Question 1

A recessionary gap

Accepted Answer

A)  exists when actual spending is greater than its potential. 
B)  means that equilibrium total real output is below potential output. 
C)  measures the decrease in total real output needed to achieve price stability. 
D)  indicates the extent of the recession needed to raise the rate of inflation. 
E)  can be eliminated by fiscal policies designed to shift the C + I + G + (X - MI) line downward. 
A)  exists when actual spending is greater than its potential. 
B)  means that equilibrium total real output is below potential output. 
C)  measures the decrease in total real output needed to achieve price stability. 
D)  indicates the extent of the recession needed to raise the rate of inflation. 
E)  can be eliminated by fiscal policies designed to shift the C + I + G + (X - MI) line downward.

Question 2

Aggregate demand shifts to the right when

Accepted Answer

A)  government spending is reduced. 
B)  tax rates are reduced. 
C)  equilibrium GDP is reduced. 
D)  total intended spending is reduced. 
E)  the inflationary gap is reduced. 
A)  government spending is reduced. 
B)  tax rates are reduced. 
C)  equilibrium GDP is reduced. 
D)  total intended spending is reduced. 
E)  the inflationary gap is reduced.

Question 3

-The preceding diagram shows that a(n)

Accepted Answer

A)  decrease in the tax rate results in a desire to spend less out of each level of GDP. 
B)  decrease in the tax rate leads to an equilibrium in which GDP diverges from intended spending. 
C)  decrease in the tax rate induces an increase in the equilibrium value of GDP. 
D)  increase in the tax rate induces an increase in the equilibrium value of GDP. 
E)  increase in the tax rate causes a decline in government expenditures. 
A)  decrease in the tax rate results in a desire to spend less out of each level of GDP. 
B)  decrease in the tax rate leads to an equilibrium in which GDP diverges from intended spending. 
C)  decrease in the tax rate induces an increase in the equilibrium value of GDP. 
D)  increase in the tax rate induces an increase in the equilibrium value of GDP. 
E)  increase in the tax rate causes a decline in government expenditures.

Question 4

In what way was the Employment Act of 1946 signed into law by President Truman significantly different from the original bill introduced into the U.S.Senate in January 1945?

Accepted Answer

A)  The final act guaranteed the right to employment; the original bill did not. 
B)  The final act marked a commitment by government to high employment but not the guaranteed employment written into the original. 
C)  The final act limited the government's power to tax in a way that the original had not. 
D)  The original bill was far less supportive of workers' rights than the final version. 
E)  The final act mandated deficit spending; the original bill required the government to balance its budget. 
A)  The final act guaranteed the right to employment; the original bill did not. 
B)  The final act marked a commitment by government to high employment but not the guaranteed employment written into the original. 
C)  The final act limited the government's power to tax in a way that the original had not. 
D)  The original bill was far less supportive of workers' rights than the final version. 
E)  The final act mandated deficit spending; the original bill required the government to balance its budget.

Question 5

Unemployment compensation and welfare payments tend to stabilize the economy by

Accepted Answer

A)  holding government expenditures at a constant level. 
B)  accelerating the decrease in disposable income caused by a fall in GDP. 
C)  reducing corporate dividends when GDP increases. 
D)  being financed by taxes whose revenues rise and fall as the level of employment rises and falls. 
E)  equalizing the burden of inflation. 
A)  holding government expenditures at a constant level. 
B)  accelerating the decrease in disposable income caused by a fall in GDP. 
C)  reducing corporate dividends when GDP increases. 
D)  being financed by taxes whose revenues rise and fall as the level of employment rises and falls. 
E)  equalizing the burden of inflation.

Question 6

Over the last 50 years,federal,state,and local governments have

Accepted Answer

A)  increased their expenditures faster than the growth in total output. 
B)  gradually but steadily declined in importance in economic matters. 
C)  demonstrated a movement toward significant public ownership of the means of production. 
D)  moved increasingly toward nationalization of the defense industry. 
E)  appreciably expanded public ownership in the electric power industry. 
A)  increased their expenditures faster than the growth in total output. 
B)  gradually but steadily declined in importance in economic matters. 
C)  demonstrated a movement toward significant public ownership of the means of production. 
D)  moved increasingly toward nationalization of the defense industry. 
E)  appreciably expanded public ownership in the electric power industry.

Question 7

An expenditure by the government for which no products or services are received in exchange is called a

Accepted Answer

A)  tax. 
B)  public good. 
C)  transfer payment. 
D)  multiplier. 
E)  stabilizer. 
A)  tax. 
B)  public good. 
C)  transfer payment. 
D)  multiplier. 
E)  stabilizer.

Question 8

The following question are based on the following diagram:
  
-Which of the following events would correct the condition shown?

Accepted Answer

A)  a decrease in wages and other input prices 
B)  a shift to the left in the short-run aggregate supply curve 
C)  a significant tax increase accompanied by a reduction in government spending 
D)  a reduction in private sector spending 
E)  a decrease in the money supply by the government 
A)  a decrease in wages and other input prices 
B)  a shift to the left in the short-run aggregate supply curve 
C)  a significant tax increase accompanied by a reduction in government spending 
D)  a reduction in private sector spending 
E)  a decrease in the money supply by the government

Question 9

A basic objection to increased public works spending when serious unemployment appears likely to develop is that

Accepted Answer

A)  such spending would lead to a budget deficit. 
B)  such spending would lead to a decline in GDP. 
C)  all public works projects are wasteful. 
D)  there is a long lag between authorizing a program and actually spending the money. 
E)  stabilization policy is more important than the long-run desirability of public works. 
A)  such spending would lead to a budget deficit. 
B)  such spending would lead to a decline in GDP. 
C)  all public works projects are wasteful. 
D)  there is a long lag between authorizing a program and actually spending the money. 
E)  stabilization policy is more important than the long-run desirability of public works.

Question 10

In an economy experiencing a high unemployment rate,appropriate fiscal policy would attempt to

Accepted Answer

A)  wait for wages and other input prices to fall. 
B)  discourage firms from investing. 
C)  increase personal tax rates. 
D)  reduce welfare payments to households. 
E)  shift the aggregate demand curve to the right. 
A)  wait for wages and other input prices to fall. 
B)  discourage firms from investing. 
C)  increase personal tax rates. 
D)  reduce welfare payments to households. 
E)  shift the aggregate demand curve to the right.

Question 11

The tax cut of 1964

Accepted Answer

A)  represents one of the few failures of modern fiscal policy. 
B)  was a factor leading to increased consumption expenditures. 
C)  was passed over the objections of President Kennedy. 
D)  was enacted to reduce inflationary pressures. 
E)  induced a decline in investment expenditures. 
A)  represents one of the few failures of modern fiscal policy. 
B)  was a factor leading to increased consumption expenditures. 
C)  was passed over the objections of President Kennedy. 
D)  was enacted to reduce inflationary pressures. 
E)  induced a decline in investment expenditures.

Question 12

From an economic perspective the optimal level of government spending occurs when

Accepted Answer

A)  spending is financed by an equal amount of taxes. 
B)  no more than 50 percent of the GDP is spent by government. 
C)  the president controls the amount of spending by using the line-item veto. 
D)  the value of extra benefits derived from an extra dollar of government spending is equal to the dollar of cost. 
E)  the government has reached the statutory limit of its borrowing as established by Congress. 
A)  spending is financed by an equal amount of taxes. 
B)  no more than 50 percent of the GDP is spent by government. 
C)  the president controls the amount of spending by using the line-item veto. 
D)  the value of extra benefits derived from an extra dollar of government spending is equal to the dollar of cost. 
E)  the government has reached the statutory limit of its borrowing as established by Congress.

Question 13

The greatest source of federal government tax receipts is the ________ tax.

Accepted Answer

A)  personal income 
B)  corporate income 
C)  estate and gift 
D)  general sales 
E)  property 
A)  personal income 
B)  corporate income 
C)  estate and gift 
D)  general sales 
E)  property

Question 14

Currently,the largest share of the annual federal budget goes toward

Accepted Answer

A)  interest on the national debt. 
B)  energy programs. 
C)  education and health. 
D)  national defense and other items connected with international relations and national security. 
E)  Social Security programs, welfare and other income-security programs, health, and education. 
A)  interest on the national debt. 
B)  energy programs. 
C)  education and health. 
D)  national defense and other items connected with international relations and national security. 
E)  Social Security programs, welfare and other income-security programs, health, and education.

Question 15

-According to the Keynesian view,the short-run aggregate supply curve is

Accepted Answer

A)  horizontal. 
B)  downward sloping. 
C)  close to vertical. 
D)  shaped like a parabola. 
E)  dependent on the shape of the aggregate demand curve. 
A)  horizontal. 
B)  downward sloping. 
C)  close to vertical. 
D)  shaped like a parabola. 
E)  dependent on the shape of the aggregate demand curve.

Question 16

The following question are based on the following diagram:
  
-From the diagram,one can infer that the

Accepted Answer

A)  C + I + G line cannot change. 
B)  marginal propensity to save is 1. 
C)  multiplier is 2.5. 
D)  45-degree line is unstable. 
E)  total intended spending always equals GDP. 
A)  C + I + G line cannot change. 
B)  marginal propensity to save is 1. 
C)  multiplier is 2.5. 
D)  45-degree line is unstable. 
E)  total intended spending always equals GDP.

Question 17

The greatest source of revenue for local governments is the ________ tax.

Accepted Answer

A)  personal income 
B)  corporate income 
C)  estate and gift 
D)  general sales 
E)  property 
A)  personal income 
B)  corporate income 
C)  estate and gift 
D)  general sales 
E)  property

Question 18

Government anti-inflationary fiscal policy

Accepted Answer

A)  is intended to shift the short-run aggregate supply curve to the left. 
B)  typically leads to an increase in total real output and a rise in the price level. 
C)  leads to a reduction in total real output when the short-run aggregate supply curve is positively sloped. 
D) shifts the aggregate demand curve to the right. 
E) is undertaken when the economy is in the horizontal range of the short-run aggregate supply curve. 
A)  is intended to shift the short-run aggregate supply curve to the left. 
B)  typically leads to an increase in total real output and a rise in the price level. 
C)  leads to a reduction in total real output when the short-run aggregate supply curve is positively sloped. 
D) shifts the aggregate demand curve to the right. 
E) is undertaken when the economy is in the horizontal range of the short-run aggregate supply curve.

Question 19

The commitment of the government to ensure maximum employment,production,and purchasing power is provided for in the

Accepted Answer

A)  Automatic Stabilizer Act of 1953. 
B)  Taft-Hartley Act of 1947. 
C)  Employment Act of 1946. 
D)  Consumer Price Index. 
E)  Truman Doctrine. 
A)  Automatic Stabilizer Act of 1953. 
B)  Taft-Hartley Act of 1947. 
C)  Employment Act of 1946. 
D)  Consumer Price Index. 
E)  Truman Doctrine.

Question 20

The structural features of our economy that work to offset the effects of the business cycle are called

Accepted Answer

A)  tools of discretionary policy. 
B)  public works programs. 
C)  full-employment bills. 
D)  automatic stabilizers. 
E)  countercyclical propensities. 
A)  tools of discretionary policy. 
B)  public works programs. 
C)  full-employment bills. 
D)  automatic stabilizers. 
E)  countercyclical propensities.

Exam 18: Fiscal Policy and National Output

A recessionary gap

Aggregate demand shifts to the right when

-The preceding diagram shows that a(n)

In what way was the Employment Act of 1946 signed into law by President Truman significantly different from the original bill introduced into the U.S.Senate in January 1945?

Unemployment compensation and welfare payments tend to stabilize the economy by

Over the last 50 years,federal,state,and local governments have

An expenditure by the government for which no products or services are received in exchange is called a

The following question are based on the following diagram: -Which of the following events would correct the condition shown?

A basic objection to increased public works spending when serious unemployment appears likely to develop is that

In an economy experiencing a high unemployment rate,appropriate fiscal policy would attempt to

The tax cut of 1964

From an economic perspective the optimal level of government spending occurs when

The greatest source of federal government tax receipts is the ________ tax.

Currently,the largest share of the annual federal budget goes toward

-According to the Keynesian view,the short-run aggregate supply curve is

The following question are based on the following diagram: -From the diagram,one can infer that the

The greatest source of revenue for local governments is the ________ tax.

Government anti-inflationary fiscal policy

The commitment of the government to ensure maximum employment,production,and purchasing power is provided for in the

The structural features of our economy that work to offset the effects of the business cycle are called

What is Economics

Markets and Prices

The Business Firm: Organization,motivation,and Optimal Input Decisions

Getting Behind the Demand and Supply Curves

Market Demand and Price Elasticity

Economic Efficiency,market Supply,and Perfect Competition

Monopoly and Its Regulation

Monopolistic Competition,oligopoly,and Antitrust Policy

Pollution and the Environment

The Supply and Demand for Labor

Interest,rent,and Profit

Poverty,income Inequality,and Discrimination

Economic Growth

Public Goods and the Role of the Government

National Income and Product

Business Fluctuations and Unemployment

The Determination of National Output and the Keynesian Multiplier

Inflation

Money and the Banking System

The Federal Reserve and Monetary Policy

Supply Shocks and Inflation

Productivity,growth,and Technology Policy

Surpluses,deficits,public Debt,and the Federal Budget

Monetary Policy,interest Rates,and Economic Activity

Controversies Over Stabilization Policy

International Trade

Exchange Rates and the Balance of Payments

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