Question 1

As the marginal propensity to consume (MPC)decreases,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 2

Is there any way to conduct fiscal policy and avoid the lags involved with discretionary policy?

Accepted Answer

Programs that act as automatic stabilize

Question 3

Use the figure below to answer the following question(s).
Figure 11-2
  
-Refer to Figure 11-2.When the economy is operating at point a,reliance on the self-correcting mechanism will

Accepted Answer

A) result in higher resource prices and a shift to the left in the SRAS curve. 
B) result in lower resource prices and a shift to the right in the SRAS curve. 
C) lead to lower interest rates and a shift to the right in the AD curve. 
D) lead to higher interest rates and a shift to the left in the AD curve. 
E) do both a and d. 
A) result in higher resource prices and a shift to the left in the SRAS curve. 
B) result in lower resource prices and a shift to the right in the SRAS curve. 
C) lead to lower interest rates and a shift to the right in the AD curve. 
D) lead to higher interest rates and a shift to the left in the AD curve. 
E) do both a and d.

Question 4

Scenario 11-1
The information below is relevant to the following question(s).
Assume IBM decides,despite an ongoing recession,to build a new branch for computer analysis in Bozeman,Montana.The plant expects to spend $12 million to hire the necessary employees,all of whom move in from out of state to take the jobs.
-Refer to Scenario 11-1.If Bozeman citizens decided to spend more than 3/4 of the additional income,

Accepted Answer

A) the MPC would decrease. 
B) the expenditure multiplier would decrease. 
C) the expansion in income would be larger. 
D) aggregate expenditures would decline. 
A) the MPC would decrease. 
B) the expenditure multiplier would decrease. 
C) the expansion in income would be larger. 
D) aggregate expenditures would decline.

Question 5

According to the Keynesian view,the prolonged unemployment of the Great Depression

Accepted Answer

A) was surprising because Keynesians believed that wage rates would decline and direct the economy to full employment. 
B) was surprising because Keynesians believed that lower interest rates would direct the economy to full employment. 
C) resulted because the total expenditures on goods and services were less than the full-employment rate of output. 
D) resulted because the federal government ran large budget deficits during the 1930s. 
A) was surprising because Keynesians believed that wage rates would decline and direct the economy to full employment. 
B) was surprising because Keynesians believed that lower interest rates would direct the economy to full employment. 
C) resulted because the total expenditures on goods and services were less than the full-employment rate of output. 
D) resulted because the federal government ran large budget deficits during the 1930s.

Question 6

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 reduction in government expenditures and/or an increase in taxes 
B) an increase in government expenditures and/or a reduction in taxes 
C) make no policy changes because market forces will assure the maintenance of full employment. 
D) maintain a balanced budget 
A) a reduction in government expenditures and/or an increase in taxes 
B) an increase in government expenditures and/or a reduction in taxes 
C) make no policy changes because market forces will assure the maintenance of full employment. 
D) maintain a balanced budget

Question 7

Government programs that automatically shift the government budget toward a deficit during recessions and a surplus during recoveries are called

Accepted Answer

A) discretionary fiscal policy. 
B) automatic stabilizers. 
C) progressive taxation. 
D) price deflators. 
A) discretionary fiscal policy. 
B) automatic stabilizers. 
C) progressive taxation. 
D) price deflators.

Question 8

The multiplier principle is important because it

Accepted Answer

A) was central to economic theory before Keynes. 
B) implies that investment will help stabilize the economy. 
C) shows why small shifts in investment have a powerful influence on national income. 
D) illustrates why a small change in income causes a large change in saving. 
A) was central to economic theory before Keynes. 
B) implies that investment will help stabilize the economy. 
C) shows why small shifts in investment have a powerful influence on national income. 
D) illustrates why a small change in income causes a large change in saving.

Question 9

If the federal government is running a budget deficit,

Accepted Answer

A) the national debt will decline. 
B) it will have to either raise taxes or reduce expenditures next year. 
C) the U.S.Treasury will finance the deficit by issuing additional bonds. 
D) the supply of money will increase and the general level of prices will rise. 
A) the national debt will decline. 
B) it will have to either raise taxes or reduce expenditures next year. 
C) the U.S.Treasury will finance the deficit by issuing additional bonds. 
D) the supply of money will increase and the general level of prices will rise.

Question 10

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

Accepted Answer

A) Congress provides $90 billion in relief aid for hurricane victims. 
B) Congress appropriates $50 billion to help the needy,and the appropriation is financed by a tax on wealth. 
C) Income tax receipts are smaller because of a decline in real GDP during a recession. 
D) Congress passes a bill authorizing $100 billion in additional spending when it receives news of a deepening recession. 
A) Congress provides $90 billion in relief aid for hurricane victims. 
B) Congress appropriates $50 billion to help the needy,and the appropriation is financed by a tax on wealth. 
C) Income tax receipts are smaller because of a decline in real GDP during a recession. 
D) Congress passes a bill authorizing $100 billion in additional spending when it receives news of a deepening recession.

Question 11

A balanced budget is present when

Accepted Answer

A) the economy is at full employment. 
B) the actual level of aggregate spending equals the planned level of spending. 
C) public sector spending equals private sector spending. 
D) government revenues equal government expenditures. 
A) the economy is at full employment. 
B) the actual level of aggregate spending equals the planned level of spending. 
C) public sector spending equals private sector spending. 
D) government revenues equal government expenditures.

Question 12

If the economy is experiencing inflationary boom,and the government lowers taxes in an effort to balance the budget,the Keynesian model indicates the likely effect will be to

Accepted Answer

A) counteract inflation. 
B) reduce the trade deficit. 
C) continue inflationary pressures. 
D) increase unemployment. 
A) counteract inflation. 
B) reduce the trade deficit. 
C) continue inflationary pressures. 
D) increase unemployment.

Question 13

How does Keynesian economic theory recommend that fiscal policy be conducted?

Accepted Answer

Keynesian economists believe the governm

Question 14

Which of the following provides the best information about the direction of the government's fiscal policy?

Accepted Answer

A) changes in the Fed's holdings of U.S.government securities 
B) changes in the reserve requirements of the Federal Reserve 
C) changes in the nation's trade balance 
D) changes in the size of the federal government's budget deficit or surplus 
A) changes in the Fed's holdings of U.S.government securities 
B) changes in the reserve requirements of the Federal Reserve 
C) changes in the nation's trade balance 
D) changes in the size of the federal government's budget deficit or surplus

Question 15

The prevailing budget philosophy prior to Keynes called for a balanced budget.Keynes argued that the government should not balance its budget but instead have budget deficits during

Accepted Answer

A) economic booms. 
B) during periods of peace but surpluses during periods of war. 
C) periods of inflation. 
D) economic recessions. 
A) economic booms. 
B) during periods of peace but surpluses during periods of war. 
C) periods of inflation. 
D) economic recessions.

Question 16

Fiscal policy designed to increase aggregate demand during economic downturns and decrease aggregate demand during economic booms is called

Accepted Answer

A) business cycle fiscal policy. 
B) new classical fiscal policy. 
C) supply-side fiscal policy. 
D) countercyclical fiscal policy. 
A) business cycle fiscal policy. 
B) new classical fiscal policy. 
C) supply-side fiscal policy. 
D) countercyclical fiscal policy.

Question 17

When the spending of consumers,businesses,government,and foreigners (net exports)is less than the current level of output,Keynesian analysis indicates that

Accepted Answer

A) the economy's output will fall short of its potential. 
B) prices will rise. 
C) equilibrium real GDP will increase. 
D) inventories will decline. 
A) the economy's output will fall short of its potential. 
B) prices will rise. 
C) equilibrium real GDP will increase. 
D) inventories will decline.

Question 18

The government is pursuing an expansionary fiscal policy if it

Accepted Answer

A) decreases government spending and increases taxes. 
B) increases government spending or increases taxes. 
C) decreases government spending or reduces taxes. 
D) increases government spending and/or reduces taxes. 
A) decreases government spending and increases taxes. 
B) increases government spending or increases taxes. 
C) decreases government spending or reduces taxes. 
D) increases government spending and/or reduces taxes.

Question 19

In the Keynesian aggregate expenditure model,the equilibrium level of income is achieved when

Accepted Answer

A) the employment rate equals approximately 96 percent. 
B) actual saving equals actual investment. 
C) planned aggregate expenditures exceed actual output. 
D) actual output equals planned aggregate expenditures. 
A) the employment rate equals approximately 96 percent. 
B) actual saving equals actual investment. 
C) planned aggregate expenditures exceed actual output. 
D) actual output equals planned aggregate expenditures.

Question 20

The consumption function shows the relationship between

Accepted Answer

A) planned consumption expenditures and disposable income. 
B) permanent income and savings. 
C) business inventory and real GDP. 
D) aggregate demand and aggregate consumption. 
A) planned consumption expenditures and disposable income. 
B) permanent income and savings. 
C) business inventory and real GDP. 
D) aggregate demand and aggregate consumption.

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

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

Is there any way to conduct fiscal policy and avoid the lags involved with discretionary policy?

Use the figure below to answer the following question(s). Figure 11-2 -Refer to Figure 11-2.When the economy is operating at point a,reliance on the self-correcting mechanism will

According to the Keynesian view,the prolonged unemployment of the Great Depression

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?

Government programs that automatically shift the government budget toward a deficit during recessions and a surplus during recoveries are called

The multiplier principle is important because it

If the federal government is running a budget deficit,

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

A balanced budget is present when

If the economy is experiencing inflationary boom,and the government lowers taxes in an effort to balance the budget,the Keynesian model indicates the likely effect will be to

How does Keynesian economic theory recommend that fiscal policy be conducted?

Which of the following provides the best information about the direction of the government's fiscal policy?

The prevailing budget philosophy prior to Keynes called for a balanced budget.Keynes argued that the government should not balance its budget but instead have budget deficits during

Fiscal policy designed to increase aggregate demand during economic downturns and decrease aggregate demand during economic booms is called

When the spending of consumers,businesses,government,and foreigners (net exports)is less than the current level of output,Keynesian analysis indicates that

The government is pursuing an expansionary fiscal policy if it

In the Keynesian aggregate expenditure model,the equilibrium level of income is achieved when

The consumption function shows the relationship between

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

Dynamic Change, economic Fluctuations, and the Ad-As Model

Fiscal Policy, incentives, and Secondary Effects

Amoney and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, output, and Employment

Creating an Environment for Growth and Prosperity

Institutions,policies,and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Government Spending and Taxation

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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