Question 1

-Refer to Exhibit 11.2, which shows the relationship between the price level and real GDP. Suppose the economy is initially at point

Accepted Answer

A)  Q₁ and Q₂. 
B)  Q₂ and Q₃. 
C)  Q₁ and Q₃. 
D)  AD and AD*. 
E)  A recessionary gap would be created between _____ 
A)  Q₁ and Q₂. 
B)  Q₂ and Q₃. 
C)  Q₁ and Q₃. 
D)  AD and AD*. 
E)  A recessionary gap would be created between _____

Question 2

In the 1970s, one of the causes of stagflation was _____

Accepted Answer

A)  rising unemployment together with economic growth. 
B)  deflation coupled with a decline in money supply. 
C)  higher oil prices that shifted the aggregate supply curve left. 
D)  deficits coupled with rising unemployment. 
E)  inflation coupled with balance of trade deficits. 
A)  rising unemployment together with economic growth. 
B)  deflation coupled with a decline in money supply. 
C)  higher oil prices that shifted the aggregate supply curve left. 
D)  deficits coupled with rising unemployment. 
E)  inflation coupled with balance of trade deficits.

Question 3

Political business cycles result from _____

Accepted Answer

A)  a contractionary monetary policy. 
B)  an expansionary fiscal policy. 
C)  an expansionary monetary policy. 
D)  tax increases on high-income households. 
E)  automatic stabilizers to control demand. 
A)  a contractionary monetary policy. 
B)  an expansionary fiscal policy. 
C)  an expansionary monetary policy. 
D)  tax increases on high-income households. 
E)  automatic stabilizers to control demand.

Question 4

All of the following are tools of fiscal policy except one. Which is the exception?

Accepted Answer

A)  taxes 
B)  transfer payments 
C)  interest rates 
D)  government purchases of goods 
E)  government purchases of services 
A)  taxes 
B)  transfer payments 
C)  interest rates 
D)  government purchases of goods 
E)  government purchases of services

Question 5

Which of the following best illustrates the use of discretionary fiscal policy?

Accepted Answer

A)  Congress providing $1 billion in relief aid for hurricane victims 
B)  Congress appropriating $400 million to help the needy and the appropriation being financed by a tax on wealth 
C)  income tax receipts being smaller because of a decline in real GDP during a recession 
D)  the Federal Reserve tightening credit when it receives news of accelerating inflation 
E)  Congress passing a bill authorizing $2 billion in additional spending when it receives news of a deepening recession 
A)  Congress providing $1 billion in relief aid for hurricane victims 
B)  Congress appropriating $400 million to help the needy and the appropriation being financed by a tax on wealth 
C)  income tax receipts being smaller because of a decline in real GDP during a recession 
D)  the Federal Reserve tightening credit when it receives news of accelerating inflation 
E)  Congress passing a bill authorizing $2 billion in additional spending when it receives news of a deepening recession

Question 6

Lags in the approval and implementation of fiscal policy _____

Accepted Answer

A)  weaken fiscal policy as a tool of economic stabilization. 
B)  increase the effectiveness of fiscal policy as a tool of economic stabilization. 
C)  help legislators better assess what policies are most appropriate to adopt. 
D)  make fiscal policy more responsive to the current economic environment. 
E)  cause fiscal policy to be more effective at changing the level of real GDP than changing the price level only in the long run. 
A)  weaken fiscal policy as a tool of economic stabilization. 
B)  increase the effectiveness of fiscal policy as a tool of economic stabilization. 
C)  help legislators better assess what policies are most appropriate to adopt. 
D)  make fiscal policy more responsive to the current economic environment. 
E)  cause fiscal policy to be more effective at changing the level of real GDP than changing the price level only in the long run.

Question 7

If the Naval Research Laboratory fired a chemist and the Environmental Protection Agency hired her at the same salary, the net effect of these events would cause _____

Accepted Answer

A)  an increase in aggregate demand. 
B)  an increase in aggregate supply. 
C)  a decrease in aggregate supply. 
D)  a decrease in aggregate demand. 
E)  no change in aggregate demand. 
A)  an increase in aggregate demand. 
B)  an increase in aggregate supply. 
C)  a decrease in aggregate supply. 
D)  a decrease in aggregate demand. 
E)  no change in aggregate demand.

Question 8

Deliberate manipulation of government spending and taxes to promote macroeconomic goals is effected by _____

Accepted Answer

A)  discretionary fiscal policy. 
B)  automatic stabilizers. 
C)  expansionary fiscal policy. 
D)  contractionary fiscal policy. 
E)  monetary policy. 
A)  discretionary fiscal policy. 
B)  automatic stabilizers. 
C)  expansionary fiscal policy. 
D)  contractionary fiscal policy. 
E)  monetary policy.

Question 9

Discretionary fiscal policy is a policy that _____

Accepted Answer

A)  is developed in secret. 
B)  applies to some states and not all states in an economy. 
C)  applies to only some specific industries in an economy. 
D)  works automatically without a public announcement or plan. 
E)  is an intentional change in taxation or government spending. 
A)  is developed in secret. 
B)  applies to some states and not all states in an economy. 
C)  applies to only some specific industries in an economy. 
D)  works automatically without a public announcement or plan. 
E)  is an intentional change in taxation or government spending.

Question 10

Which of the following is true about classical economists?

Accepted Answer

A)  They argued that the sources of depressions and high unemployment lay within the market system. 
B)  They advocated laissez-faire policies to promote economic growth. 
C)  They believed the economy would naturally tend toward unemployment. 
D)  They believed prices and wages were rigid. 
E)  They encouraged government intervention in markets. 
A)  They argued that the sources of depressions and high unemployment lay within the market system. 
B)  They advocated laissez-faire policies to promote economic growth. 
C)  They believed the economy would naturally tend toward unemployment. 
D)  They believed prices and wages were rigid. 
E)  They encouraged government intervention in markets.

Question 11

If people base their spending decisions more on permanent income than current income, then _____

Accepted Answer

A)  consumption spending will be more responsive to a temporary change in income than a change in permanent income. 
B)  shifts in aggregate supply will be less predictable than if spending was based on current income. 
C)  consumption spending will fluctuate more widely than if such spending was determined by current income. 
D)  shifts in short-run aggregate supply will be more predictable than if spending was based on current income. 
E)  attempts to fine-tune the economy with temporary tax rate adjustments will be less effective. 
A)  consumption spending will be more responsive to a temporary change in income than a change in permanent income. 
B)  shifts in aggregate supply will be less predictable than if spending was based on current income. 
C)  consumption spending will fluctuate more widely than if such spending was determined by current income. 
D)  shifts in short-run aggregate supply will be more predictable than if spending was based on current income. 
E)  attempts to fine-tune the economy with temporary tax rate adjustments will be less effective.

Question 12

The top 10 percent of earners pay about _____ of federal income taxes collected.

Accepted Answer

A)  70 percent 
B)  60 percent 
C)  50 percent 
D)  40 percent 
E)  30 percent 
A)  70 percent 
B)  60 percent 
C)  50 percent 
D)  40 percent 
E)  30 percent

Question 13

When net taxes increase and government purchases decrease, _____

Accepted Answer

A)  the price level will rise. 
B)  money supply must rise. 
C)  the aggregate demand curve shifts leftward. 
D)  output and employment increase. 
E)  the aggregate supply curve shifts leftward. 
A)  the price level will rise. 
B)  money supply must rise. 
C)  the aggregate demand curve shifts leftward. 
D)  output and employment increase. 
E)  the aggregate supply curve shifts leftward.

Question 14

The steeper the short-run aggregate supply curve, _____

Accepted Answer

A)  the smaller the impact of a shift in aggregate demand on equilibrium output. 
B)  the larger the value of the spending multiplier. 
C)  the larger the impact of a shift in aggregate demand on equilibrium output. 
D)  the smaller the change in government spending needed to achieve the desired change in equilibrium output. 
E)  the flatter the aggregate demand curve. 
A)  the smaller the impact of a shift in aggregate demand on equilibrium output. 
B)  the larger the value of the spending multiplier. 
C)  the larger the impact of a shift in aggregate demand on equilibrium output. 
D)  the smaller the change in government spending needed to achieve the desired change in equilibrium output. 
E)  the flatter the aggregate demand curve.

Question 15

Suppose an initial increase in government expenditure increases output by $50,000. If the size of the multiplier was 1.0, the size of the initial increase in government expenditure was _____

Accepted Answer

A)  $25,000. 
B)  $20,000. 
C)  $12,500. 
D)  $50,000. 
E)  $0. 
A)  $25,000. 
B)  $20,000. 
C)  $12,500. 
D)  $50,000. 
E)  $0.

Question 16

Economists believe that, among other reasons, the fiscal stimulus of 2009 _____

Accepted Answer

A)  was very effective, because the government spending multiplier was greater than 1.0. 
B)  was very effective, because the government spending multiplier was less than 1.0. 
C)  was not very effective, because the government spending multiplier was greater than 1.0. 
D)  was not very effective, because the government spending multiplier was less than 1.0. 
E)  had little to do with the growth of the federal debt. 
A)  was very effective, because the government spending multiplier was greater than 1.0. 
B)  was very effective, because the government spending multiplier was less than 1.0. 
C)  was not very effective, because the government spending multiplier was greater than 1.0. 
D)  was not very effective, because the government spending multiplier was less than 1.0. 
E)  had little to do with the growth of the federal debt.

Question 17

A decrease in net taxes _____

Accepted Answer

A)  increases GDP as much as an equal decrease in government purchases. 
B)  increases GDP less than an equal increase in government purchases. 
C)  decreases GDP more than an equal decrease in government purchases. 
D)  changes GDP in an unpredictable manner. 
E)  has no effect on GDP. 
A)  increases GDP as much as an equal decrease in government purchases. 
B)  increases GDP less than an equal increase in government purchases. 
C)  decreases GDP more than an equal decrease in government purchases. 
D)  changes GDP in an unpredictable manner. 
E)  has no effect on GDP.

Question 18

An increase in the federal budget deficit _____

Accepted Answer

A)  only occurs when there is a deficit in the balance of trade. 
B)  creates deflation. 
C)  decreases aggregate demand. 
D)  decreases the aggregate quantity demanded along a stationary aggregate demand curve. 
E)  increases aggregate demand. 
A)  only occurs when there is a deficit in the balance of trade. 
B)  creates deflation. 
C)  decreases aggregate demand. 
D)  decreases the aggregate quantity demanded along a stationary aggregate demand curve. 
E)  increases aggregate demand.

Question 19

Economic fluctuations that occur when discretionary policy is manipulated for political gain are known as _____

Accepted Answer

A)  political business cycles. 
B)  fiscal policies. 
C)  monetary policies. 
D)  tax increases on high-income households. 
E)  automatic stabilizers to control demand. 
A)  political business cycles. 
B)  fiscal policies. 
C)  monetary policies. 
D)  tax increases on high-income households. 
E)  automatic stabilizers to control demand.

Question 20

Expansionary fiscal policy _____

Accepted Answer

A)  is a fiscal policy used to close a recessionary gap. 
B)  is a revenue and spending program in the federal budget that automatically adjusts with the ups and downs of the economy. 
C)  is an emergency manipulation of government purchases, transfer payments, and taxes to promote macroeconomic goals. 
D)  is a revenue and spending program in the federal budget that never adjusts with the ups and downs of the economy. 
E)  is a monetary policy change. 
A)  is a fiscal policy used to close a recessionary gap. 
B)  is a revenue and spending program in the federal budget that automatically adjusts with the ups and downs of the economy. 
C)  is an emergency manipulation of government purchases, transfer payments, and taxes to promote macroeconomic goals. 
D)  is a revenue and spending program in the federal budget that never adjusts with the ups and downs of the economy. 
E)  is a monetary policy change.

-Refer to Exhibit 11.2, which shows the relationship between the price level and real GDP. Suppose the economy is initially at point

In the 1970s, one of the causes of stagflation was _____

Political business cycles result from _____

All of the following are tools of fiscal policy except one. Which is the exception?

Which of the following best illustrates the use of discretionary fiscal policy?

Lags in the approval and implementation of fiscal policy _____

If the Naval Research Laboratory fired a chemist and the Environmental Protection Agency hired her at the same salary, the net effect of these events would cause _____

Deliberate manipulation of government spending and taxes to promote macroeconomic goals is effected by _____

Discretionary fiscal policy is a policy that _____

Which of the following is true about classical economists?

If people base their spending decisions more on permanent income than current income, then _____

The top 10 percent of earners pay about _____ of federal income taxes collected.

When net taxes increase and government purchases decrease, _____

The steeper the short-run aggregate supply curve, _____

Suppose an initial increase in government expenditure increases output by $50,000. If the size of the multiplier was 1.0, the size of the initial increase in government expenditure was _____

Economists believe that, among other reasons, the fiscal stimulus of 2009 _____

A decrease in net taxes _____

An increase in the federal budget deficit _____

Economic fluctuations that occur when discretionary policy is manipulated for political gain are known as _____

Expansionary fiscal policy _____

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.

-Refer to Exhibit 11.2, which shows the relationship between the price level and real GDP. Suppose the economy is initially at point

In the 1970s, one of the causes of stagflation was _____

Political business cycles result from _____

All of the following are tools of fiscal policy except one. Which is the exception?

Which of the following best illustrates the use of discretionary fiscal policy?

Lags in the approval and implementation of fiscal policy _____

If the Naval Research Laboratory fired a chemist and the Environmental Protection Agency hired her at the same salary, the net effect of these events would cause _____

Deliberate manipulation of government spending and taxes to promote macroeconomic goals is effected by _____

Discretionary fiscal policy is a policy that _____

Which of the following is true about classical economists?

If people base their spending decisions more on permanent income than current income, then _____

The top 10 percent of earners pay about _____ of federal income taxes collected.

When net taxes increase and government purchases decrease, _____

The steeper the short-run aggregate supply curve, _____

Suppose an initial increase in government expenditure increases output by $50,000. If the size of the multiplier was 1.0, the size of the initial increase in government expenditure was _____

Economists believe that, among other reasons, the fiscal stimulus of 2009 _____

A decrease in net taxes _____

An increase in the federal budget deficit _____

Economic fluctuations that occur when discretionary policy is manipulated for political gain are known as _____

Expansionary fiscal policy _____

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