Question 1

Aggregate demand is a constant level and does not change as the price level changes.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following could cause a recession?

Accepted Answer

A)  A decline in aggregate demand 
B)  A decline in unemployment 
C)  An increase in aggregate supply 
D)  An increase in government spending 
A)  A decline in aggregate demand 
B)  A decline in unemployment 
C)  An increase in aggregate supply 
D)  An increase in government spending

Question 3

Disposable income is:

Accepted Answer

A)  The after-tax income of consumers. 
B)  Directly increased by a tax increase. 
C)  Likely to be saved by consumers. 
D)  The sum of gross income and savings. 
A)  The after-tax income of consumers. 
B)  Directly increased by a tax increase. 
C)  Likely to be saved by consumers. 
D)  The sum of gross income and savings.

Question 4

To an economist,investment refers to the purchase of new plant and equipment by businesses.

Accepted Answer

A) True 
 B)False

Question 5

The greater the upward slope of the aggregate supply curve,the greater the increase in the price level when aggregate demand increases.

Accepted Answer

A) True 
 B)False

Question 6

Fiscal policy includes:

Accepted Answer

A)  A decrease in immigration restrictions. 
B)  A decrease in import barriers. 
C)  An increase in government spending. 
D)  An increase in the discount rate. 
A)  A decrease in immigration restrictions. 
B)  A decrease in import barriers. 
C)  An increase in government spending. 
D)  An increase in the discount rate.

Question 7

On October 24,1929,the stock market crashed.By the end of the year,over $40 billion of wealth had vanished.Which of the following indicates the appropriate change in the U.S.economy?

Accepted Answer

A)  The economy moved up along the aggregate demand curve. 
B)  The economy moved down along the aggregate demand curve. 
C)  Aggregate demand shifted to the left. 
D)  Aggregate demand shifted to the right. 
A)  The economy moved up along the aggregate demand curve. 
B)  The economy moved down along the aggregate demand curve. 
C)  Aggregate demand shifted to the left. 
D)  Aggregate demand shifted to the right.

Question 8

Expenditures on new plant and equipment plus changes in business inventories defines:

Accepted Answer

A)  Aggregate demand. 
B)  Investment. 
C)  Net exports. 
D)  Fiscal policy. 
A)  Aggregate demand. 
B)  Investment. 
C)  Net exports. 
D)  Fiscal policy.

Question 9

When calculating aggregate demand,government expenditure:

Accepted Answer

A)  Includes income transfers. 
B)  Includes expenditures by the federal government but not state and local government. 
C)  Represents the largest component of aggregate demand for the United States. 
D)  Includes spending by federal,state,and local governments on goods and services. 
A)  Includes income transfers. 
B)  Includes expenditures by the federal government but not state and local government. 
C)  Represents the largest component of aggregate demand for the United States. 
D)  Includes spending by federal,state,and local governments on goods and services.

Question 10

Net exports for the United States are:

Accepted Answer

A)  Negative if American exports are less than imports. 
B)  Negative if American exports are greater than imports. 
C)  Zero if American exports are greater than imports. 
D)  Positive if American exports are less than imports. 
A)  Negative if American exports are less than imports. 
B)  Negative if American exports are greater than imports. 
C)  Zero if American exports are greater than imports. 
D)  Positive if American exports are less than imports.

Question 11

When individuals spend all of an income increase,the marginal propensity to save is zero.

Accepted Answer

A) True 
 B)False

Question 12

If the marginal propensity to save is 0.1 and government spending is raised by $5 billion,then total aggregate spending will rise by:

Accepted Answer

A)  $500 million. 
B)  $5 billion. 
C)  $10 billion. 
D)  $50 billion. 
A)  $500 million. 
B)  $5 billion. 
C)  $10 billion. 
D)  $50 billion.

Question 13

If an economy has a GDP gap,such that equilibrium output is less than full-employment output,which of the following is a correct fiscal-policy action?

Accepted Answer

A)  A reduction in Social Security payments 
B)  An increase in the money supply 
C)  An increase in government expenditures 
D)  An increase in the tax rate 
A)  A reduction in Social Security payments 
B)  An increase in the money supply 
C)  An increase in government expenditures 
D)  An increase in the tax rate

Question 14

During the Great Depression,Keynes advocated the use of _____ policy to increase the _____ goods and services.

Accepted Answer

A)  Monetary;demand for 
B)  Fiscal;demand for 
C)  Monetary;supply of 
D)  Fiscal;supply of 
A)  Monetary;demand for 
B)  Fiscal;demand for 
C)  Monetary;supply of 
D)  Fiscal;supply of

Question 15

Figure 12.1:  
-In Figure 12.1,assume aggregate demand is represented by AD2.Which of the following could cause a shift to AD3?

Accepted Answer

A)  An increase in government spending on goods and services 
B)  An increase in consumer spending 
C)  An increase in taxes 
D)  An increase in investment spending 
A)  An increase in government spending on goods and services 
B)  An increase in consumer spending 
C)  An increase in taxes 
D)  An increase in investment spending

Question 16

Ceteris paribus,an increase in _______ will cause an increase in _______.

Accepted Answer

A)  Disposable income;government spending 
B)  Consumer confidence;aggregate demand 
C)  Taxes;consumption 
D)  Imports;disposable income 
A)  Disposable income;government spending 
B)  Consumer confidence;aggregate demand 
C)  Taxes;consumption 
D)  Imports;disposable income

Question 17

One News Wire article in the text says,"After years of living happily beyond their means,Americans are finally facing financial reality." Ceteris paribus,a decrease in consumer confidence will result in:

Accepted Answer

A)  An increase in consumer spending. 
B)  A rightward shift of the aggregate demand curve. 
C)  An increase in the equilibrium price level. 
D)  A decrease in the equilibrium level of output. 
A)  An increase in consumer spending. 
B)  A rightward shift of the aggregate demand curve. 
C)  An increase in the equilibrium price level. 
D)  A decrease in the equilibrium level of output.

Question 18

Which of the following is a fiscal policy prescription for ending a recession?

Accepted Answer

A)  Raise taxes to pay for greater transfer payments to stimulate the economy 
B)  Increase government expenditures to let the multiplier work 
C)  Raise interest rates to stimulate saving 
D)  Restrict exports to increase injections in the domestic economy 
A)  Raise taxes to pay for greater transfer payments to stimulate the economy 
B)  Increase government expenditures to let the multiplier work 
C)  Raise interest rates to stimulate saving 
D)  Restrict exports to increase injections in the domestic economy

Question 19

According to Keynes,which of the following is always true at macro equilibrium?

Accepted Answer

A)  The economy achieves full employment 
B)  Aggregate demand is inadequate 
C)  Prices are at the appropriate level 
D)  Aggregate demand equals aggregate supply 
A)  The economy achieves full employment 
B)  Aggregate demand is inadequate 
C)  Prices are at the appropriate level 
D)  Aggregate demand equals aggregate supply

Question 20

The GDP gap represents the value of goods and services that could have been produced by the economy but were not produced because people are lazy.

Accepted Answer

A) True 
 B)False

Aggregate demand is a constant level and does not change as the price level changes.

Which of the following could cause a recession?

Disposable income is:

To an economist,investment refers to the purchase of new plant and equipment by businesses.

The greater the upward slope of the aggregate supply curve,the greater the increase in the price level when aggregate demand increases.

Fiscal policy includes:

On October 24,1929,the stock market crashed.By the end of the year,over $40 billion of wealth had vanished.Which of the following indicates the appropriate change in the U.S.economy?

Expenditures on new plant and equipment plus changes in business inventories defines:

When calculating aggregate demand,government expenditure:

Net exports for the United States are:

When individuals spend all of an income increase,the marginal propensity to save is zero.

If the marginal propensity to save is 0.1 and government spending is raised by $5 billion,then total aggregate spending will rise by:

If an economy has a GDP gap,such that equilibrium output is less than full-employment output,which of the following is a correct fiscal-policy action?

During the Great Depression,Keynes advocated the use of _ policy to increase the _ goods and services.

Figure 12.1: -In Figure 12.1,assume aggregate demand is represented by AD₂.Which of the following could cause a shift to AD₃?

Ceteris paribus,an increase in _ will cause an increase in _.

One News Wire article in the text says,"After years of living happily beyond their means,Americans are finally facing financial reality." Ceteris paribus,a decrease in consumer confidence will result in:

Which of the following is a fiscal policy prescription for ending a recession?

According to Keynes,which of the following is always true at macro equilibrium?

The GDP gap represents the value of goods and services that could have been produced by the economy but were not produced because people are lazy.

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

Aggregate demand is a constant level and does not change as the price level changes.

Which of the following could cause a recession?

Disposable income is:

To an economist,investment refers to the purchase of new plant and equipment by businesses.

The greater the upward slope of the aggregate supply curve,the greater the increase in the price level when aggregate demand increases.

Fiscal policy includes:

On October 24,1929,the stock market crashed.By the end of the year,over $40 billion of wealth had vanished.Which of the following indicates the appropriate change in the U.S.economy?

Expenditures on new plant and equipment plus changes in business inventories defines:

When calculating aggregate demand,government expenditure:

Net exports for the United States are:

When individuals spend all of an income increase,the marginal propensity to save is zero.

If the marginal propensity to save is 0.1 and government spending is raised by $5 billion,then total aggregate spending will rise by:

If an economy has a GDP gap,such that equilibrium output is less than full-employment output,which of the following is a correct fiscal-policy action?

During the Great Depression,Keynes advocated the use of _____ policy to increase the _____ goods and services.

Figure 12.1: -In Figure 12.1,assume aggregate demand is represented by AD2.Which of the following could cause a shift to AD3?

Ceteris paribus,an increase in _______ will cause an increase in _______.

One News Wire article in the text says,"After years of living happily beyond their means,Americans are finally facing financial reality." Ceteris paribus,a decrease in consumer confidence will result in:

Which of the following is a fiscal policy prescription for ending a recession?

According to Keynes,which of the following is always true at macro equilibrium?

The GDP gap represents the value of goods and services that could have been produced by the economy but were not produced because people are lazy.

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

During the Great Depression,Keynes advocated the use of _ policy to increase the _ goods and services.

Figure 12.1: -In Figure 12.1,assume aggregate demand is represented by AD₂.Which of the following could cause a shift to AD₃?

Ceteris paribus,an increase in _ will cause an increase in _.