Question 1

If policy makers believe that an inflationary boom is about to begin,the Keynesian view indicates that they should

Accepted Answer

A) increase the budget deficit. 
B) increase government spending and hold taxes constant. 
C) decrease government spending and/or raise taxes. 
D) hold government spending constant and decrease taxes. 
A) increase the budget deficit. 
B) increase government spending and hold taxes constant. 
C) decrease government spending and/or raise taxes. 
D) hold government spending constant and decrease taxes. C

Question 2

According to the Keynesian view,if policy makers thought the economy was about to fall into a recession,which of the following would be most appropriate?

Accepted Answer

A) a change in government spending and taxation that will lead to a budget surplus 
B) a planned increase in the budget deficit 
C) reducing government expenditures 
D) balancing the budget 
A) a change in government spending and taxation that will lead to a budget surplus 
B) a planned increase in the budget deficit 
C) reducing government expenditures 
D) balancing the budget B

Question 3

If Congress votes to increase government purchases and at the same time decrease personal income taxes,they

Accepted Answer

A) have decided to balance the federal budget. 
B) have voted for the proper policy to counteract a recession. 
C) have voted for the proper policy to counteract inflation and an economic boom. 
D) are trying to achieve a federal budget surplus. 
A) have decided to balance the federal budget. 
B) have voted for the proper policy to counteract a recession. 
C) have voted for the proper policy to counteract inflation and an economic boom. 
D) are trying to achieve a federal budget surplus. B

Question 4

Use the figure below to answer the following question(s).
Figure 11-3
  
-Refer to Figure 11-3.When the economy is operating at point a,which of the following will be most likely to happen?

Accepted Answer

A) an increase in resource prices 
B) a decrease in resource prices 
C) the current output will be sustained in the future 
D) an increase in aggregate demand 
A) an increase in resource prices 
B) a decrease in resource prices 
C) the current output will be sustained in the future 
D) an increase in aggregate demand

Question 5

Which of the following is most likely to lead to an increase in current consumption?

Accepted Answer

A) an increase in personal income tax rates 
B) an increase in one's expected future income 
C) a decrease in one's marginal propensity to consume 
D) an increase in the interest rate 
A) an increase in personal income tax rates 
B) an increase in one's expected future income 
C) a decrease in one's marginal propensity to consume 
D) an increase in the interest rate

Question 6

The expenditure multiplier is used to calculate the change in

Accepted Answer

A) spending caused by a change in income. 
B) equilibrium income resulting from a change in interest rates. 
C) equilibrium income resulting from an independent change in spending. 
D) investment caused by a change in consumption. 
A) spending caused by a change in income. 
B) equilibrium income resulting from a change in interest rates. 
C) equilibrium income resulting from an independent change in spending. 
D) investment caused by a change in consumption.

Question 7

Unemployment compensation payments

Accepted Answer

A) rise during a recession and thereby help stimulate consumption. 
B) rise during a recession and thereby retard consumption. 
C) rise during economic expansion and thereby help stimulate consumption. 
D) rise during economic expansion and thereby retard consumption. 
A) rise during a recession and thereby help stimulate consumption. 
B) rise during a recession and thereby retard consumption. 
C) rise during economic expansion and thereby help stimulate consumption. 
D) rise during economic expansion and thereby retard consumption.

Question 8

Which of the following is a major insight of the Keynesian model?

Accepted Answer

A) Changes in output,as well as changes in prices,play a role in the macroeconomic adjustment process,particularly in the long run. 
B) A general overproduction of goods relative to total demand is impossible because production creates its own demand. 
C) The responsiveness of aggregate demand to changes in supply will be directly related to the availability of unemployed resources. 
D) Fluctuations in aggregate demand are an important potential source of business instability. 
A) Changes in output,as well as changes in prices,play a role in the macroeconomic adjustment process,particularly in the long run. 
B) A general overproduction of goods relative to total demand is impossible because production creates its own demand. 
C) The responsiveness of aggregate demand to changes in supply will be directly related to the availability of unemployed resources. 
D) Fluctuations in aggregate demand are an important potential source of business instability.

Question 9

Which of the following is a major deficiency of fiscal policy as a stabilization tool?

Accepted Answer

A) Congress is reluctant to make changes in either taxes or expenditures. 
B) The Constitution requires the president to submit and Congress to pass a balanced budget. 
C) Both political and economic factors make it unlikely that changes in fiscal policy will be timed correctly. 
D) A change in fiscal policy exerts major effects on the economy quickly. 
A) Congress is reluctant to make changes in either taxes or expenditures. 
B) The Constitution requires the president to submit and Congress to pass a balanced budget. 
C) Both political and economic factors make it unlikely that changes in fiscal policy will be timed correctly. 
D) A change in fiscal policy exerts major effects on the economy quickly.

Question 10

According to the Keynesian view,an unanticipated reduction in spending will

Accepted Answer

A) increase the demand for goods and services. 
B) raise business inventories and lead to a decline in output. 
C) lead to lower interest rates,which will stimulate aggregate demand and keep the economy at full employment. 
D) lead to a lower price level,which will quickly guide the economy to full-employment equilibrium. 
A) increase the demand for goods and services. 
B) raise business inventories and lead to a decline in output. 
C) lead to lower interest rates,which will stimulate aggregate demand and keep the economy at full employment. 
D) lead to a lower price level,which will quickly guide the economy to full-employment equilibrium.

Question 11

Which of the following is an important insight of Keynesian analysis?

Accepted Answer

A) When an economy is in a recession,lower interest rates and lower wage rates will quickly direct the economy back to full employment. 
B) When widespread unemployment is present,increases in aggregate demand will exert a larger impact on real output than when the economy is operating at or near full employment. 
C) When an economy is in a recession,it makes sense to increase taxes and reduce government expenditures. 
D) A balanced budget is the key to maintenance of full employment. 
A) When an economy is in a recession,lower interest rates and lower wage rates will quickly direct the economy back to full employment. 
B) When widespread unemployment is present,increases in aggregate demand will exert a larger impact on real output than when the economy is operating at or near full employment. 
C) When an economy is in a recession,it makes sense to increase taxes and reduce government expenditures. 
D) A balanced budget is the key to maintenance of full employment.

Question 12

If the government owes $10.0 trillion and then borrows $700 billion more this year,this leads to

Accepted Answer

A) a debt of $700 billion and a deficit of $10.7 trillion. 
B) a debt of $10.7 trillion and a deficit of $700 billion. 
C) a debt of $9.3 trillion and a deficit of $700 billion. 
D) a debt of $10.0 trillion and a deficit of $9.3 trillion. 
E) a debt of $10.7 trillion and a deficit of zero. 
A) a debt of $700 billion and a deficit of $10.7 trillion. 
B) a debt of $10.7 trillion and a deficit of $700 billion. 
C) a debt of $9.3 trillion and a deficit of $700 billion. 
D) a debt of $10.0 trillion and a deficit of $9.3 trillion. 
E) a debt of $10.7 trillion and a deficit of zero.

Question 13

Why does a tax change affect aggregate demand?

Accepted Answer

A) A tax change alters saving by an equal amount. 
B) A tax change alters imports and net exports. 
C) A tax change alters government spending by an equal amount. 
D) A tax change alters disposable income and consumption spending. 
A) A tax change alters saving by an equal amount. 
B) A tax change alters imports and net exports. 
C) A tax change alters government spending by an equal amount. 
D) A tax change alters disposable income and consumption spending.

Question 14

The major advantage of automatic stabilizers is that they

Accepted Answer

A) guarantee the federal budget will be balanced in a relatively short amount of time. 
B) institute countercyclical fiscal policy without the delays associated with legislative action. 
C) automatically produce surpluses during recessions and deficits during expansions. 
D) require discretionary actions on the part of Congress before they exert an impact on output and employment. 
A) guarantee the federal budget will be balanced in a relatively short amount of time. 
B) institute countercyclical fiscal policy without the delays associated with legislative action. 
C) automatically produce surpluses during recessions and deficits during expansions. 
D) require discretionary actions on the part of Congress before they exert an impact on output and employment.

Question 15

In the Keynesian model,the primary determinant of consumer spending is

Accepted Answer

A) the interest rate. 
B) disposable income. 
C) expectations of inflation. 
D) the stage of the business cycle. 
A) the interest rate. 
B) disposable income. 
C) expectations of inflation. 
D) the stage of the business cycle.

Question 16

Federal budget deficits generally grow during recessions because

Accepted Answer

A) both tax revenues and transfer payments decrease. 
B) both tax revenues and transfer payments increase. 
C) tax revenues decrease while transfer payments increase. 
D) tax revenues increase while transfer payments decrease. 
E) tax revenues decrease but transfer payments are unchanged. 
A) both tax revenues and transfer payments decrease. 
B) both tax revenues and transfer payments increase. 
C) tax revenues decrease while transfer payments increase. 
D) tax revenues increase while transfer payments decrease. 
E) tax revenues decrease but transfer payments are unchanged.

Question 17

What is fiscal policy? What is the relationship between fiscal policy and the federal budget?

Accepted Answer

Fiscal policy is using the government's

Question 18

As the marginal propensity to consume (MPC)increases,the spending multiplier

Accepted Answer

A) increases. 
B) decreases. 
C) remains constant. 
D) becomes indefinable. 
A) increases. 
B) decreases. 
C) remains constant. 
D) becomes indefinable.

Question 19

The primary tool of fiscal policy is

Accepted Answer

A) the money supply. 
B) the stock market. 
C) the federal budget. 
D) regulation of the bond market. 
A) the money supply. 
B) the stock market. 
C) the federal budget. 
D) regulation of the bond market.

Question 20

The optimal time for the implementation of restrictive fiscal policy would be

Accepted Answer

A) before inflation accelerated. 
B) after inflation accelerated. 
C) during a recession. 
D) after the price level had risen significantly. 
A) before inflation accelerated. 
B) after inflation accelerated. 
C) during a recession. 
D) after the price level had risen significantly.

Exam 11: Fiscal Policy: the Keynesian View and Historical Perspective

If policy makers believe that an inflationary boom is about to begin,the Keynesian view indicates that they should

According to the Keynesian view,if policy makers thought the economy was about to fall into a recession,which of the following would be most appropriate?

If Congress votes to increase government purchases and at the same time decrease personal income taxes,they

Use the figure below to answer the following question(s). Figure 11-3 -Refer to Figure 11-3.When the economy is operating at point a,which of the following will be most likely to happen?

Which of the following is most likely to lead to an increase in current consumption?

The expenditure multiplier is used to calculate the change in

Unemployment compensation payments

Which of the following is a major insight of the Keynesian model?

Which of the following is a major deficiency of fiscal policy as a stabilization tool?

According to the Keynesian view,an unanticipated reduction in spending will

Which of the following is an important insight of Keynesian analysis?

If the government owes $10.0 trillion and then borrows $700 billion more this year,this leads to

Why does a tax change affect aggregate demand?

The major advantage of automatic stabilizers is that they

In the Keynesian model,the primary determinant of consumer spending is

Federal budget deficits generally grow during recessions because

What is fiscal policy? What is the relationship between fiscal policy and the federal budget?

As the marginal propensity to consume (MPC)increases,the spending multiplier

The primary tool of fiscal policy is

The optimal time for the implementation of restrictive fiscal policy would be

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