Question 1

Tax collections alter the equilibrium level of GDP by

Accepted Answer

A)  causing a change in government spending. 
B)  changing the relationship between government expenditures and GDP. 
C)  changing the relationship between consumption expenditures and GDP. 
D)  shifting the 45-degree line to the left. 
E)  causing an increase in prices. 
A)  causing a change in government spending. 
B)  changing the relationship between government expenditures and GDP. 
C)  changing the relationship between consumption expenditures and GDP. 
D)  shifting the 45-degree line to the left. 
E)  causing an increase in prices.

Question 2

The use of government spending and taxes for stabilization purposes is known as

Accepted Answer

A)  unemployment compensation. 
B)  fiscal policy. 
C)  budget multipliers. 
D)  employment finance. 
E)  Keynesian consumption. 
A)  unemployment compensation. 
B)  fiscal policy. 
C)  budget multipliers. 
D)  employment finance. 
E)  Keynesian consumption.

Question 3

A decrease in the value of exports minus imports will

Accepted Answer

A)  lower equilibrium GDP. 
B)  lead to a decline in net investment. 
C)  lead to a decline in the 45-degree line. 
D)  shift the total intended spending line upward. 
E)  lower the value of the multiplier. 
A)  lower equilibrium GDP. 
B)  lead to a decline in net investment. 
C)  lead to a decline in the 45-degree line. 
D)  shift the total intended spending line upward. 
E)  lower the value of the multiplier.

Question 4

When the equilibrium level of output in an economy is above its potential output

Accepted Answer

A)  the government should raise its spending. 
B)  there is an inflationary gap. 
C)  the long-run aggregate supply curve is horizontal. 
D)  unemployment rates are high. 
E)  wages and prices must be rapidly falling. 
A)  the government should raise its spending. 
B)  there is an inflationary gap. 
C)  the long-run aggregate supply curve is horizontal. 
D)  unemployment rates are high. 
E)  wages and prices must be rapidly falling.

Question 5

The fundamental idea of fiscal policy is that

Accepted Answer

A)  the government should spend more than it collects in taxes. 
B)  decision making should be left to the Council of Economic Advisers. 
C)  the government can change the equilibrium GDP by promoting a change in public and/or private spending. 
D)  the government should always balance its budget. 
E)  unemployment is a less serious concern than inflation. 
A)  the government should spend more than it collects in taxes. 
B)  decision making should be left to the Council of Economic Advisers. 
C)  the government can change the equilibrium GDP by promoting a change in public and/or private spending. 
D)  the government should always balance its budget. 
E)  unemployment is a less serious concern than inflation.

Question 6

Personal and corporate income taxes serve as automatic stabilizers by causing

Accepted Answer

A)  tax revenues to fall as GDP rises. 
B)  the government budget to run a surplus during recessions. 
C)  continuous prosperity. 
D)  government tax revenues to rise and fall as GDP rises and falls. 
E)  discretionary fiscal programs to become meaningless. 
A)  tax revenues to fall as GDP rises. 
B)  the government budget to run a surplus during recessions. 
C)  continuous prosperity. 
D)  government tax revenues to rise and fall as GDP rises and falls. 
E)  discretionary fiscal programs to become meaningless.

Question 7

The government may attempt to reduce unemployment by

Accepted Answer

A)  pushing the aggregate demand curve to the left. 
B)  increasing the tax rate on personal income. 
C)  reducing government expenditures. 
D)  decreasing net exports. 
E)  cutting taxes. 
A)  pushing the aggregate demand curve to the left. 
B)  increasing the tax rate on personal income. 
C)  reducing government expenditures. 
D)  decreasing net exports. 
E)  cutting taxes.

Question 8

If the multiplier is 3,a $1 billion decrease in government spending will

Accepted Answer

A)  lower equilibrium GDP by one-third. 
B)  lower equilibrium GDP by 3. 
C)  raise equilibrium GDP by one-third. 
D)  raise equilibrium GDP by 3. 
E)  leave equilibrium GDP unchanged but change intended spending by one-third. 
A)  lower equilibrium GDP by one-third. 
B)  lower equilibrium GDP by 3. 
C)  raise equilibrium GDP by one-third. 
D)  raise equilibrium GDP by 3. 
E)  leave equilibrium GDP unchanged but change intended spending by one-third.

Question 9

The value of the multiplier in an open economy is generally

Accepted Answer

A)  less than zero. 
B)  greater than the multiplier in a closed economy. 
C)  identical to the value of the multiplier in a closed economy. 
D)  less than the value of the multiplier in a closed economy. 
E)  indeterminate because the behavior of exports is unpredictable. 
A)  less than zero. 
B)  greater than the multiplier in a closed economy. 
C)  identical to the value of the multiplier in a closed economy. 
D)  less than the value of the multiplier in a closed economy. 
E)  indeterminate because the behavior of exports is unpredictable.

Question 10

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 private sector spending 
B)  an increase in the money supply by the government 
C)  an increase in government spending accompanied by a tax cut 
D)  a decrease in potential output because of a natural disaster 
E)  a decrease in the price level through the imposition of wage and price controls 
A)  a decrease in private sector spending 
B)  an increase in the money supply by the government 
C)  an increase in government spending accompanied by a tax cut 
D)  a decrease in potential output because of a natural disaster 
E)  a decrease in the price level through the imposition of wage and price controls

Question 11

In a simple Keynesian model,a decrease in government spending

Accepted Answer

A)  shifts the C + I + G line upward. 
B)  reduces potential GDP below its full-employment level. 
C)  causes price levels to rapidly increase. 
D)  means the C + I + G line intersects the 45-degree line at a reduced GDP. 
E)  affects the composition of GDP but not its value. 
A)  shifts the C + I + G line upward. 
B)  reduces potential GDP below its full-employment level. 
C)  causes price levels to rapidly increase. 
D)  means the C + I + G line intersects the 45-degree line at a reduced GDP. 
E)  affects the composition of GDP but not its value.

Question 12

The Employment Act of 1946

Accepted Answer

A)  reduced tax rates 10 percent across the board. 
B)  established the Joint Economic Committee of Congress and the Council of Economic Advisers. 
C)  made it a matter of government policy to promote a favorable balance of trade. 
D)  created automatic stabilizers to replace discretionary fiscal policy. 
E)  requires the government to undertake spending on public works to ensure full employment. 
A)  reduced tax rates 10 percent across the board. 
B)  established the Joint Economic Committee of Congress and the Council of Economic Advisers. 
C)  made it a matter of government policy to promote a favorable balance of trade. 
D)  created automatic stabilizers to replace discretionary fiscal policy. 
E)  requires the government to undertake spending on public works to ensure full employment.

Question 13

An inflationary gap

Accepted Answer

A)  exists when actual spending is less than intended spending. 
B)  measures the additional intended spending needed to ensure full employment. 
C)  indicates the additional spending needed to lower the rate of inflation. 
D)  measures the increase in GDP needed to achieve full employment. 
E)  can be eliminated by fiscal policies designed to shift the aggregate demand curve to the left. 
A)  exists when actual spending is less than intended spending. 
B)  measures the additional intended spending needed to ensure full employment. 
C)  indicates the additional spending needed to lower the rate of inflation. 
D)  measures the increase in GDP needed to achieve full employment. 
E)  can be eliminated by fiscal policies designed to shift the aggregate demand curve to the left.

Question 14

Excessive unemployment is a sign of a(n)

Accepted Answer

A)  vertical short-run aggregate supply curve. 
B)  automatic stabilizer. 
C)  rapidly increasing price level. 
D)  recessionary gap. 
E)  excessive amount of total aggregate spending. 
A)  vertical short-run aggregate supply curve. 
B)  automatic stabilizer. 
C)  rapidly increasing price level. 
D)  recessionary gap. 
E)  excessive amount of total aggregate spending.

Question 15

The following question are based on the following diagram showing the equilibrium level of GDP. Exports are currently $60 billion and imports are $40 billion.
  
-If exports rise to $65 billion and imports rise to $50 billion,the C + I + G + (X - M₁)line moves ________ billion.

Accepted Answer

A)  up by $5 
B)  up by $15 
C)  down by $15 
D)  down by $10 
E)  down by $5 
A)  up by $5 
B)  up by $15 
C)  down by $15 
D)  down by $10 
E)  down by $5

Exam 18: Fiscal Policy and National Output

Tax collections alter the equilibrium level of GDP by

The use of government spending and taxes for stabilization purposes is known as

A decrease in the value of exports minus imports will

When the equilibrium level of output in an economy is above its potential output

The fundamental idea of fiscal policy is that

Personal and corporate income taxes serve as automatic stabilizers by causing

The government may attempt to reduce unemployment by

If the multiplier is 3,a $1 billion decrease in government spending will

The value of the multiplier in an open economy is generally

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

In a simple Keynesian model,a decrease in government spending

The Employment Act of 1946

An inflationary gap

Excessive unemployment is a sign of a(n)

The following question are based on the following diagram showing the equilibrium level of GDP. Exports are currently $60 billion and imports are $40 billion. -If exports rise to $65 billion and imports rise to $50 billion,the C + I + G + (X - M₁)line moves ________ billion.

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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