Question 1

Suppose the federal government increases the unemployment benefits financed by higher income taxes. In this case, which of the following is likely to occur?

Accepted Answer

A)  an increase in the equilibrium real GDP 
B)  a redistribution of disposable income from the employed to the unemployed 
C)  an increase in the interest rate 
D)  an increase in the discount rate charged by the Central Bank 
E)  an increase in the income of the rich and a decrease in the income of the poor 
A)  an increase in the equilibrium real GDP 
B)  a redistribution of disposable income from the employed to the unemployed 
C)  an increase in the interest rate 
D)  an increase in the discount rate charged by the Central Bank 
E)  an increase in the income of the rich and a decrease in the income of the poor

Question 2

Keynes thought that one macroeconomic problem is that an economy _____

Accepted Answer

A)  can tend toward an equilibrium level of output that is below the potential level. 
B)  will move back to its potential after a business cycle on its own. 
C)  always operates at the potential and business cycles are created by government intervention. 
D)  can be pushed below the equilibrium level of output by fiscal policy. 
E)  can be pushed away from the potential if prices and wages are flexible. 
A)  can tend toward an equilibrium level of output that is below the potential level. 
B)  will move back to its potential after a business cycle on its own. 
C)  always operates at the potential and business cycles are created by government intervention. 
D)  can be pushed below the equilibrium level of output by fiscal policy. 
E)  can be pushed away from the potential if prices and wages are flexible.

Question 3

What caused the U.S. economy to enter a recession in 2007?

Accepted Answer

A)  higher budget deficits, which increased aggregate demand 
B)  lower budget deficits, which decreased aggregate demand 
C)  declining home prices and rising foreclosure rates 
D)  rising home prices and rising foreclosure rates 
E)  rising home prices and falling foreclosure rates 
A)  higher budget deficits, which increased aggregate demand 
B)  lower budget deficits, which decreased aggregate demand 
C)  declining home prices and rising foreclosure rates 
D)  rising home prices and rising foreclosure rates 
E)  rising home prices and falling foreclosure rates

Question 4

Fiscal policy is concerned with _____

Accepted Answer

A)  government spending and taxation. 
B)  government spending and changes in money supply. 
C)  money supply and taxation. 
D)  government spending, taxation, and money supply. 
E)  money supply only. 
A)  government spending and taxation. 
B)  government spending and changes in money supply. 
C)  money supply and taxation. 
D)  government spending, taxation, and money supply. 
E)  money supply only.

Question 5

According to Keynesian theory, the natural forces in the economy may not quickly move the economy toward potential real GDP.

Accepted Answer

A) True 
 B)False

Question 6

At a level of output equal to the economy's potential, the simple spending multiplier in the long run equals one.

Accepted Answer

A) True 
 B)False

Question 7

Large federal budget deficits _____

Accepted Answer

A)  can best be reduced by automatic stabilizers. 
B)  make it difficult to use discretionary fiscal policy. 
C)  in the mid-to-late 1980s were the result of a severe recession. 
D)  constitute only about 1 percent of GDP. 
E)  have little to do with the growth of the federal debt. 
A)  can best be reduced by automatic stabilizers. 
B)  make it difficult to use discretionary fiscal policy. 
C)  in the mid-to-late 1980s were the result of a severe recession. 
D)  constitute only about 1 percent of GDP. 
E)  have little to do with the growth of the federal debt.

Question 8

What did TARP, passed in October 2008, achieve?

Accepted Answer

A)  It increase in the equilibrium real GDP. 
B)  It calmed credit markets, but the economy and the stock market continued to worsen. 
C)  It calmed credit markets and the economy, but the stock market continued to worsen. 
D)  It normalized credit markets, the economy, and the stock market. 
A)  It increase in the equilibrium real GDP. 
B)  It calmed credit markets, but the economy and the stock market continued to worsen. 
C)  It calmed credit markets and the economy, but the stock market continued to worsen. 
D)  It normalized credit markets, the economy, and the stock market.

Question 9

Suppose an initial increase in government expenditure increases output by $50,000. If the size of the multiplier is 2.5, 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 10

Which of the following had the greatest impact in pulling the U.S. economy out of the Great Depression?

Accepted Answer

A)  the economy's natural tendency to contract toward potential output 
B)  the federal government's aggressive policy of tax cuts 
C)  the federal government's aggressive policy of monetary stimuli 
D)  a precipitous drop in aggregate demand 
E)  increased spending during World War II 
A)  the economy's natural tendency to contract toward potential output 
B)  the federal government's aggressive policy of tax cuts 
C)  the federal government's aggressive policy of monetary stimuli 
D)  a precipitous drop in aggregate demand 
E)  increased spending during World War II

Question 11

Discretionary fiscal policy _____

Accepted Answer

A)  is the deliberate manipulation of government purchases, transfer payments, and taxes to promote macroeconomic goals. 
B)  are revenue and spending programs in the federal budget that automatically adjust with the ups and downs of the economy. 
C)  are emergency manipulation of government purchases, transfer payments, and taxes to promote macroeconomic goals. 
D)  are revenue and spending programs in the federal budget that never adjust with the ups and downs of the economy. 
E)  are monetary policy changes. 
A)  is the deliberate manipulation of government purchases, transfer payments, and taxes to promote macroeconomic goals. 
B)  are revenue and spending programs in the federal budget that automatically adjust with the ups and downs of the economy. 
C)  are emergency manipulation of government purchases, transfer payments, and taxes to promote macroeconomic goals. 
D)  are revenue and spending programs in the federal budget that never adjust with the ups and downs of the economy. 
E)  are monetary policy changes.

Question 12

The natural rate of unemployment is that rate at which the economy achieves its potential real GDP.

Accepted Answer

A) True 
 B)False

Question 13

Keynes believed that the economy does not automatically move toward an equilibrium at full employment.

Accepted Answer

A) True 
 B)False

Question 14

The exact change in equilibrium output due to a shift in the short-run aggregate demand curve depends on _____

Accepted Answer

A)  the amount of tax imposed. 
B)  the steepness of the aggregate supply curve. 
C)  the steepness of the aggregate demand curve. 
D)  the gap between the supply curve and the demand curve. 
E)  the consumption pattern in the economy. 
A)  the amount of tax imposed. 
B)  the steepness of the aggregate supply curve. 
C)  the steepness of the aggregate demand curve. 
D)  the gap between the supply curve and the demand curve. 
E)  the consumption pattern in the economy.

Question 15

What was used to influence the macroeconomy prior to the 1930s?

Accepted Answer

A)  fiscal policy 
B)  monetary policy 
C)  socialist policies 
D)  automatic stabilizers 
E)  laissez-faire policies 
A)  fiscal policy 
B)  monetary policy 
C)  socialist policies 
D)  automatic stabilizers 
E)  laissez-faire policies

Question 16

Which of the following assumptions is true of government spending and taxes?

Accepted Answer

A)  They do not depend on the level of GDP. 
B)  They may be changed only through direct action by Congress. 
C)  They change only when the price level changes. 
D)  They change only upon executive order of the president of the United States. 
E)  They are autonomous at low levels of GDP but not at higher levels of GDP. 
A)  They do not depend on the level of GDP. 
B)  They may be changed only through direct action by Congress. 
C)  They change only when the price level changes. 
D)  They change only upon executive order of the president of the United States. 
E)  They are autonomous at low levels of GDP but not at higher levels of GDP.

Question 17

Political business cycles result _____

Accepted Answer

A)  from the economic fluctuations that occur when discretionary policy is manipulated for political gain. 
B)  from the recessionary gap that occurs when output falls short of the economy's potential. 
C)  from the expansionary gap that occurs when output exceeds the economy's potential. 
D)  when the spending multiplier is manipulated for political gain. 
E)  from the economic fluctuations that occur when automatic stabilizers are manipulated for political gain. 
A)  from the economic fluctuations that occur when discretionary policy is manipulated for political gain. 
B)  from the recessionary gap that occurs when output falls short of the economy's potential. 
C)  from the expansionary gap that occurs when output exceeds the economy's potential. 
D)  when the spending multiplier is manipulated for political gain. 
E)  from the economic fluctuations that occur when automatic stabilizers are manipulated for political gain.

Question 18

One of the difficulties in using discretionary fiscal policy effectively is that the legislative decision-making process is sometimes very long and drawn out.

Accepted Answer

A) True 
 B)False

Question 19

To close a recessionary gap using fiscal policy, the government can _____

Accepted Answer

A)  increase government spending by the size of the gap. 
B)  decrease government spending by the size of the gap. 
C)  increase government spending by more than the size of the gap. 
D)  increase government spending by less than the size of the gap. 
E)  decrease government spending by more than the size of the gap. 
A)  increase government spending by the size of the gap. 
B)  decrease government spending by the size of the gap. 
C)  increase government spending by more than the size of the gap. 
D)  increase government spending by less than the size of the gap. 
E)  decrease government spending by more than the size of the gap.

Question 20

After a substantial tax rebate program in early 2008, surveys showed that _____ of households spent their rebate check.

Accepted Answer

A)  5 percent 
B)  10 percent 
C)  15 percent 
D)  20 percent 
E)  25 percent 
A)  5 percent 
B)  10 percent 
C)  15 percent 
D)  20 percent 
E)  25 percent

Suppose the federal government increases the unemployment benefits financed by higher income taxes. In this case, which of the following is likely to occur?

Keynes thought that one macroeconomic problem is that an economy _____

What caused the U.S. economy to enter a recession in 2007?

Fiscal policy is concerned with _____

According to Keynesian theory, the natural forces in the economy may not quickly move the economy toward potential real GDP.

At a level of output equal to the economy's potential, the simple spending multiplier in the long run equals one.

Large federal budget deficits _____

What did TARP, passed in October 2008, achieve?

Suppose an initial increase in government expenditure increases output by $50,000. If the size of the multiplier is 2.5, the size of the initial increase in government expenditure was _____

Which of the following had the greatest impact in pulling the U.S. economy out of the Great Depression?

Discretionary fiscal policy _____

The natural rate of unemployment is that rate at which the economy achieves its potential real GDP.

Keynes believed that the economy does not automatically move toward an equilibrium at full employment.

The exact change in equilibrium output due to a shift in the short-run aggregate demand curve depends on _____

What was used to influence the macroeconomy prior to the 1930s?

Which of the following assumptions is true of government spending and taxes?

Political business cycles result _____

One of the difficulties in using discretionary fiscal policy effectively is that the legislative decision-making process is sometimes very long and drawn out.

To close a recessionary gap using fiscal policy, the government can _____

After a substantial tax rebate program in early 2008, surveys showed that _____ of households spent their rebate check.

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.

Suppose the federal government increases the unemployment benefits financed by higher income taxes. In this case, which of the following is likely to occur?

Keynes thought that one macroeconomic problem is that an economy _____

What caused the U.S. economy to enter a recession in 2007?

Fiscal policy is concerned with _____

According to Keynesian theory, the natural forces in the economy may not quickly move the economy toward potential real GDP.

At a level of output equal to the economy's potential, the simple spending multiplier in the long run equals one.

Large federal budget deficits _____

What did TARP, passed in October 2008, achieve?

Suppose an initial increase in government expenditure increases output by $50,000. If the size of the multiplier is 2.5, the size of the initial increase in government expenditure was _____

Which of the following had the greatest impact in pulling the U.S. economy out of the Great Depression?

Discretionary fiscal policy _____

The natural rate of unemployment is that rate at which the economy achieves its potential real GDP.

Keynes believed that the economy does not automatically move toward an equilibrium at full employment.

The exact change in equilibrium output due to a shift in the short-run aggregate demand curve depends on _____

What was used to influence the macroeconomy prior to the 1930s?

Which of the following assumptions is true of government spending and taxes?

Political business cycles result _____

One of the difficulties in using discretionary fiscal policy effectively is that the legislative decision-making process is sometimes very long and drawn out.

To close a recessionary gap using fiscal policy, the government can _____

After a substantial tax rebate program in early 2008, surveys showed that _____ of households spent their rebate check.

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