Question 1

Which of the following is NOT an effect from a change in the federal funds rate?

Accepted Answer

A) change in the real interest rate 
B) change in investment 
C) change in government expenditures 
D) change in aggregate demand 
E) change in the quantity of money 
A) change in the real interest rate 
B) change in investment 
C) change in government expenditures 
D) change in aggregate demand 
E) change in the quantity of money

Question 2

Since 2000, the U.S. government has generally had a government budget ________ and so the national debt has ________.

Accepted Answer

A) surplus; decreased 
B) surplus; increased 
C) deficit; decreased 
D) deficit; increased 
E) deficit; not changed 
A) surplus; decreased 
B) surplus; increased 
C) deficit; decreased 
D) deficit; increased 
E) deficit; not changed

Question 3

An economic expansion leads to ________ needs-tested spending and ________ induced taxes.

Accepted Answer

A) higher; lower 
B) lower; higher 
C) higher; higher 
D) lower; lower 
E) lower; no change in 
A) higher; lower 
B) lower; higher 
C) higher; higher 
D) lower; lower 
E) lower; no change in

Question 4

If the AS and the AD curve intersect at a level of real GDP that exceeds potential GDP, then the appropriate monetary policy is one that ________ the federal funds rate and ________ aggregate demand.

Accepted Answer

A) raises; increases 
B) raises; decreases 
C) lowers; increases 
D) lowers; decreases 
E) raises; has no effect on 
A) raises; increases 
B) raises; decreases 
C) lowers; increases 
D) lowers; decreases 
E) raises; has no effect on

Question 5

If the federal government has a budget surplus, then it is definitely the case that

Accepted Answer

A) tax revenue exceeds government outlays. 
B) tax revenue and government outlays are equal. 
C) the tax revenue is falling and government outlays are rising. 
D) government outlays exceed tax revenue. 
E) the tax revenue is rising and government outlays are falling. 
A) tax revenue exceeds government outlays. 
B) tax revenue and government outlays are equal. 
C) the tax revenue is falling and government outlays are rising. 
D) government outlays exceed tax revenue. 
E) the tax revenue is rising and government outlays are falling.

Question 6

What is the effect on aggregate demand and the AD curve from either an increase in government expenditure or a cut in taxes?

Accepted Answer

Both an increase in government

Question 7

Suppose the Fed raises the federal funds rate. Put the following changes in order in which they occur, starting with the changes that take place almost immediately and ending with the changes that may occur up to two years afterwards: i. Short-term interest rates rise.
Ii. Long-term interest real interest rate rises.
Iii. Aggregate demand decreases.
Iv. Inflation rate decreases.

Accepted Answer

A) i-ii-iii-iv 
B) ii-i-iii-iv 
C) i-ii-iv-iii 
D) i-iii-ii-iv 
E) ii-i-iv-iii 
A) i-ii-iii-iv 
B) ii-i-iii-iv 
C) i-ii-iv-iii 
D) i-iii-ii-iv 
E) ii-i-iv-iii

Question 8

If the Fed lowers the interest rate, then

Accepted Answer

A) only consumption expenditure decreases. 
B) only investment decreases. 
C) both consumption expenditure and investment decrease. 
D) net exports will increase. 
E) consumption expenditure decreases and investment increases. 
A) only consumption expenditure decreases. 
B) only investment decreases. 
C) both consumption expenditure and investment decrease. 
D) net exports will increase. 
E) consumption expenditure decreases and investment increases.

Question 9

The magnitude of the tax multiplier is ________ the magnitude of the government expenditure multiplier.

Accepted Answer

A) equal to 
B) greater than 
C) smaller than 
D) the inverse of 
E) exactly one half 
A) equal to 
B) greater than 
C) smaller than 
D) the inverse of 
E) exactly one half

Question 10

If the economy is in equilibrium with real GDP less than potential GDP, there is ________ gap and a fiscal policy that ________ is appropriate.

Accepted Answer

A) an inflationary; increases aggregate demand 
B) an inflationary; decreases aggregate demand 
C) a recessionary; increases aggregate demand 
D) a recessionary; decreases aggregate demand 
E) a recessionary; increases potential GDP 
A) an inflationary; increases aggregate demand 
B) an inflationary; decreases aggregate demand 
C) a recessionary; increases aggregate demand 
D) a recessionary; decreases aggregate demand 
E) a recessionary; increases potential GDP

Question 11

In 2009, Congress passed tax laws to reduce income tax rates for some taxpayers. This action is called

Accepted Answer

A) a discretionary fiscal policy. 
B) a discretionary revenue policy. 
C) an automatic fiscal policy. 
D) an annual tax policy. 
E) induced tax policy. 
A) a discretionary fiscal policy. 
B) a discretionary revenue policy. 
C) an automatic fiscal policy. 
D) an annual tax policy. 
E) induced tax policy.

Question 12

The national debt can only be reduced if

Accepted Answer

A) the federal budget is in deficit. 
B) the federal budget is in surplus. 
C) there are no tax multiplier effects. 
D) the economy has a deflationary gap. 
E) the economy has an inflationary gap. 
A) the federal budget is in deficit. 
B) the federal budget is in surplus. 
C) there are no tax multiplier effects. 
D) the economy has a deflationary gap. 
E) the economy has an inflationary gap.

Question 13

If the Fed raises the federal funds rate, eventually the

Accepted Answer

A) AD curve shifts leftward, decreasing real GDP and increasing the price level. 
B) AS curve shifts leftward, decreasing real GDP and increasing the price level. 
C) AD curve shifts rightward, increasing real GDP and the price level. 
D) AD curve shifts leftward, decreasing real GDP and the price level. 
E) AS curve shifts rightward, decreasing real GDP and increasing the price level. 
A) AD curve shifts leftward, decreasing real GDP and increasing the price level. 
B) AS curve shifts leftward, decreasing real GDP and increasing the price level. 
C) AD curve shifts rightward, increasing real GDP and the price level. 
D) AD curve shifts leftward, decreasing real GDP and the price level. 
E) AS curve shifts rightward, decreasing real GDP and increasing the price level.

Question 14

The Fed increases the quantity of money to counteract

Accepted Answer

A) a recessionary gap. 
B) a federal budget surplus. 
C) negative net exports. 
D) an inflationary gap. 
E) inflation. 
A) a recessionary gap. 
B) a federal budget surplus. 
C) negative net exports. 
D) an inflationary gap. 
E) inflation.

Question 15

A fiscal stimulus works to close a recessionary gap by shifting the

Accepted Answer

A) AD curve leftward. 
B) AS curve leftward. 
C) AD curve leftward and AS curve leftward. 
D) AD curve rightward. 
E) potential GDP line leftward. 
A) AD curve leftward. 
B) AS curve leftward. 
C) AD curve leftward and AS curve leftward. 
D) AD curve rightward. 
E) potential GDP line leftward.

Question 16

Discuss how the Fed raising the federal funds rate ripples through the different sectors of the economy.

Accepted Answer

When the Fed raises the federal funds ra

Question 17

When the Fed raises the federal funds rate,

Accepted Answer

A) the real interest rate is unchanged so investment and consumption expenditure are not changed. 
B) the real interest rate increases, thereby decreasing investment and consumption expenditure. 
C) the real interest rate falls, thereby increasing investment and consumption expenditure. 
D) investment and consumption expenditure increase, thereby raising the real interest rate. 
E) the real interest rate increases, thereby decreasing investment and increasing consumption expenditure. 
A) the real interest rate is unchanged so investment and consumption expenditure are not changed. 
B) the real interest rate increases, thereby decreasing investment and consumption expenditure. 
C) the real interest rate falls, thereby increasing investment and consumption expenditure. 
D) investment and consumption expenditure increase, thereby raising the real interest rate. 
E) the real interest rate increases, thereby decreasing investment and increasing consumption expenditure.

Question 18

Explain how an increase in government expenditure designed to increase aggregate demand can increase potential GDP and aggregate supply.

Accepted Answer

Some types of government expenditure pro

Question 19

When the economy is in recession, does the Fed want to raise the federal funds rate so as to increase aggregate demand and increase real GDP?
 Explain your answer.

Accepted Answer

When the economy is in a recession, the

Question 20

Explain how tax revenue can be both an automatic fiscal policy and a discretionary fiscal policy.

Accepted Answer

When Congress changes the tax law, it is

Which of the following is NOT an effect from a change in the federal funds rate?

Since 2000, the U.S. government has generally had a government budget and so the national debt has .

An economic expansion leads to needs-tested spending and induced taxes.

If the AS and the AD curve intersect at a level of real GDP that exceeds potential GDP, then the appropriate monetary policy is one that the federal funds rate and aggregate demand.

If the federal government has a budget surplus, then it is definitely the case that

What is the effect on aggregate demand and the AD curve from either an increase in government expenditure or a cut in taxes?

If the Fed lowers the interest rate, then

The magnitude of the tax multiplier is ________ the magnitude of the government expenditure multiplier.

If the economy is in equilibrium with real GDP less than potential GDP, there is gap and a fiscal policy that is appropriate.

In 2009, Congress passed tax laws to reduce income tax rates for some taxpayers. This action is called

The national debt can only be reduced if

If the Fed raises the federal funds rate, eventually the

The Fed increases the quantity of money to counteract

A fiscal stimulus works to close a recessionary gap by shifting the

Discuss how the Fed raising the federal funds rate ripples through the different sectors of the economy.

When the Fed raises the federal funds rate,

Explain how an increase in government expenditure designed to increase aggregate demand can increase potential GDP and aggregate supply.

When the economy is in recession, does the Fed want to raise the federal funds rate so as to increase aggregate demand and increase real GDP? Explain your answer.

Explain how tax revenue can be both an automatic fiscal policy and a discretionary fiscal policy.

Getting Started

The Us and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Global Markets in Action

Externalities: Pollution, Education, and Health Care

Production and Cost

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and Economic Growth

Money and the Monetary System

Aggregate Supply and Aggregate Demand

Filters

Exam 20: Fiscal Policy and Monetary Policy

Which of the following is NOT an effect from a change in the federal funds rate?

Since 2000, the U.S. government has generally had a government budget ________ and so the national debt has ________.

An economic expansion leads to ________ needs-tested spending and ________ induced taxes.

If the AS and the AD curve intersect at a level of real GDP that exceeds potential GDP, then the appropriate monetary policy is one that ________ the federal funds rate and ________ aggregate demand.

If the federal government has a budget surplus, then it is definitely the case that

What is the effect on aggregate demand and the AD curve from either an increase in government expenditure or a cut in taxes?

If the Fed lowers the interest rate, then

The magnitude of the tax multiplier is ________ the magnitude of the government expenditure multiplier.

If the economy is in equilibrium with real GDP less than potential GDP, there is ________ gap and a fiscal policy that ________ is appropriate.

In 2009, Congress passed tax laws to reduce income tax rates for some taxpayers. This action is called

The national debt can only be reduced if

If the Fed raises the federal funds rate, eventually the

The Fed increases the quantity of money to counteract

A fiscal stimulus works to close a recessionary gap by shifting the

Discuss how the Fed raising the federal funds rate ripples through the different sectors of the economy.

When the Fed raises the federal funds rate,

Explain how an increase in government expenditure designed to increase aggregate demand can increase potential GDP and aggregate supply.

When the economy is in recession, does the Fed want to raise the federal funds rate so as to increase aggregate demand and increase real GDP? Explain your answer.

Explain how tax revenue can be both an automatic fiscal policy and a discretionary fiscal policy.

Getting Started

The Us and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Global Markets in Action

Externalities: Pollution, Education, and Health Care

Production and Cost

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and Economic Growth

Money and the Monetary System

Aggregate Supply and Aggregate Demand

Filters

Since 2000, the U.S. government has generally had a government budget and so the national debt has .

An economic expansion leads to needs-tested spending and induced taxes.

If the AS and the AD curve intersect at a level of real GDP that exceeds potential GDP, then the appropriate monetary policy is one that the federal funds rate and aggregate demand.

If the economy is in equilibrium with real GDP less than potential GDP, there is gap and a fiscal policy that is appropriate.