Question 1

If consumers spend 75 cents out of every extra dollar received,the:

Accepted Answer

A)  MPS is 0.75. 
B)  MPC is 0.25. 
C)  Multiplier is 4. 
D)  Multiplier is 7.5. 
A)  MPS is 0.75. 
B)  MPC is 0.25. 
C)  Multiplier is 4. 
D)  Multiplier is 7.5. C

Question 2

If the economy is experiencing inflation,which of the following is most likely to decrease aggregate demand?

Accepted Answer

A)  Increasing spending and cutting taxes 
B)  Increasing spending and raising taxes 
C)  Decreasing spending and cutting taxes 
D)  Decreasing spending and raising taxes 
A)  Increasing spending and cutting taxes 
B)  Increasing spending and raising taxes 
C)  Decreasing spending and cutting taxes 
D)  Decreasing spending and raising taxes D

Question 3

Saving:

Accepted Answer

A)  Is the part of disposable income that is not yet spent. 
B)  Only includes dollars deposited in a financial institution. 
C)  Is a part of aggregate demand. 
D)  Is equal to income plus consumption. 
A)  Is the part of disposable income that is not yet spent. 
B)  Only includes dollars deposited in a financial institution. 
C)  Is a part of aggregate demand. 
D)  Is equal to income plus consumption. A

Question 4

If consumers spend 85 cents out of every extra dollar received,the:

Accepted Answer

A)  MPC is 0.85. 
B)  MPC is 0.15. 
C)  MPC is 6.67. 
D)  MPS is 0.85 
A)  MPC is 0.85. 
B)  MPC is 0.15. 
C)  MPC is 6.67. 
D)  MPS is 0.85

Question 5

A tax cut or government spending increase intended to shift aggregate demand to the right is known as:

Accepted Answer

A)  Aggregate demand excess. 
B)  The GDP gap. 
C)  Fiscal stimulus. 
D)  Fiscal restraint. 
A)  Aggregate demand excess. 
B)  The GDP gap. 
C)  Fiscal stimulus. 
D)  Fiscal restraint.

Question 6

Fiscal stimulus is:

Accepted Answer

A)  An increase or decrease in government spending. 
B)  An increase in government spending or a decrease in taxes. 
C)  Achieved when government dollars are spent on consumer goods but not on military goods. 
D)  The difference between equilibrium output and full-employment output. 
A)  An increase or decrease in government spending. 
B)  An increase in government spending or a decrease in taxes. 
C)  Achieved when government dollars are spent on consumer goods but not on military goods. 
D)  The difference between equilibrium output and full-employment output.

Question 7

The following table shows a hypothetical relationship between consumption and income.Answer the indicated question(s)on the basis of this table.
Table 12.1-Income and consumption data  
-Based on Table 12.1,what is saving at a disposable income of $200 billion per year?

Accepted Answer

A)  Zero 
B)  $20 billion per year 
C)  $22 billion per year 
D)  $45 billion per year 
A)  Zero 
B)  $20 billion per year 
C)  $22 billion per year 
D)  $45 billion per year

Question 8

Which of the following will occur if aggregate demand is below full-employment GDP?

Accepted Answer

A)  Recession 
B)  Excessive aggregate demand 
C)  Inflation 
D)  A stable economy 
A)  Recession 
B)  Excessive aggregate demand 
C)  Inflation 
D)  A stable economy

Question 9

All of the following represent government spending as a part of aggregate demand except for:

Accepted Answer

A)  Federal government spending on roads. 
B)  State and local government spending on schools. 
C)  Income transfers. 
D)  National defense. 
A)  Federal government spending on roads. 
B)  State and local government spending on schools. 
C)  Income transfers. 
D)  National defense.

Question 10

Fiscal policy includes:

Accepted Answer

A)  An increase in interest rates. 
B)  An increase in taxes. 
C)  A reduction in trade barriers. 
D)  An increase in the minimum wage. 
A)  An increase in interest rates. 
B)  An increase in taxes. 
C)  A reduction in trade barriers. 
D)  An increase in the minimum wage.

Question 11

Ceteris paribus,which of the following changes in the aggregate demand curve best characterizes a cutback in exports?

Accepted Answer

A)  A rightward shift 
B)  A leftward shift 
C)  An upward movement along the curve 
D)  A downward movement along the curve 
A)  A rightward shift 
B)  A leftward shift 
C)  An upward movement along the curve 
D)  A downward movement along the curve

Question 12

Figure 12.2:   
-Using Figure 12.2,which fiscal policy action will increase aggregate demand from AD2 to AD3 ceteris paribus?

Accepted Answer

A)  An increase in consumption 
B)  An increase in taxes 
C)  A decrease in exports 
D)  A decrease in government spending 
A)  An increase in consumption 
B)  An increase in taxes 
C)  A decrease in exports 
D)  A decrease in government spending

Question 13

Figure 12.1:  
-Assuming aggregate demand is represented by AD3,the economy depicted in Figure 12.1 confronts a real GDP gap of:

Accepted Answer

A)  Zero. 
B)  $400 billion. 
C)  $520 billion. 
D)  $560 billion. 
A)  Zero. 
B)  $400 billion. 
C)  $520 billion. 
D)  $560 billion.

Question 14

Which of the following would be a Keynesian solution for inflation?

Accepted Answer

A)  Increase transfer payments to those people hurt by inflation 
B)  Decrease government expenditures and let the multiplier work 
C)  Restrict foreign imports into the country 
D)  Do nothing because the economy is inherently stable 
A)  Increase transfer payments to those people hurt by inflation 
B)  Decrease government expenditures and let the multiplier work 
C)  Restrict foreign imports into the country 
D)  Do nothing because the economy is inherently stable

Question 15

The marginal propensity to consume is equal to the change in consumption divided by the change in disposable income.

Accepted Answer

A) True 
 B)False

Question 16

If the government uses fiscal policy to reduce the budget deficit during a recession,the government will make the recession worse,ceteris paribus.

Accepted Answer

A) True 
 B)False

Question 17

What is the total impact on aggregate demand because of a fiscal stimulus?

Accepted Answer

A)  The amount of the initial increase in government spending 
B)  The changes in consumer spending,but not the change in government spending 
C)  The initial injection plus all subsequent increases in consumer spending triggered by the stimulus 
D)  The initial injection plus the consumption increase in the first round 
A)  The amount of the initial increase in government spending 
B)  The changes in consumer spending,but not the change in government spending 
C)  The initial injection plus all subsequent increases in consumer spending triggered by the stimulus 
D)  The initial injection plus the consumption increase in the first round

Question 18

During an inflationary period it is appropriate for the government to pursue policies that:

Accepted Answer

A)  Stimulate aggregate demand. 
B)  Reduce aggregate demand. 
C)  Make budget deficits larger. 
D)  Eliminate the public debt. 
A)  Stimulate aggregate demand. 
B)  Reduce aggregate demand. 
C)  Make budget deficits larger. 
D)  Eliminate the public debt.

Question 19

When the economy overheats,the government sometimes cools it down with higher taxes,spending reductions,and less money.Which of the following indicates the appropriate change in the U.S.economy after government intervention?

Accepted Answer

A)  Aggregate demand shifts to the left 
B)  Aggregate demand shifts to the right 
C)  The economy moves up along the aggregate demand curve 
D)  The economy moves down along the aggregate demand curve 
A)  Aggregate demand shifts to the left 
B)  Aggregate demand shifts to the right 
C)  The economy moves up along the aggregate demand curve 
D)  The economy moves down along the aggregate demand curve

Question 20

A budget surplus occurs if government spending:

Accepted Answer

A)  Equals tax revenues. 
B)  Is greater than tax revenues. 
C)  Is less than tax revenues. 
D)  Causes tax revenues to increase. 
A)  Equals tax revenues. 
B)  Is greater than tax revenues. 
C)  Is less than tax revenues. 
D)  Causes tax revenues to increase.

If consumers spend 75 cents out of every extra dollar received,the:

If the economy is experiencing inflation,which of the following is most likely to decrease aggregate demand?

Saving:

If consumers spend 85 cents out of every extra dollar received,the:

A tax cut or government spending increase intended to shift aggregate demand to the right is known as:

Fiscal stimulus is:

The following table shows a hypothetical relationship between consumption and income.Answer the indicated question(s)on the basis of this table. Table 12.1-Income and consumption data -Based on Table 12.1,what is saving at a disposable income of $200 billion per year?

Which of the following will occur if aggregate demand is below full-employment GDP?

All of the following represent government spending as a part of aggregate demand except for:

Fiscal policy includes:

Ceteris paribus,which of the following changes in the aggregate demand curve best characterizes a cutback in exports?

Figure 12.2: -Using Figure 12.2,which fiscal policy action will increase aggregate demand from AD₂ to AD₃ ceteris paribus?

Figure 12.1: -Assuming aggregate demand is represented by AD₃,the economy depicted in Figure 12.1 confronts a real GDP gap of:

Which of the following would be a Keynesian solution for inflation?

The marginal propensity to consume is equal to the change in consumption divided by the change in disposable income.

If the government uses fiscal policy to reduce the budget deficit during a recession,the government will make the recession worse,ceteris paribus.

What is the total impact on aggregate demand because of a fiscal stimulus?

During an inflationary period it is appropriate for the government to pursue policies that:

When the economy overheats,the government sometimes cools it down with higher taxes,spending reductions,and less money.Which of the following indicates the appropriate change in the U.S.economy after government intervention?

A budget surplus occurs if government spending:

The Challenge of Economics

The US Economy

Supply and Demand

Consumer Demand

Supply Decisions

Competition

Monopoly

The Labor Market

Government Intervention

The Business Cycle

Aggregate Supply and Demand

Money and Banks

Monetary Policy

Economic Growth

Theory and Reality

International Trade

Filters

Exam 12: Fiscal Policy

If consumers spend 75 cents out of every extra dollar received,the:

If the economy is experiencing inflation,which of the following is most likely to decrease aggregate demand?

Saving:

If consumers spend 85 cents out of every extra dollar received,the:

A tax cut or government spending increase intended to shift aggregate demand to the right is known as:

Fiscal stimulus is:

The following table shows a hypothetical relationship between consumption and income.Answer the indicated question(s)on the basis of this table. Table 12.1-Income and consumption data -Based on Table 12.1,what is saving at a disposable income of $200 billion per year?

Which of the following will occur if aggregate demand is below full-employment GDP?

All of the following represent government spending as a part of aggregate demand except for:

Fiscal policy includes:

Ceteris paribus,which of the following changes in the aggregate demand curve best characterizes a cutback in exports?

Figure 12.2: -Using Figure 12.2,which fiscal policy action will increase aggregate demand from AD2 to AD3 ceteris paribus?

Figure 12.1: -Assuming aggregate demand is represented by AD3,the economy depicted in Figure 12.1 confronts a real GDP gap of:

Which of the following would be a Keynesian solution for inflation?

The marginal propensity to consume is equal to the change in consumption divided by the change in disposable income.

If the government uses fiscal policy to reduce the budget deficit during a recession,the government will make the recession worse,ceteris paribus.

What is the total impact on aggregate demand because of a fiscal stimulus?

During an inflationary period it is appropriate for the government to pursue policies that:

When the economy overheats,the government sometimes cools it down with higher taxes,spending reductions,and less money.Which of the following indicates the appropriate change in the U.S.economy after government intervention?

A budget surplus occurs if government spending:

The Challenge of Economics

The US Economy

Supply and Demand

Consumer Demand

Supply Decisions

Competition

Monopoly

The Labor Market

Government Intervention

The Business Cycle

Aggregate Supply and Demand

Money and Banks

Monetary Policy

Economic Growth

Theory and Reality

International Trade

Filters

Figure 12.2: -Using Figure 12.2,which fiscal policy action will increase aggregate demand from AD₂ to AD₃ ceteris paribus?

Figure 12.1: -Assuming aggregate demand is represented by AD₃,the economy depicted in Figure 12.1 confronts a real GDP gap of: