Question 1

Elasticity of investment measures the responsiveness of

Accepted Answer

A)  interest rates to changes in investment. 
B)  investment to changes in government spending. 
C)  investment to changes in the interest rate. 
D)  investment to changes in consumption. 
A)  interest rates to changes in investment. 
B)  investment to changes in government spending. 
C)  investment to changes in the interest rate. 
D)  investment to changes in consumption.

Question 2

Economist A believes the economy is self-regulating.Economist B believes that wages and prices are inflexible downward.Economist C believes that the AS curve is vertical.Economist D believes that crowding out is likely to be complete.Which economist is most likely to advocate for expansionary fiscal policy in the in the form of greater government spending to remove an economy from a recessionary gap?

Accepted Answer

A)  Economist A 
B)  Economist B 
C)  Economist C 
D)  Economist D 
A)  Economist A 
B)  Economist B 
C)  Economist C 
D)  Economist D

Question 3

Some economists believe that corporate bailouts are bad for the economy because they ________________ gains and they _____________ the costs,which ultimately lead to _____________ companies needing to be bailed out.

Accepted Answer

A)  privatize; socialize; fewer 
B)  socialize; privatize; fewer 
C)  privatize; socialize; more 
D)  socialize; privatize; more 
A)  privatize; socialize; fewer 
B)  socialize; privatize; fewer 
C)  privatize; socialize; more 
D)  socialize; privatize; more

Question 4

If the (average)tax rate falls by 30% and as a result the tax base rises by 40%,then tax revenues will

Accepted Answer

A)  rise. 
B)  decline. 
C)  remain unchanged. 
D)  There is not enough information given to answer this question. 
A)  rise. 
B)  decline. 
C)  remain unchanged. 
D)  There is not enough information given to answer this question.

Question 5

Economist C believes that if tax rates are cut,tax revenue is likely to remain constant.This economist most likely believes that the percentage decrease in tax rates will ______________________________ percentage rise in the tax base.

Accepted Answer

A)  be larger than the resulting 
B)  be equal to the resulting 
C)  be smaller than the resulting 
D)  occur long after the 
E)  a and d 
A)  be larger than the resulting 
B)  be equal to the resulting 
C)  be smaller than the resulting 
D)  occur long after the 
E)  a and d

Question 6

The use of a monetary rule is one way to remove politics from monetary policy.

Accepted Answer

A) True 
 B)False

Question 7

Suppose that a $30 billion increase in government spending increases Real GDP by $150 billion,and that a $10 billion tax reduction increases Real GDP by $40 billion.In this situation,the tax multiplier is _______________ the government spending multiplier.

Accepted Answer

A)  less than 
B)  greater than 
C)  equal to 
D)  none of the above 
A)  less than 
B)  greater than 
C)  equal to 
D)  none of the above

Question 8

All economists agree that a monetary rule is preferable to a discretionary Fed.

Accepted Answer

A) True 
 B)False

Question 9

Economist B says all of the following: The economy needs expansionary fiscal policy to remove it from a recessionary gap.Government should either raise its __________ or cut _________________.I believe the tax multiplier is larger than the government spending multiplier,so I suggest government ___________________.

Accepted Answer

A)  taxes; spending; cut taxes 
B)  spending; taxes; cut taxes 
C)  taxes; spending; raise spending 
D)  spending; taxes; raise spending 
E)  none of the above 
A)  taxes; spending; cut taxes 
B)  spending; taxes; cut taxes 
C)  taxes; spending; raise spending 
D)  spending; taxes; raise spending 
E)  none of the above

Question 10

A $45 billion reduction in taxes increases Real GDP by $130.5 billion.Assuming a constant price level,what does the tax multiplier equal?

Accepted Answer

A)  2.9 
B)  1.9 
C)  29 
D)  0.29 
E)  0.19 
A)  2.9 
B)  1.9 
C)  29 
D)  0.29 
E)  0.19

Question 11

The choice between increasing government spending and cutting taxes often is related to

Accepted Answer

A)  what an economist believes the value of both the tax multiplier and the government spending multiplier are. 
B)  what an economist believes the right size and scope of government might be. 
C)  whether an economist believes that government spending leads to complete crowding out. 
D)  a and b 
E)  all of the above 
A)  what an economist believes the value of both the tax multiplier and the government spending multiplier are. 
B)  what an economist believes the right size and scope of government might be. 
C)  whether an economist believes that government spending leads to complete crowding out. 
D)  a and b 
E)  all of the above

Question 12

Suppose that a $50 billion increase in government spending increases Real GDP by $260 billion,and that a $50 billion tax reduction increases Real GDP by $290 billion.In this situation,the tax multiplier is _______________ the government spending multiplier.

Accepted Answer

A)  less than 
B)  greater than 
C)  equal to 
D)  none of the above 
A)  less than 
B)  greater than 
C)  equal to 
D)  none of the above

Question 13

Economist B believes that the economy can get stuck in a recessionary gap.This economist most likely believes that

Accepted Answer

A)  wages and prices are flexible. 
B)  wages and prices are inflexible downward. 
C)  government may need to enact contractionary fiscal policy to move the economy out of a recessionary gap. 
D)  the economy is self-regulating. 
E)  none of the above 
A)  wages and prices are flexible. 
B)  wages and prices are inflexible downward. 
C)  government may need to enact contractionary fiscal policy to move the economy out of a recessionary gap. 
D)  the economy is self-regulating. 
E)  none of the above

Question 14

Economist A argues that a "dollar spent is a dollar spent." This economist is most likely to agree with which of the following:

Accepted Answer

A)  What matters is that government increase spending and what it spends the money on doesn't matter as much. 
B)  What matters is that government increase spending and what it spends the money on matters quite a bit. 
C)  What matters is that government cut taxes and what taxes it cuts matters little. 
D)  What matters is that government raise taxes and what taxes it raises matters little. 
E)  none of the above 
A)  What matters is that government increase spending and what it spends the money on doesn't matter as much. 
B)  What matters is that government increase spending and what it spends the money on matters quite a bit. 
C)  What matters is that government cut taxes and what taxes it cuts matters little. 
D)  What matters is that government raise taxes and what taxes it raises matters little. 
E)  none of the above

Question 15

Suppose that the government spending multiplier is 3.2 and the tax multiplier is 2.9.This means that,if prices are constant,a $200 billion rise in government spending will __________________,and a $200 billion cut in taxes will _____________________.

Accepted Answer

A)  raise Real GDP by $640 billion; raise Real GDP by $580 billion 
B)  lower Real GDP by $640 billion; lower Real GDP by $580 billion 
C)  raise Real GDP by $62.5 billion; raise Real GDP by $69 billion 
D)  lower Real GDP by $62.5 billion; lower Real GDP by $69 billion 
A)  raise Real GDP by $640 billion; raise Real GDP by $580 billion 
B)  lower Real GDP by $640 billion; lower Real GDP by $580 billion 
C)  raise Real GDP by $62.5 billion; raise Real GDP by $69 billion 
D)  lower Real GDP by $62.5 billion; lower Real GDP by $69 billion

Question 16

Economists who are in favor of smaller government tend to prefer ________________ when expansionary _______________ policy is needed to raise aggregate demand.

Accepted Answer

A)  tax cuts; fiscal 
B)  tax cuts; monetary 
C)  more government spending; fiscal 
D)  more government spending; monetary 
A)  tax cuts; fiscal 
B)  tax cuts; monetary 
C)  more government spending; fiscal 
D)  more government spending; monetary

Question 17

Explain how the different views of the shape of the aggregate supply (AS)curve influence economists' perception of the impact that government actions have on Real GDP in the short run.

Accepted Answer

Some economists believe that the AS curv

Question 18

Which of the following is true?

Accepted Answer

A)  When income tax rates fall,it is possible for tax revenues to rise. 
B)  When income tax rates fall,it is possible for tax revenues to fall. 
C)  All economists agree that a monetary rule is preferred to discretionary Fed policy. 
D)  All economists agree that discretionary Fed policy is preferred to a monetary rule. 
E)  a and b 
A)  When income tax rates fall,it is possible for tax revenues to rise. 
B)  When income tax rates fall,it is possible for tax revenues to fall. 
C)  All economists agree that a monetary rule is preferred to discretionary Fed policy. 
D)  All economists agree that discretionary Fed policy is preferred to a monetary rule. 
E)  a and b

Question 19

When income tax rates rise,tax revenues always rise.

Accepted Answer

A) True 
 B)False

Question 20

A $90 billion reduction in taxes increases Real GDP by $378 billion.Assuming a constant price level,what does the tax multiplier equal?

Accepted Answer

A)  4.2 
B)  3.2 
C)  42 
D)  0.42 
E)  0.32 
A)  4.2 
B)  3.2 
C)  42 
D)  0.42 
E)  0.32

Exam 18: Public Choice and Special-Interest-Group Politics

Elasticity of investment measures the responsiveness of

Some economists believe that corporate bailouts are bad for the economy because they ________________ gains and they _____________ the costs,which ultimately lead to _____________ companies needing to be bailed out.

If the (average)tax rate falls by 30% and as a result the tax base rises by 40%,then tax revenues will

Economist C believes that if tax rates are cut,tax revenue is likely to remain constant.This economist most likely believes that the percentage decrease in tax rates will ______________________________ percentage rise in the tax base.

The use of a monetary rule is one way to remove politics from monetary policy.

Suppose that a $30 billion increase in government spending increases Real GDP by $150 billion,and that a $10 billion tax reduction increases Real GDP by $40 billion.In this situation,the tax multiplier is _______________ the government spending multiplier.

All economists agree that a monetary rule is preferable to a discretionary Fed.

A $45 billion reduction in taxes increases Real GDP by $130.5 billion.Assuming a constant price level,what does the tax multiplier equal?

The choice between increasing government spending and cutting taxes often is related to

Suppose that a $50 billion increase in government spending increases Real GDP by $260 billion,and that a $50 billion tax reduction increases Real GDP by $290 billion.In this situation,the tax multiplier is _______________ the government spending multiplier.

Economist B believes that the economy can get stuck in a recessionary gap.This economist most likely believes that

Economist A argues that a "dollar spent is a dollar spent." This economist is most likely to agree with which of the following:

Suppose that the government spending multiplier is 3.2 and the tax multiplier is 2.9.This means that,if prices are constant,a $200 billion rise in government spending will __________________,and a $200 billion cut in taxes will _____________________.

Economists who are in favor of smaller government tend to prefer ________________ when expansionary _______________ policy is needed to raise aggregate demand.

Explain how the different views of the shape of the aggregate supply (AS)curve influence economists' perception of the impact that government actions have on Real GDP in the short run.

Which of the following is true?

When income tax rates rise,tax revenues always rise.

A $90 billion reduction in taxes increases Real GDP by $378 billion.Assuming a constant price level,what does the tax multiplier equal?

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free,controlled,and Relative

Supply,demand,and Price: Applications

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,union,and Labor

The Distribution of Income and Poverty

Interest,rent,and Profit

Market Failure: Externalities, public Goods, and Asymmetric Information

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government: Five Topics Considered

Stocks,bonds,futures,and Options

Stocks,bonds,futures,and Options

Filters

Some economists believe that corporate bailouts are bad for the economy because they __________ gains and they _ the costs,which ultimately lead to _______ companies needing to be bailed out.

Suppose that the government spending multiplier is 3.2 and the tax multiplier is 2.9.This means that,if prices are constant,a $200 billion rise in government spending will ,and a $200 billion cut in taxes will ___.

Economists who are in favor of smaller government tend to prefer __ when expansionary _ policy is needed to raise aggregate demand.