Question 1

If the government increases its spending,which of the following would tend to reduce the size of the multiplier?

Accepted Answer

A) higher taxes for the finance of the additional spending 
B) higher interest rates as the result of additional borrowing to finance the spending 
C) the flow of the spending into sectors where the unemployment rate is low 
D) all of the above 
A) higher taxes for the finance of the additional spending 
B) higher interest rates as the result of additional borrowing to finance the spending 
C) the flow of the spending into sectors where the unemployment rate is low 
D) all of the above

Question 2

In the Keynesian model,equilibrium occurs when

Accepted Answer

A) the real and nominal interest rates are equal. 
B) total spending is equal to current output. 
C) the general price level is constant. 
D) the money supply is growing at a constant rate. 
A) the real and nominal interest rates are equal. 
B) total spending is equal to current output. 
C) the general price level is constant. 
D) the money supply is growing at a constant rate.

Question 3

The Keynesian macroeconomic model was highly popular for several decades following World War II because it provided an explanation for

Accepted Answer

A) the strong economic recovery following the end of the war. 
B) the high inflation rates of the 1950s. 
C) the prolonged unemployment of the 1930s. 
D) the high rate of investment during the Great Depression. 
A) the strong economic recovery following the end of the war. 
B) the high inflation rates of the 1950s. 
C) the prolonged unemployment of the 1930s. 
D) the high rate of investment during the Great Depression.

Question 4

If the federal government runs a budget deficit in order to finance an increase in spending,where do the funds to finance the spending come from?

Accepted Answer

A) increased personal income taxes 
B) additional money printed by the Federal Reserve 
C) additional bonds issued by the U.S.Treasury 
D) the financial assets of the members of Congress who are legally responsible for the deficit 
A) increased personal income taxes 
B) additional money printed by the Federal Reserve 
C) additional bonds issued by the U.S.Treasury 
D) the financial assets of the members of Congress who are legally responsible for the deficit

Question 5

The marginal propensity to consume (MPC)is

Accepted Answer

A) consumption expenditures divided by saving. 
B) consumption expenditures divided by disposable income. 
C) consumption expenditures divided by personal income. 
D) additional consumption expenditures divided by additional disposable income. 
A) consumption expenditures divided by saving. 
B) consumption expenditures divided by disposable income. 
C) consumption expenditures divided by personal income. 
D) additional consumption expenditures divided by additional disposable income.

Question 6

John Maynard Keynes and his followers argued that the Great Depression was primarily the result of

Accepted Answer

A) excessive government spending. 
B) large budget deficits. 
C) the perverse monetary policies of the Fed. 
D) insufficient aggregate spending on goods and services. 
A) excessive government spending. 
B) large budget deficits. 
C) the perverse monetary policies of the Fed. 
D) insufficient aggregate spending on goods and services.

Question 7

Within the Keynesian model,if the output of an economy is less than the full-employment level,then

Accepted Answer

A) a reduction in government expenditures will direct the economy back to full-employment equilibrium. 
B) a reduction in wage rates and resource prices will quickly restore full-employment equilibrium. 
C) a reduction in the real interest rate will soon restore full-employment equilibrium. 
D) output will tend to remain below full-employment capacity unless aggregate expenditures increase. 
A) a reduction in government expenditures will direct the economy back to full-employment equilibrium. 
B) a reduction in wage rates and resource prices will quickly restore full-employment equilibrium. 
C) a reduction in the real interest rate will soon restore full-employment equilibrium. 
D) output will tend to remain below full-employment capacity unless aggregate expenditures increase.

Question 8

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 the marginal propensity to consume of the newly-employed workers was 3/4,what would be the total change in income that would result from the operation of the plant for one year?

Accepted Answer

A) $12 million 
B) $48 million 
C) $9 million 
D) $27 million 
A) $12 million 
B) $48 million 
C) $9 million 
D) $27 million

Question 9

Which of the following would most likely cause an increase in aggregate demand?

Accepted Answer

A) an increase in the corporate income tax 
B) an increase in interest rates 
C) an increase in the budget deficit 
D) an increase in personal income tax rates 
A) an increase in the corporate income tax 
B) an increase in interest rates 
C) an increase in the budget deficit 
D) an increase in personal income tax rates

Question 10

If the economy is in a recession,and the government raises taxes in an effort to balance the budget,the Keynesian model indicates the likely effect will be to

Accepted Answer

A) counteract the recession. 
B) prolong the recession and increase its severity. 
C) end the recession sooner. 
D) increase the level of real GDP. 
A) counteract the recession. 
B) prolong the recession and increase its severity. 
C) end the recession sooner. 
D) increase the level of real GDP.

Question 11

Discretionary fiscal policy involves

Accepted Answer

A) expansion of government revenues during a period of rapid growth. 
B) contraction of government revenues during a recession. 
C) automatic adjustments that affect the size of the budget deficit or surplus. 
D) an intentional change in taxation or government spending. 
E) both a and b. 
A) expansion of government revenues during a period of rapid growth. 
B) contraction of government revenues during a recession. 
C) automatic adjustments that affect the size of the budget deficit or surplus. 
D) an intentional change in taxation or government spending. 
E) both a and b.

Question 12

Keynesian analysis implies that potential output and price stability can be achieved if

Accepted Answer

A) the federal budget is balanced annually. 
B) marginal tax rates are kept low so the incentive to produce will be strong. 
C) aggregate demand is equal to the economy's full-employment rate of output. 
D) current saving exceeds the level of investment. 
A) the federal budget is balanced annually. 
B) marginal tax rates are kept low so the incentive to produce will be strong. 
C) aggregate demand is equal to the economy's full-employment rate of output. 
D) current saving exceeds the level of investment.

Question 13

A major advantage of built-in or automatic stabilizers is that they

Accepted Answer

A) guarantee the federal budget will be balanced over the course of the business cycle. 
B) require no Congressional action to be effective. 
C) automatically produce surpluses during recessions and deficits during inflation. 
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 over the course of the business cycle. 
B) require no Congressional action to be effective. 
C) automatically produce surpluses during recessions and deficits during inflation. 
D) require discretionary actions on the part of Congress before they exert an impact on output and employment.

Question 14

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 
B) an increase in government expenditures or reduction in taxes,financed by borrowing 
C) a balanced federal budget 
D) an increase in taxes 
A) a reduction in government expenditures 
B) an increase in government expenditures or reduction in taxes,financed by borrowing 
C) a balanced federal budget 
D) an increase in taxes

Question 15

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

Accepted Answer

A) actual saving equals actual investment. 
B) planned aggregate expenditures equal total output. 
C) consumption equals income times the marginal propensity to consume. 
D) the marginal propensity to consume equals planned output. 
A) actual saving equals actual investment. 
B) planned aggregate expenditures equal total output. 
C) consumption equals income times the marginal propensity to consume. 
D) the marginal propensity to consume equals planned output.

Question 16

Long lags make discretionary policy less effective because

Accepted Answer

A) by the time the impact of a policy is felt,the problem may have been corrected by market forces. 
B) it is easier to forecast an expansion than a recession. 
C) it is easier to forecast a recession than an expansion. 
D) automatic stabilizers are subject to longer lags than are discretionary policies. 
A) by the time the impact of a policy is felt,the problem may have been corrected by market forces. 
B) it is easier to forecast an expansion than a recession. 
C) it is easier to forecast a recession than an expansion. 
D) automatic stabilizers are subject to longer lags than are discretionary policies.

Question 17

If output is less than full employment in the Keynesian model,what is needed to restore full employment?

Accepted Answer

A) an increase in the price level 
B) an increase in aggregate demand 
C) a reduction in government expenditures 
D) an increase in aggregate supply 
A) an increase in the price level 
B) an increase in aggregate demand 
C) a reduction in government expenditures 
D) an increase in aggregate supply

Question 18

If the federal government is running a budget surplus,

Accepted Answer

A) its expenditures must be greater than its revenues. 
B) the supply of money will decline. 
C) it will be able to reduce its outstanding debt. 
D) the U.S.Treasury will have to borrow additional funds in order to cover the surplus. 
A) its expenditures must be greater than its revenues. 
B) the supply of money will decline. 
C) it will be able to reduce its outstanding debt. 
D) the U.S.Treasury will have to borrow additional funds in order to cover the surplus.

Question 19

According to the Keynesian model,which of the following policies would be most appropriate during a period of rapid inflation?

Accepted Answer

A) a tax cut 
B) a budget deficit 
C) a budget surplus 
D) an increase in the money supply 
A) a tax cut 
B) a budget deficit 
C) a budget surplus 
D) an increase in the money supply

Question 20

Within the Keynesian model,if the marginal propensity to consume is 0.8,which of the following is true?

Accepted Answer

A) When consumption increases by $5,income increases by $1. 
B) When consumption increases by $1,saving increases by $5. 
C) When investment increases by $1,income increases by $5. 
D) When investment increases by $1,saving increases by $5. 
A) When consumption increases by $5,income increases by $1. 
B) When consumption increases by $1,saving increases by $5. 
C) When investment increases by $1,income increases by $5. 
D) When investment increases by $1,saving increases by $5.

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

If the government increases its spending,which of the following would tend to reduce the size of the multiplier?

In the Keynesian model,equilibrium occurs when

The Keynesian macroeconomic model was highly popular for several decades following World War II because it provided an explanation for

If the federal government runs a budget deficit in order to finance an increase in spending,where do the funds to finance the spending come from?

The marginal propensity to consume (MPC)is

John Maynard Keynes and his followers argued that the Great Depression was primarily the result of

Within the Keynesian model,if the output of an economy is less than the full-employment level,then

Which of the following would most likely cause an increase in aggregate demand?

If the economy is in a recession,and the government raises taxes in an effort to balance the budget,the Keynesian model indicates the likely effect will be to

Discretionary fiscal policy involves

Keynesian analysis implies that potential output and price stability can be achieved if

A major advantage of built-in or automatic stabilizers is that they

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?

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

Long lags make discretionary policy less effective because

If output is less than full employment in the Keynesian model,what is needed to restore full employment?

If the federal government is running a budget surplus,

According to the Keynesian model,which of the following policies would be most appropriate during a period of rapid inflation?

Within the Keynesian model,if the marginal propensity to consume is 0.8,which of the following is true?

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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