian theory, how can an inflationary gap be addressed?
According to Keynesian theory, how can an inflationary gap be addressed?
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Which of the following statements about Keynesians is true?
Which of the following statements about Keynesians is true?
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What does Keynesian theory indicate should happen when private spending decreases?
What does Keynesian theory indicate should happen when private spending decreases?
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What best describes complete crowding out in an economic context?
What best describes complete crowding out in an economic context?
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Which fiscal policy action is most appropriate to mitigate high inflation?
Which fiscal policy action is most appropriate to mitigate high inflation?
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What role does fiscal policy play according to Keynesian economists?
What role does fiscal policy play according to Keynesian economists?
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If government and private spending are perfectly offsetting each other, this is indicative of which crowding out scenario?
If government and private spending are perfectly offsetting each other, this is indicative of which crowding out scenario?
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What does a curve showing the relationship between tax rates and tax revenues represent?
What does a curve showing the relationship between tax rates and tax revenues represent?
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If Elaine's taxable income increases by $1 and her tax payment increases by $0.28, what is her marginal tax rate?
If Elaine's taxable income increases by $1 and her tax payment increases by $0.28, what is her marginal tax rate?
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Which statement is true when comparing points A and B on a tax rate and revenue graph?
Which statement is true when comparing points A and B on a tax rate and revenue graph?
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Which of the following is caused by a decrease in government purchases?
Which of the following is caused by a decrease in government purchases?
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The relationship described by a Laffer curve implies which of the following?
The relationship described by a Laffer curve implies which of the following?
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What would be the effect of an increase in taxes on individual disposable income?
What would be the effect of an increase in taxes on individual disposable income?
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If tax revenues are constant while tax rates vary, which statement could be true?
If tax revenues are constant while tax rates vary, which statement could be true?
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Which of the following would likely result from lowering the marginal tax rate?
Which of the following would likely result from lowering the marginal tax rate?
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What is the expected outcome if government purchases increase by $100 billion and incomplete crowding out occurs?
What is the expected outcome if government purchases increase by $100 billion and incomplete crowding out occurs?
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Which statement correctly describes Smith’s and Jones’ beliefs regarding government purchases and the AD curve?
Which statement correctly describes Smith’s and Jones’ beliefs regarding government purchases and the AD curve?
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If the economy is in a recessionary gap with incomplete crowding out, which scenario is most likely?
If the economy is in a recessionary gap with incomplete crowding out, which scenario is most likely?
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What would happen if there is complete crowding out in response to increased government spending?
What would happen if there is complete crowding out in response to increased government spending?
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Which description aligns with the expected effects of expansionary fiscal policy during a recessionary period?
Which description aligns with the expected effects of expansionary fiscal policy during a recessionary period?
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Which concept describes the relationship between increased government spending and private sector investment when complete crowding out occurs?
Which concept describes the relationship between increased government spending and private sector investment when complete crowding out occurs?
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What implication does incomplete crowding out have for the AD curve?
What implication does incomplete crowding out have for the AD curve?
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What is the consequence of government purchases rising by $120 billion in a scenario of complete crowding out?
What is the consequence of government purchases rising by $120 billion in a scenario of complete crowding out?
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What is Smith's likely stance on fiscal policy if he believes the economy is self-regulating during a recessionary gap?
What is Smith's likely stance on fiscal policy if he believes the economy is self-regulating during a recessionary gap?
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Which statement about government spending leading to crowding out is accurate?
Which statement about government spending leading to crowding out is accurate?
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Which of the following situations does NOT represent crowding out?
Which of the following situations does NOT represent crowding out?
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What evidence would indicate zero crowding out?
What evidence would indicate zero crowding out?
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Which expression correctly describes the consequence of a budget deficit on loanable funds?
Which expression correctly describes the consequence of a budget deficit on loanable funds?
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If Smith believes that wages are inflexible downward, what would this suggest about his economic outlook?
If Smith believes that wages are inflexible downward, what would this suggest about his economic outlook?
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Which of the following is an implication of crowding out in an economy?
Which of the following is an implication of crowding out in an economy?
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Which factor does NOT contribute to crowding out?
Which factor does NOT contribute to crowding out?
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What is a likely reason a Keynesian economist advocates for expansionary fiscal policy in a recessionary gap?
What is a likely reason a Keynesian economist advocates for expansionary fiscal policy in a recessionary gap?
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If government spending increases by $120 billion, which statement about private expenditures is most accurate?
If government spending increases by $120 billion, which statement about private expenditures is most accurate?
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Which of the following describes a situation where the AD curve is downward-sloping?
Which of the following describes a situation where the AD curve is downward-sloping?
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What does complete crowding out imply in economic terms?
What does complete crowding out imply in economic terms?
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In the Keynesian framework, what aspect is assumed about monetary policy effectiveness during a recession?
In the Keynesian framework, what aspect is assumed about monetary policy effectiveness during a recession?
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If the SRAS curve is upward-sloping, what does this signify about the relationship between price level and output?
If the SRAS curve is upward-sloping, what does this signify about the relationship between price level and output?
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Which statement accurately describes the behavior of the AD curve in a recessionary gap?
Which statement accurately describes the behavior of the AD curve in a recessionary gap?
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Study Notes
Balanced Budget
- A balanced budget occurs when government expenditures equal tax revenues.
Budget Surplus
- A budget surplus occurs when tax revenues exceed government expenditures.
Budget Deficit
- A budget deficit occurs when government expenditures exceed tax revenues.
Fiscal Policy
- Fiscal policy refers to changes in government expenditures and taxation to achieve economic goals.
Fiscal Policy Actions - Expansionary
- Increasing government spending
- Decreasing taxes
Fiscal Policy Actions - Contractionary
- Decreasing government spending
- Increasing taxes
Transfer Payment
- A transfer payment is a flow of money from the government to households.
Crowding Out
- Crowding out is a reduction in private spending due to increased government spending or a budget deficit.
Automatic Stabilizers
- Automatic stabilizers are government spending and taxation programs that automatically adjust to offset economic fluctuations. An example is unemployment benefits.
Fiscal Policy Lags
- Data lag: Time between an economic event and policymakers becoming aware of it.
- Legislative lag: Time between when a policy is needed and when is passed and approved.
- Effectiveness lag: Time between when a policy is implemented and when there is an observed impact on the economy.
- Transmission lag: Time between policymakers implementing a policy measure and when the impact of the policy is felt on the economy.
Laffer Curve
- Shows the relationship between tax rates and tax revenues.
- Suggests that tax revenue can increase as marginal tax rates fall (below a certain threshold).
Progressive Tax
- A progressive tax structure means those with higher incomes pay a higher percentage of their income in taxes.
Proportional Tax
- A proportional tax structure means those with higher incomes pay the same percentage of their income in taxes.
Marginal Tax Rate
- The tax rate applied to the next dollar of income earned.
Structural Deficit
- The deficit that is present when the economy is at full employment.
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Description
This quiz covers essential concepts related to fiscal policy and budget management. Learn about balanced budgets, budget surpluses, deficits, and the various fiscal policy actions that governments can take. Test your understanding of automatic stabilizers and crowding out effects on the economy.
