Question 1

Which of the following would decrease the size of a federal budget deficit?

Accepted Answer

A) a recession 
B) an increase in defense spending 
C) growth in real GDP 
D) a decrease in tax revenues 
E) an increase in transfer payments 
A) a recession 
B) an increase in defense spending 
C) growth in real GDP 
D) a decrease in tax revenues 
E) an increase in transfer payments

Question 2

If fiscal policy is going to exert a stabilizing impact on the economy,it must be

Accepted Answer

A) instituted by the Federal Reserve system. 
B) expansionary during an economic boom but restrictive during a recession. 
C) timed correctly. 
D) passed by a three-fifths majority in Congress. 
A) instituted by the Federal Reserve system. 
B) expansionary during an economic boom but restrictive during a recession. 
C) timed correctly. 
D) passed by a three-fifths majority in Congress.

Question 3

If the economy is experiencing less than full-employment,the Keynesian model recommends that the government

Accepted Answer

A) do nothing to stimulate the economy. 
B) undertake expansionary fiscal policy to stimulate aggregate demand. 
C) undertake expansionary fiscal policy to stimulate aggregate supply. 
D) balance the budget to stimulate aggregate demand. 
A) do nothing to stimulate the economy. 
B) undertake expansionary fiscal policy to stimulate aggregate demand. 
C) undertake expansionary fiscal policy to stimulate aggregate supply. 
D) balance the budget to stimulate aggregate demand.

Question 4

In the midst of the Great Depression in 1932,Congress and the Hoover administration increased tax rates substantially.According to the Keynesian view,this tax increase was

Accepted Answer

A) inappropriate because it would depress economic activity and lead to further increases in unemployment. 
B) appropriate because it would lead to a significant increase in the money supply and,thereby,increase employment. 
C) inappropriate because it would decrease the money supply and,thereby,prolong the Depression. 
D) appropriate because it would stimulate economic activity and help end the Depression. 
A) inappropriate because it would depress economic activity and lead to further increases in unemployment. 
B) appropriate because it would lead to a significant increase in the money supply and,thereby,increase employment. 
C) inappropriate because it would decrease the money supply and,thereby,prolong the Depression. 
D) appropriate because it would stimulate economic activity and help end the Depression.

Question 5

Which of the following is a problem with discretionary fiscal policy as an economic stabilization tool?

Accepted Answer

A) Discretionary changes in fiscal policy can be easily anticipated by private decision makers. 
B) It is difficult to properly time discretionary changes in fiscal policy. 
C) Discretionary fiscal policy is only effective during a recession. 
D) Discretionary fiscal policy is only effective during an economic boom. 
A) Discretionary changes in fiscal policy can be easily anticipated by private decision makers. 
B) It is difficult to properly time discretionary changes in fiscal policy. 
C) Discretionary fiscal policy is only effective during a recession. 
D) Discretionary fiscal policy is only effective during an economic boom.

Question 6

According to the Keynesian view,if an economy was operating at long-run equilibrium,an increase in government expenditures (holding taxes constant)would

Accepted Answer

A) be inflationary. 
B) lead to a recession. 
C) lower the real rate of interest. 
D) reduce the size of the national debt. 
A) be inflationary. 
B) lead to a recession. 
C) lower the real rate of interest. 
D) reduce the size of the national debt.

Question 7

Keynesian analysis suggests that if planned spending (aggregate demand)were $700 billion but GDP was $800 billion,

Accepted Answer

A) businesses would accumulate inventories,and output would fall. 
B) output would rise,incomes would rise,and tax revenues would automatically increase. 
C) production would be stimulated,and output would increase,unless the full-capacity output was less than $950 billion. 
D) the Federal Reserve would eventually lower interest rates. 
A) businesses would accumulate inventories,and output would fall. 
B) output would rise,incomes would rise,and tax revenues would automatically increase. 
C) production would be stimulated,and output would increase,unless the full-capacity output was less than $950 billion. 
D) the Federal Reserve would eventually lower interest rates.

Question 8

Keynes rejected the view that lower wages would direct a recessionary economy back to full employment because

Accepted Answer

A) lower wages would cause the central bank to reduce the money supply and thereby prolong the recession. 
B) lower wages would stimulate inflation and thereby prolong the recession. 
C) market forces would quickly direct an economy back to full employment. 
D) powerful trade unions and large corporations made wages highly inflexible. 
A) lower wages would cause the central bank to reduce the money supply and thereby prolong the recession. 
B) lower wages would stimulate inflation and thereby prolong the recession. 
C) market forces would quickly direct an economy back to full employment. 
D) powerful trade unions and large corporations made wages highly inflexible.

Question 9

Use the figure below to answer the following question(s).
Figure 11-2
  
-Refer to Figure 11-2.If an economy operates in the short run at point a,Keynesian analysis indicates that restrictive fiscal policy will

Accepted Answer

A) increase AD and move the economy toward point c. 
B) decrease AD and move the economy toward point b. 
C) increase SRAS and move the economy toward point b. 
D) decrease SRAS and move the economy toward point c. 
A) increase AD and move the economy toward point c. 
B) decrease AD and move the economy toward point b. 
C) increase SRAS and move the economy toward point b. 
D) decrease SRAS and move the economy toward point c.

Question 10

When the federal government is running a budget deficit,

Accepted Answer

A) government revenues exceed government expenditures. 
B) government expenditures exceed government revenues. 
C) the economy must be in an economic recession. 
D) the size of the national debt will decline. 
A) government revenues exceed government expenditures. 
B) government expenditures exceed government revenues. 
C) the economy must be in an economic recession. 
D) the size of the national debt will decline.

Question 11

Which of the following is the primary source of changes in output within the framework of Keynesian analysis?

Accepted Answer

A) changes in the price level 
B) changes in aggregate demand 
C) changes in interest rates 
D) changes in wage rates 
A) changes in the price level 
B) changes in aggregate demand 
C) changes in interest rates 
D) changes in wage rates

Question 12

When Keynesian equilibrium is present,

Accepted Answer

A) aggregate demand for goods and services will equal the current rate of output. 
B) business inventories will be increasing. 
C) full employment must be present. 
D) the actual rate of unemployment must equal the natural rate of unemployment. 
A) aggregate demand for goods and services will equal the current rate of output. 
B) business inventories will be increasing. 
C) full employment must be present. 
D) the actual rate of unemployment must equal the natural rate of unemployment.

Question 13

Within the framework of the Keynesian model,which of the following would most likely occur if the federal government increased its spending and enlarged the size of the budget deficit during a period of full employment?

Accepted Answer

A) The rate of inflation would decline. 
B) The rate of inflation would rise. 
C) A recession would develop. 
D) Interest rates would fall. 
A) The rate of inflation would decline. 
B) The rate of inflation would rise. 
C) A recession would develop. 
D) Interest rates would fall.

Question 14

Use the figure below to answer the following question(s).
Figure 11-3
  
-Refer to Figure 11-3.If the economy is currently operating at point a,which of the following would a Keynesian economist be most likely to favor?

Accepted Answer

A) a tax cut 
B) an increase in government expenditures 
C) a shift to a more expansionary monetary policy 
D) a reduction in the budget deficit 
A) a tax cut 
B) an increase in government expenditures 
C) a shift to a more expansionary monetary policy 
D) a reduction in the budget deficit

Question 15

Keynesian economists believed that the prolonged unemployment of the 1930s was the result of

Accepted Answer

A) the sharp reduction in the supply of money during 1929-1933 and another monetary contraction in 1938. 
B) the high interest rates of the 1930s. 
C) the double-digit inflation of the 1930s. 
D) insufficient aggregate demand and the failure of market forces to direct the economy back to full employment. 
A) the sharp reduction in the supply of money during 1929-1933 and another monetary contraction in 1938. 
B) the high interest rates of the 1930s. 
C) the double-digit inflation of the 1930s. 
D) insufficient aggregate demand and the failure of market forces to direct the economy back to full employment.

Question 16

Keynesian analysis suggests that a planned budget surplus

Accepted Answer

A) will affect aggregate demand only if the money supply decreases by the size of the surplus. 
B) will stimulate both consumption and income. 
C) will stimulate output and employment. 
D) is proper during periods of inflation but may increase unemployment if timed improperly. 
A) will affect aggregate demand only if the money supply decreases by the size of the surplus. 
B) will stimulate both consumption and income. 
C) will stimulate output and employment. 
D) is proper during periods of inflation but may increase unemployment if timed improperly.

Question 17

Keynesian countercyclical budget policy suggests that

Accepted Answer

A) a budget deficit is needed if the economy is operating at less than full employment. 
B) a budget deficit should be planned during an inflationary boom. 
C) the budget must be balanced if the national debt is growing more rapidly than the economy. 
D) the budget should always be in balance 
A) a budget deficit is needed if the economy is operating at less than full employment. 
B) a budget deficit should be planned during an inflationary boom. 
C) the budget must be balanced if the national debt is growing more rapidly than the economy. 
D) the budget should always be in balance

Question 18

Use the figure below to answer the following question(s).
Figure 11-1
  
-Refer to Figure 11-1.Consider the short-run aggregate supply curve SRAS.What is the segment between a and b called?

Accepted Answer

A) the new classical range 
B) the Keynesian range 
C) the flexible wage and price range 
D) the balanced budget range 
A) the new classical range 
B) the Keynesian range 
C) the flexible wage and price range 
D) the balanced budget range

Question 19

If the economy is operating at a point where the aggregate expenditure line lies below the 45-degree line (AE = GDP),

Accepted Answer

A) total spending is more than total output. 
B) unwanted business inventories will increase. 
C) businesses will reduce their future production. 
D) both b and c are correct. 
A) total spending is more than total output. 
B) unwanted business inventories will increase. 
C) businesses will reduce their future production. 
D) both b and c are correct.

Question 20

Changes in government spending and/or taxes as the result of legislation,is called

Accepted Answer

A) open market operations of the Federal Reserve. 
B) discretionary fiscal policy. 
C) balanced budget operations. 
D) discretionary monetary policy. 
A) open market operations of the Federal Reserve. 
B) discretionary fiscal policy. 
C) balanced budget operations. 
D) discretionary monetary policy.

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

Which of the following would decrease the size of a federal budget deficit?

If fiscal policy is going to exert a stabilizing impact on the economy,it must be

If the economy is experiencing less than full-employment,the Keynesian model recommends that the government

In the midst of the Great Depression in 1932,Congress and the Hoover administration increased tax rates substantially.According to the Keynesian view,this tax increase was

Which of the following is a problem with discretionary fiscal policy as an economic stabilization tool?

According to the Keynesian view,if an economy was operating at long-run equilibrium,an increase in government expenditures (holding taxes constant)would

Keynesian analysis suggests that if planned spending (aggregate demand)were $700 billion but GDP was $800 billion,

Keynes rejected the view that lower wages would direct a recessionary economy back to full employment because

Use the figure below to answer the following question(s). Figure 11-2 -Refer to Figure 11-2.If an economy operates in the short run at point a,Keynesian analysis indicates that restrictive fiscal policy will

When the federal government is running a budget deficit,

Which of the following is the primary source of changes in output within the framework of Keynesian analysis?

When Keynesian equilibrium is present,

Within the framework of the Keynesian model,which of the following would most likely occur if the federal government increased its spending and enlarged the size of the budget deficit during a period of full employment?

Use the figure below to answer the following question(s). Figure 11-3 -Refer to Figure 11-3.If the economy is currently operating at point a,which of the following would a Keynesian economist be most likely to favor?

Keynesian economists believed that the prolonged unemployment of the 1930s was the result of

Keynesian analysis suggests that a planned budget surplus

Keynesian countercyclical budget policy suggests that

Use the figure below to answer the following question(s). Figure 11-1 -Refer to Figure 11-1.Consider the short-run aggregate supply curve SRAS.What is the segment between a and b called?

If the economy is operating at a point where the aggregate expenditure line lies below the 45-degree line (AE = GDP),

Changes in government spending and/or taxes as the result of legislation,is called

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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

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Great Debates in Economics: Keynes Versus Hayek

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Lessons From the Great Depression

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