Question 1

Fiscal policy analysis indicates that large tax increases during a severe recession will result in

Accepted Answer

A)  an increase in the incentive to earn and the maintenance of a balanced federal budget. 
B)  higher tax revenues and an expansion in government spending. 
C)  smaller budget deficits, which will speed an economic recovery. 
D)  a reduction in aggregate demand and a worsening of the recession. 
A)  an increase in the incentive to earn and the maintenance of a balanced federal budget. 
B)  higher tax revenues and an expansion in government spending. 
C)  smaller budget deficits, which will speed an economic recovery. 
D)  a reduction in aggregate demand and a worsening of the recession.

Question 2

During the last four decades, the composition of federal spending has

Accepted Answer

A)  been virtually unchanged, but federal spending as a share of GDP has declined substantially. 
B)  been virtually unchanged, but federal spending as a share of GDP has increased sharply. 
C)  shifted away from national defense and toward spending on income transfers and health care. 
D)  shifted away from health care and income transfers and toward spending on national defense. 
A)  been virtually unchanged, but federal spending as a share of GDP has declined substantially. 
B)  been virtually unchanged, but federal spending as a share of GDP has increased sharply. 
C)  shifted away from national defense and toward spending on income transfers and health care. 
D)  shifted away from health care and income transfers and toward spending on national defense.

Question 3

Compared to the situation prior to 1980, the top marginal personal income tax rate imposed on the rich is now substantially

Accepted Answer

A)  lower and so is the share of the revenue collected from them. 
B)  higher and so is the share of the revenue collected from them. 
C)  lower, but the share of the revenue collected from them is now higher. 
D)  higher, but the share of the revenue collected from them is now lower. 
A)  lower and so is the share of the revenue collected from them. 
B)  higher and so is the share of the revenue collected from them. 
C)  lower, but the share of the revenue collected from them is now higher. 
D)  higher, but the share of the revenue collected from them is now lower.

Question 4

Which of the following is true about federal spending?

Accepted Answer

A)  In 2002, national defense accounted for more than half of federal spending. 
B)  Federal spending on national defense has increase rapidly during the last several decades. 
C)  Federal spending on health care programs such as Medicare and Medicaid has increased rapidly during the last several decades. 
D)  Federal spending in the aftermath of hurricane Katrina expanded over 50%. 
A)  In 2002, national defense accounted for more than half of federal spending. 
B)  Federal spending on national defense has increase rapidly during the last several decades. 
C)  Federal spending on health care programs such as Medicare and Medicaid has increased rapidly during the last several decades. 
D)  Federal spending in the aftermath of hurricane Katrina expanded over 50%.

Question 5

Which of the following conditions during 2008-2009 most closely paralleled the economic conditions of the Great Depression?

Accepted Answer

A)  Record-high unemployment rates for a period of many years. 
B)  A sharp and prolonged contraction in the money supply. 
C)  Significant increases in taxes and trade restrictions in order to counter budget deficits. 
D)  Frequent policy changes that generated an unstable and unpredictable economic climate. 
A)  Record-high unemployment rates for a period of many years. 
B)  A sharp and prolonged contraction in the money supply. 
C)  Significant increases in taxes and trade restrictions in order to counter budget deficits. 
D)  Frequent policy changes that generated an unstable and unpredictable economic climate.

Question 6

Compared to 1980, the top marginal federal income tax rate today is

Accepted Answer

A)  substantially lower and the rate structure is less progressive than in 1980. 
B)  substantially lower and the rate structure is more progressive than in 1980. 
C)  substantially higher and the rate structure is less progressive than in 1980. 
D)  substantially higher and the rate structure is more progressive than in 1980. 
A)  substantially lower and the rate structure is less progressive than in 1980. 
B)  substantially lower and the rate structure is more progressive than in 1980. 
C)  substantially higher and the rate structure is less progressive than in 1980. 
D)  substantially higher and the rate structure is more progressive than in 1980.

Question 7

Which of the following was a contributing factor to the rising default and foreclosure rates beginning in the latter half of 2006?

Accepted Answer

A)  The increasing share of 30-year, fixed rate loans as a share of outstanding mortgages. 
B)  The rigid standards of rating agencies, such as Moody's and Standard and Poors, which limited the development of mortgage-backed securities. 
C)  The price-stability policies of the Federal Reserve during 1998-2008. 
D)  The erosion of lending standards during the preceding decade. 
A)  The increasing share of 30-year, fixed rate loans as a share of outstanding mortgages. 
B)  The rigid standards of rating agencies, such as Moody's and Standard and Poors, which limited the development of mortgage-backed securities. 
C)  The price-stability policies of the Federal Reserve during 1998-2008. 
D)  The erosion of lending standards during the preceding decade.

Question 8

As the baby boom generation, born during 1946 through 1960, reaches retirement age during the 2011 through 2030 period, the number of workers per Social Security beneficiary is expected to

Accepted Answer

A)  increase to five. 
B)  remain constant at approximately seven. 
C)  decline to approximately five. 
D)  decline to approximately two. 
A)  increase to five. 
B)  remain constant at approximately seven. 
C)  decline to approximately five. 
D)  decline to approximately two.

Question 9

The Social Security Trust Fund

Accepted Answer

A)  will provide a stream of future revenue for the federal government. 
B)  is a "pot" of money set aside for the payment of future benefits. 
C)  is a net asset of the U.S. Treasury worth approximately $2 trillion. 
D)  is of zero asset value to the federal government. 
A)  will provide a stream of future revenue for the federal government. 
B)  is a "pot" of money set aside for the payment of future benefits. 
C)  is a net asset of the U.S. Treasury worth approximately $2 trillion. 
D)  is of zero asset value to the federal government.

Question 10

Economic analysis indicates that growth in the size of government as a share of the economy will

Accepted Answer

A)  always reduce economic growth and reduce the living standards of the citizenry. 
B)  enhance economic growth and lead to higher income levels as it becomes larger and larger. 
C)  initially promote growth as the government focuses on core functions, but deter growth as government becomes larger and larger. 
D)  initially reduce economic growth, but eventually government will enhance growth as it becomes larger and larger. 
A)  always reduce economic growth and reduce the living standards of the citizenry. 
B)  enhance economic growth and lead to higher income levels as it becomes larger and larger. 
C)  initially promote growth as the government focuses on core functions, but deter growth as government becomes larger and larger. 
D)  initially reduce economic growth, but eventually government will enhance growth as it becomes larger and larger.

Question 11

If fiscal policy were able to exert a significant impact on the economy during the Great Depression, we would expect

Accepted Answer

A)  an increase in government expenditures and a reduction in budget deficits. 
B)  an increase in government expenditures and an increase in budget deficits. 
C)  a decrease in government expenditures and a reduction in budget deficits. 
D)  a decrease in government expenditures and an increase in budget deficits. 
A)  an increase in government expenditures and a reduction in budget deficits. 
B)  an increase in government expenditures and an increase in budget deficits. 
C)  a decrease in government expenditures and a reduction in budget deficits. 
D)  a decrease in government expenditures and an increase in budget deficits.

Question 12

After new HUD guidelines were issued in 1999, Freddie Mac and Fannie Mae

Accepted Answer

A)  extended fewer loans to borrowers making a down payment of 5 percent or less. 
B)  extended more loans to borrowers making a down payment of 5 percent or less. 
C)  extended new loans only to borrowers making a down payment of at least 20 percent. 
D)  refused to extend  new loans without full verification that the borrower had prime credit status. 
A)  extended fewer loans to borrowers making a down payment of 5 percent or less. 
B)  extended more loans to borrowers making a down payment of 5 percent or less. 
C)  extended new loans only to borrowers making a down payment of at least 20 percent. 
D)  refused to extend  new loans without full verification that the borrower had prime credit status.

Question 13

The overall federal tax structure is

Accepted Answer

A)  regressive because the average tax rate of those with low incomes is higher than the rate imposed on those with higher incomes. 
B)  progressive because the average tax rate of those with high incomes is greater than the rate imposed on those with lower incomes. 
C)  flat because the average tax rate is approximately constant across all income brackets. 
D)  progressive for income levels up to approximately $100,000 but regressive for income levels above this figure. 
A)  regressive because the average tax rate of those with low incomes is higher than the rate imposed on those with higher incomes. 
B)  progressive because the average tax rate of those with high incomes is greater than the rate imposed on those with lower incomes. 
C)  flat because the average tax rate is approximately constant across all income brackets. 
D)  progressive for income levels up to approximately $100,000 but regressive for income levels above this figure.

Question 14

Economists who believe that policy errors are the source of economic instability argue that the crisis of 2008 was primarily the result of

Accepted Answer

A)  housing regulations that undermined sound lending practices and Fed policies that generated the housing boom and bust. 
B)  the stock market crash. 
C)  the actions of speculators who drove up the world price of oil, the domestic price of gasoline, and other energy sources. 
D)  persistently high interest rates during the decade leading up to the crisis. 
A)  housing regulations that undermined sound lending practices and Fed policies that generated the housing boom and bust. 
B)  the stock market crash. 
C)  the actions of speculators who drove up the world price of oil, the domestic price of gasoline, and other energy sources. 
D)  persistently high interest rates during the decade leading up to the crisis.

Question 15

Which of the following is true of regulation?

Accepted Answer

A)  Regulatory agencies often ignore the secondary effects of their actions and fail to foresee future problems. 
B)  Policy-makers are hesitant to call for new regulations even when it is clear they would help avert future crises. 
C)  Mortgage lending and banking have historically been unregulated and therefore regulation in these sectors will be unpopular. 
D)  Past regulations have been effective at averting crises, but they are unpopular because they reduce the profitability of the regulated industry. 
A)  Regulatory agencies often ignore the secondary effects of their actions and fail to foresee future problems. 
B)  Policy-makers are hesitant to call for new regulations even when it is clear they would help avert future crises. 
C)  Mortgage lending and banking have historically been unregulated and therefore regulation in these sectors will be unpopular. 
D)  Past regulations have been effective at averting crises, but they are unpopular because they reduce the profitability of the regulated industry.

Question 16

Which one of the following factors contributed to the decline in real output during the Great Depression?

Accepted Answer

A)  Deflation, which changed the terms of long-term contracts and discouraged long-term exchange. 
B)  Inflation, which reduced the value of the dollar and eroded the savings of the elderly. 
C)  Stable monetary policy, which caused business decision makers to lose confidence in the Fed's ability to fine-tune the economy. 
D)  Establishment of the Federal Deposit Insurance Corporation. 
A)  Deflation, which changed the terms of long-term contracts and discouraged long-term exchange. 
B)  Inflation, which reduced the value of the dollar and eroded the savings of the elderly. 
C)  Stable monetary policy, which caused business decision makers to lose confidence in the Fed's ability to fine-tune the economy. 
D)  Establishment of the Federal Deposit Insurance Corporation.

Question 17

Which person is more likely to have more wealth upon retirement?

Accepted Answer

A)  A person who has invested 5 percent of their income into an equity mutual fund beginning at age 22. 
B)  A employee who bought some of their company's stock beginning at age 30. 
C)  A person who has invested 5 percent of their income into a stock portfolio beginning at age 50. 
D)  A person who has invested 5 percent of their income into government bonds beginning at age 22. 
A)  A person who has invested 5 percent of their income into an equity mutual fund beginning at age 22. 
B)  A employee who bought some of their company's stock beginning at age 30. 
C)  A person who has invested 5 percent of their income into a stock portfolio beginning at age 50. 
D)  A person who has invested 5 percent of their income into government bonds beginning at age 22.

Question 18

Regulatory policies requiring lenders to extend more low down-payment loans to higher-risk borrowers along with the Fed's low short-term interest rate policy during 2002-2004 caused

Accepted Answer

A)  housing prices to fall during that period. 
B)  a reduction in the use of adjustable rate mortgages to finance the purchase of housing. 
C)  a reduction in housing construction during 2002-2005. 
D)  mal-investment, that is, excessive investment in housing construction during 2002-2005. 
A)  housing prices to fall during that period. 
B)  a reduction in the use of adjustable rate mortgages to finance the purchase of housing. 
C)  a reduction in housing construction during 2002-2005. 
D)  mal-investment, that is, excessive investment in housing construction during 2002-2005.

Question 19

Adam Smith stated, "The man of system is apt to be very wise in his own conceit. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board." Which is true of this statement?

Accepted Answer

A)  Keynes would tend to agree with the statement; Heyek would disagree with it. 
B)  Keynes would tend to disagree with the statement; Hayek would agree with it. 
C)  As the rap video indicates, both Keynes and Hayek strongly agree with this statement. 
D)  As the rap video indicates, both Keynes and Hayek strongly disagree with this statement. 
A)  Keynes would tend to agree with the statement; Heyek would disagree with it. 
B)  Keynes would tend to disagree with the statement; Hayek would agree with it. 
C)  As the rap video indicates, both Keynes and Hayek strongly agree with this statement. 
D)  As the rap video indicates, both Keynes and Hayek strongly disagree with this statement.

Question 20

During the last sixty years, the broad stock market (Standard and Poor's 500 Index) yielded an average annual nominal rate of return of approximately ____ and real rate of return of approximately ____.

Accepted Answer

A)  5 percent; 2 percent 
B)  10 percent; 7 percent 
C)  17 percent; 9 percent 
D)  9 percent; 17 percent 
A)  5 percent; 2 percent 
B)  10 percent; 7 percent 
C)  17 percent; 9 percent 
D)  9 percent; 17 percent

Fiscal policy analysis indicates that large tax increases during a severe recession will result in

During the last four decades, the composition of federal spending has

Compared to the situation prior to 1980, the top marginal personal income tax rate imposed on the rich is now substantially

Which of the following is true about federal spending?

Which of the following conditions during 2008-2009 most closely paralleled the economic conditions of the Great Depression?

Compared to 1980, the top marginal federal income tax rate today is

Which of the following was a contributing factor to the rising default and foreclosure rates beginning in the latter half of 2006?

As the baby boom generation, born during 1946 through 1960, reaches retirement age during the 2011 through 2030 period, the number of workers per Social Security beneficiary is expected to

The Social Security Trust Fund

Economic analysis indicates that growth in the size of government as a share of the economy will

If fiscal policy were able to exert a significant impact on the economy during the Great Depression, we would expect

After new HUD guidelines were issued in 1999, Freddie Mac and Fannie Mae

The overall federal tax structure is

Economists who believe that policy errors are the source of economic instability argue that the crisis of 2008 was primarily the result of

Which of the following is true of regulation?

Which one of the following factors contributed to the decline in real output during the Great Depression?

Which person is more likely to have more wealth upon retirement?

Regulatory policies requiring lenders to extend more low down-payment loans to higher-risk borrowers along with the Fed's low short-term interest rate policy during 2002-2004 caused

Adam Smith stated, "The man of system is apt to be very wise in his own conceit. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board." Which is true of this statement?

During the last sixty years, the broad stock market (Standard and Poor's 500 Index) yielded an average annual nominal rate of return of approximately and real rate of return of approximately .

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Exam 20: Special Topics

Fiscal policy analysis indicates that large tax increases during a severe recession will result in

During the last four decades, the composition of federal spending has

Compared to the situation prior to 1980, the top marginal personal income tax rate imposed on the rich is now substantially

Which of the following is true about federal spending?

Which of the following conditions during 2008-2009 most closely paralleled the economic conditions of the Great Depression?

Compared to 1980, the top marginal federal income tax rate today is

Which of the following was a contributing factor to the rising default and foreclosure rates beginning in the latter half of 2006?

As the baby boom generation, born during 1946 through 1960, reaches retirement age during the 2011 through 2030 period, the number of workers per Social Security beneficiary is expected to

The Social Security Trust Fund

Economic analysis indicates that growth in the size of government as a share of the economy will

If fiscal policy were able to exert a significant impact on the economy during the Great Depression, we would expect

After new HUD guidelines were issued in 1999, Freddie Mac and Fannie Mae

The overall federal tax structure is

Economists who believe that policy errors are the source of economic instability argue that the crisis of 2008 was primarily the result of

Which of the following is true of regulation?

Which one of the following factors contributed to the decline in real output during the Great Depression?

Which person is more likely to have more wealth upon retirement?

Regulatory policies requiring lenders to extend more low down-payment loans to higher-risk borrowers along with the Fed's low short-term interest rate policy during 2002-2004 caused

Adam Smith stated, "The man of system is apt to be very wise in his own conceit. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board." Which is true of this statement?

During the last sixty years, the broad stock market (Standard and Poor's 500 Index) yielded an average annual nominal rate of return of approximately ____ and real rate of return of approximately ____.

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

During the last sixty years, the broad stock market (Standard and Poor's 500 Index) yielded an average annual nominal rate of return of approximately and real rate of return of approximately .