Question 1

What did TARP, passed in October 2008, aim to do?

Accepted Answer

A)  unfreeze financial flows 
B)  freeze financial flows 
C)  decrease liquidity 
D)  increase the discount rate 
E)  lower taxes 
A)  unfreeze financial flows 
B)  freeze financial flows 
C)  decrease liquidity 
D)  increase the discount rate 
E)  lower taxes

Question 2

-Refer to Exhibit 11.2, which shows the relationship between the price level and real GDP. Which of the following is the long-run equilibrium point?

Accepted Answer

A)  A point between e* and e'' 
B)  e'' 
C)  e* 
D)  e' 
E)  e 
A)  A point between e* and e'' 
B)  e'' 
C)  e* 
D)  e' 
E)  e

Question 3

Most government purchases are made at the federal level and not at the state level.

Accepted Answer

A) True 
 B)False

Question 4

The rate of unemployment that occurs when the economy is producing its potential GDP _____

Accepted Answer

A)  is called the natural rate of unemployment. 
B)  is equal to zero. 
C)  is thought to be approximately 10%. 
D)  can be kept at zero through fiscal policy. 
E)  is equal to the rate of stagflation in most years. 
A)  is called the natural rate of unemployment. 
B)  is equal to zero. 
C)  is thought to be approximately 10%. 
D)  can be kept at zero through fiscal policy. 
E)  is equal to the rate of stagflation in most years.

Question 5

A $0.2 trillion increase in government purchases increases the quantity demanded by $1.0 trillion, the price level remaining constant. This additional spending reflects the _____ effect.

Accepted Answer

A)  recessionary 
B)  expansionary 
C)  simple spending multiplier 
D)  income 
E)  substitution 
A)  recessionary 
B)  expansionary 
C)  simple spending multiplier 
D)  income 
E)  substitution

Question 6

An automatic stabilizer _____

Accepted Answer

A)  increases inflationary pressure during expansions. 
B)  increases the drop in disposable income during recessions and increases the jump in disposable income during expansions. 
C)  reduces the drop in disposable income during recessions and reduces the jump in disposable income during expansions. 
D)  increases tax revenue relative to government spending throughout the business cycle. 
E)  decreases tax revenue relative to government spending throughout the business cycle. 
A)  increases inflationary pressure during expansions. 
B)  increases the drop in disposable income during recessions and increases the jump in disposable income during expansions. 
C)  reduces the drop in disposable income during recessions and reduces the jump in disposable income during expansions. 
D)  increases tax revenue relative to government spending throughout the business cycle. 
E)  decreases tax revenue relative to government spending throughout the business cycle.

Question 7

All of the following are variables that can be manipulated to affect fiscal policy, except one. Which is the exception?

Accepted Answer

A)  personal income taxes 
B)  government expenditures on goods and services 
C)  government expenditures on unemployment benefits 
D)  the federal funds rate 
E)  corporate income taxes 
A)  personal income taxes 
B)  government expenditures on goods and services 
C)  government expenditures on unemployment benefits 
D)  the federal funds rate 
E)  corporate income taxes

Question 8

Discretionary fiscal policy works by shifting the short-run aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 9

Suppose the government expenditure increases by $200 and the simple spending multiplier equals 5. The final increase in output will be _____

Accepted Answer

A)  $6,000. 
B)  $500. 
C)  $200. 
D)  more than $200. 
E)  less than $200. 
A)  $6,000. 
B)  $500. 
C)  $200. 
D)  more than $200. 
E)  less than $200.

Question 10

How did the tax cut of 1964 affect the inflation rate?

Accepted Answer

A)  The inflation rate decreased to under 5 percent. 
B)  The inflation rate decreased to under 2 percent. 
C)  The inflation rate increased to over 5 percent. 
D)  The inflation rate increased to over 8 percent. 
E)  The inflation rate was unchanged. 
A)  The inflation rate decreased to under 5 percent. 
B)  The inflation rate decreased to under 2 percent. 
C)  The inflation rate increased to over 5 percent. 
D)  The inflation rate increased to over 8 percent. 
E)  The inflation rate was unchanged.

Question 11

It has been estimated that the marginal propensity to consume out of tax rebate money is less than one-third.

Accepted Answer

A) True 
 B)False

Question 12

Classical economists believed that if saving were greater than investment, the interest rate would _____, causing saving to _____ and investment to _____ until the two were equal.

Accepted Answer

A)  rise; decrease; increase 
B)  fall; decrease; increase 
C)  fall; increase; decrease 
D)  rise; increase; decrease 
E)  fall; increase; increase 
A)  rise; decrease; increase 
B)  fall; decrease; increase 
C)  fall; increase; decrease 
D)  rise; increase; decrease 
E)  fall; increase; increase

Question 13

A temporary tax cut is not likely to be effective in stimulating aggregate demand if _____

Accepted Answer

A)  the tax cut is large. 
B)  the MPC is relatively high. 
C)  the economy experiences a contractionary gap. 
D)  the short-run aggregate supply curve is relatively flat. 
E)  people base consumption decisions on the level of their permanent income. 
A)  the tax cut is large. 
B)  the MPC is relatively high. 
C)  the economy experiences a contractionary gap. 
D)  the short-run aggregate supply curve is relatively flat. 
E)  people base consumption decisions on the level of their permanent income.

Question 14

During the Great Depression unemployment reached _____ and investment plunged _____.

Accepted Answer

A)  10 percent; 80 percent 
B)  80 percent; 10 percent 
C)  25 percent; 80 percent 
D)  80 percent; 25 percent 
E)  50 percent; 50 percent 
A)  10 percent; 80 percent 
B)  80 percent; 10 percent 
C)  25 percent; 80 percent 
D)  80 percent; 25 percent 
E)  50 percent; 50 percent

Question 15

One drawback of fiscal policy is the time it takes to enact the legislation necessary to activate it.

Accepted Answer

A) True 
 B)False

Question 16

Between 2010 and 2014, GDP growth _____

Accepted Answer

A)  was weak, averaging 2.1 percent per year. 
B)  was strong, averaging 2.1 percent per year. 
C)  continued falling at a rate of 4.6 percent per year. 
D)  continued climbing at a rate of 4.6 percent per year. 
E)  neither increased nor decreased. 
A)  was weak, averaging 2.1 percent per year. 
B)  was strong, averaging 2.1 percent per year. 
C)  continued falling at a rate of 4.6 percent per year. 
D)  continued climbing at a rate of 4.6 percent per year. 
E)  neither increased nor decreased.

Question 17

Classical economists believed that if investment were greater than saving, the interest rate would _____, causing saving to _____ and investment to _____ until the two were equal.

Accepted Answer

A)  rise; decrease; increase 
B)  fall; decrease; increase 
C)  fall; increase; decrease 
D)  rise; increase; decrease 
E)  fall; increase; increase 
A)  rise; decrease; increase 
B)  fall; decrease; increase 
C)  fall; increase; decrease 
D)  rise; increase; decrease 
E)  fall; increase; increase

Question 18

Economists and policy makers questioned the effectiveness of discretionary fiscal policy during the 1970s for all the following reasons except _____

Accepted Answer

A)  the difficulty of estimating the natural rate of unemployment. 
B)  the time lags involved in implementing fiscal policy. 
C)  the existence of possible feedback effects of fiscal policy on aggregate supply. 
D)  the distinction between current and permanent income. 
E)  the possible feedback effects of fiscal policy on aggregate demand. 
A)  the difficulty of estimating the natural rate of unemployment. 
B)  the time lags involved in implementing fiscal policy. 
C)  the existence of possible feedback effects of fiscal policy on aggregate supply. 
D)  the distinction between current and permanent income. 
E)  the possible feedback effects of fiscal policy on aggregate demand.

Question 19

Which of the following measures did President Bush adopt in 2001 to get the economy moving again?

Accepted Answer

A)  a hike in the wages of workers 
B)  a ten-year tax cut 
C)  an increase in taxes on high-income households 
D)  liquidation of money supply 
E)  Aa decrease in government spending 
A)  a hike in the wages of workers 
B)  a ten-year tax cut 
C)  an increase in taxes on high-income households 
D)  liquidation of money supply 
E)  Aa decrease in government spending

Question 20

Which of the following will not increase when net taxes decrease?

Accepted Answer

A)  saving 
B)  disposable income 
C)  consumption 
D)  government expenditure 
E)  GDP 
A)  saving 
B)  disposable income 
C)  consumption 
D)  government expenditure 
E)  GDP

What did TARP, passed in October 2008, aim to do?

-Refer to Exhibit 11.2, which shows the relationship between the price level and real GDP. Which of the following is the long-run equilibrium point?

Most government purchases are made at the federal level and not at the state level.

The rate of unemployment that occurs when the economy is producing its potential GDP _____

A $0.2 trillion increase in government purchases increases the quantity demanded by $1.0 trillion, the price level remaining constant. This additional spending reflects the _____ effect.

An automatic stabilizer _____

All of the following are variables that can be manipulated to affect fiscal policy, except one. Which is the exception?

Discretionary fiscal policy works by shifting the short-run aggregate supply curve.

Suppose the government expenditure increases by $200 and the simple spending multiplier equals 5. The final increase in output will be _____

How did the tax cut of 1964 affect the inflation rate?

It has been estimated that the marginal propensity to consume out of tax rebate money is less than one-third.

Classical economists believed that if saving were greater than investment, the interest rate would ___, causing saving to _ and investment to ___ until the two were equal.

A temporary tax cut is not likely to be effective in stimulating aggregate demand if _____

During the Great Depression unemployment reached _ and investment plunged _.

One drawback of fiscal policy is the time it takes to enact the legislation necessary to activate it.

Between 2010 and 2014, GDP growth _____

Classical economists believed that if investment were greater than saving, the interest rate would ___, causing saving to _ and investment to ___ until the two were equal.

Economists and policy makers questioned the effectiveness of discretionary fiscal policy during the 1970s for all the following reasons except _____

Which of the following measures did President Bush adopt in 2001 to get the economy moving again?

Which of the following will not increase when net taxes decrease?

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

Productivity and Growth.

Aggregate Demand.

Aggregate Supply.

Federal Budgets and Public Policy.

Money and the Financial System.

Banking and the Money Supply.

Monetary Theory and Policy.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

Filters

Exam 11: Fiscal Policy.

What did TARP, passed in October 2008, aim to do?

-Refer to Exhibit 11.2, which shows the relationship between the price level and real GDP. Which of the following is the long-run equilibrium point?

Most government purchases are made at the federal level and not at the state level.

The rate of unemployment that occurs when the economy is producing its potential GDP _____

A $0.2 trillion increase in government purchases increases the quantity demanded by $1.0 trillion, the price level remaining constant. This additional spending reflects the _____ effect.

An automatic stabilizer _____

All of the following are variables that can be manipulated to affect fiscal policy, except one. Which is the exception?

Discretionary fiscal policy works by shifting the short-run aggregate supply curve.

Suppose the government expenditure increases by $200 and the simple spending multiplier equals 5. The final increase in output will be _____

How did the tax cut of 1964 affect the inflation rate?

It has been estimated that the marginal propensity to consume out of tax rebate money is less than one-third.

Classical economists believed that if saving were greater than investment, the interest rate would _____, causing saving to _____ and investment to _____ until the two were equal.

A temporary tax cut is not likely to be effective in stimulating aggregate demand if _____

During the Great Depression unemployment reached _____ and investment plunged _____.

One drawback of fiscal policy is the time it takes to enact the legislation necessary to activate it.

Between 2010 and 2014, GDP growth _____

Classical economists believed that if investment were greater than saving, the interest rate would _____, causing saving to _____ and investment to _____ until the two were equal.

Economists and policy makers questioned the effectiveness of discretionary fiscal policy during the 1970s for all the following reasons except _____

Which of the following measures did President Bush adopt in 2001 to get the economy moving again?

Which of the following will not increase when net taxes decrease?

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

Productivity and Growth.

Aggregate Demand.

Aggregate Supply.

Federal Budgets and Public Policy.

Money and the Financial System.

Banking and the Money Supply.

Monetary Theory and Policy.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

Filters

Classical economists believed that if saving were greater than investment, the interest rate would ___, causing saving to _ and investment to ___ until the two were equal.

During the Great Depression unemployment reached _ and investment plunged _.

Classical economists believed that if investment were greater than saving, the interest rate would ___, causing saving to _ and investment to ___ until the two were equal.