Question 1

Following a decrease in government spending,as the price level falls we would expect the level of interest rates to ________ and investment to ________.

Accepted Answer

A)  decrease; decrease 
B)  decrease; increase 
C)  increase; decrease 
D)  increase; increase 
A)  decrease; decrease 
B)  decrease; increase 
C)  increase; decrease 
D)  increase; increase B

Question 2

Increases in government spending result in ________ in the short run,and permanent increases in government spending result in ________ in the long run.

Accepted Answer

A)  partial crowding out; partial crowding out 
B)  partial crowding out; complete crowding out 
C)  complete crowding out; complete crowding out 
D)  complete crowding out; partial crowding out 
A)  partial crowding out; partial crowding out 
B)  partial crowding out; complete crowding out 
C)  complete crowding out; complete crowding out 
D)  complete crowding out; partial crowding out B

Question 3

How can tax simplification be beneficial to the economy?

Accepted Answer

Tax simplification would free up resources in the economy.The complexity of the tax system has created an entire industry to assist taxpayers in preparing their tax return forms.If tax simplification reduces the need for tax preparation assistance,the resources used in this industry could be allocated to some other productive endeavour.Simplifying the tax system would increase economic efficiency by reducing the time and trouble firms and households spend solely to reduce their tax payments.

Question 4

Which of the following may be an appropriate policy if real equilibrium GDP falls below the long-run aggregate supply curve?

Accepted Answer

A)  An increase in government purchases. 
B)  Contractionary fiscal policy to increase the budget surplus. 
C)  An increase in individual income taxes to balance the budget. 
D)  An increase in business income taxes to increase tax fairness. 
A)  An increase in government purchases. 
B)  Contractionary fiscal policy to increase the budget surplus. 
C)  An increase in individual income taxes to balance the budget. 
D)  An increase in business income taxes to increase tax fairness.

Question 5

Explain why the timing of fiscal policy may be more difficult than the timing of monetary policy.

Accepted Answer

Accurately timing fiscal policy may be m

Question 6

Show the impact of tax reduction and simplification using the dynamic aggregate demand and aggregate supply model.Clearly show and identify the impact of the tax change.Show what happens to the price level and real GDP because of the tax change.

Accepted Answer

The economy's initial equilibrium is at

Question 7

Short-run resource crowding out is likely to be less of a problem when the economy is

Accepted Answer

A)  at potential GDP. 
B)  above potential GDP. 
C)  almost at potential GDP. 
D)  in a recession. 
A)  at potential GDP. 
B)  above potential GDP. 
C)  almost at potential GDP. 
D)  in a recession.

Question 8

Figure 17.2  
-If policy makers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply,the appropriate fiscal policy response is to

Accepted Answer

A)  increase taxes. 
B)  increase government spending. 
C)  use expansionary fiscal policy. 
D)  increase interest rates. 
A)  increase taxes. 
B)  increase government spending. 
C)  use expansionary fiscal policy. 
D)  increase interest rates.

Question 9

Expansionary fiscal policy ________ the price level and ________ equilibrium real GDP.

Accepted Answer

A)  decreases; increases 
B)  increases; decreases 
C)  increases; increases 
D)  decreases; decreases 
A)  decreases; increases 
B)  increases; decreases 
C)  increases; increases 
D)  decreases; decreases

Question 10

Is government debt bad for the economy?

Accepted Answer

In times of recession,governments often

Question 11

Contractionary fiscal policy aims to reduce the rate of increase in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 12

Autonomous expenditure is a type of expenditure that does not depend on

Accepted Answer

A)  wealth. 
B)  expectations. 
C)  interest rates. 
D)  income. 
A)  wealth. 
B)  expectations. 
C)  interest rates. 
D)  income.

Question 13

Suppose you are an economic advisor for a political candidate in the early 1960s.Your candidate understands the political value of a very low unemployment rate.Currently,the unemployment rate is a bit high and he/she wants to advocate polices to lower it permanently.How do you advise your candidate about what the cost of such a choice is,given the economic understanding of the day?

Accepted Answer

Since this is the 1960s,the view of most

Question 14

Fiscal policy refers to the

Accepted Answer

A)  government's ability to regulate the functioning of financial markets. 
B)  policy applied by the Reserve Bank of Australia to affect the cash rate. 
C)  techniques used by firms to reduce their tax liabilities. 
D)  spending and taxing policies used by the government to influence the level of economy activity. 
A)  government's ability to regulate the functioning of financial markets. 
B)  policy applied by the Reserve Bank of Australia to affect the cash rate. 
C)  techniques used by firms to reduce their tax liabilities. 
D)  spending and taxing policies used by the government to influence the level of economy activity.

Question 15

Figure 17.6  
-Suppose the federal government reduces income taxes.Assume that the movement from A to B in Figure 17.6 represents normal growth in the economy before the tax change.Also assume that aggregate demand does not change.If the tax change is effective and labour supply and savings increase because of the tax change,then the tax change will

Accepted Answer

A)  decrease the price level to less than P2. 
B)  decrease output to less than Y2. 
C)  not change the price level. 
D)  shift LRAS2 to the left. 
A)  decrease the price level to less than P2. 
B)  decrease output to less than Y2. 
C)  not change the price level. 
D)  shift LRAS2 to the left.

Question 16

If an increase in investment spending of $20 million results in a $200 million increase in equilibrium real GDP,then the multiplier is

Accepted Answer

A)  1.0. 
B)  100. 
C)  10. 
D)  0.1. 
A)  1.0. 
B)  100. 
C)  10. 
D)  0.1.

Question 17

Using the following table,answer the following questions.The numbers in the table are in billions of dollars.
   a. What is the equilibrium level of real GDP?
b. What is the MPC?
c. If investment spending declines by 50,what will happen to equilibrium GDP?

Accepted Answer

a. Equilibrium real GDP is determined wh

Question 18

In the case of an upward-sloping aggregate supply curve,the change in real GDP brought about by a change in government spending will be less than that predicted by the simple government purchases multiplier.

Accepted Answer

A) True 
 B)False

Question 19

The government purchases multiplier always has a positive sign and the tax multiplier always has a negative sign.

Accepted Answer

A) True 
 B)False

Question 20

If an increase in autonomous consumption spending of $10 million results in a $50 million increase in equilibrium real GDP,then the MPC is

Accepted Answer

A)  0.5. 
B)  0.9. 
C)  0.8. 
D)  0.75. 
A)  0.5. 
B)  0.9. 
C)  0.8. 
D)  0.75.

Following a decrease in government spending,as the price level falls we would expect the level of interest rates to and investment to .

Increases in government spending result in in the short run,and permanent increases in government spending result in in the long run.

How can tax simplification be beneficial to the economy?

Which of the following may be an appropriate policy if real equilibrium GDP falls below the long-run aggregate supply curve?

Explain why the timing of fiscal policy may be more difficult than the timing of monetary policy.

Show the impact of tax reduction and simplification using the dynamic aggregate demand and aggregate supply model.Clearly show and identify the impact of the tax change.Show what happens to the price level and real GDP because of the tax change.

Short-run resource crowding out is likely to be less of a problem when the economy is

Figure 17.2 -If policy makers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply,the appropriate fiscal policy response is to

Expansionary fiscal policy the price level and equilibrium real GDP.

Is government debt bad for the economy?

Contractionary fiscal policy aims to reduce the rate of increase in aggregate demand.

Autonomous expenditure is a type of expenditure that does not depend on

Fiscal policy refers to the

If an increase in investment spending of $20 million results in a $200 million increase in equilibrium real GDP,then the multiplier is

Using the following table,answer the following questions.The numbers in the table are in billions of dollars. a. What is the equilibrium level of real GDP? b. What is the MPC? c. If investment spending declines by 50,what will happen to equilibrium GDP?

In the case of an upward-sloping aggregate supply curve,the change in real GDP brought about by a change in government spending will be less than that predicted by the simple government purchases multiplier.

The government purchases multiplier always has a positive sign and the tax multiplier always has a negative sign.

If an increase in autonomous consumption spending of $10 million results in a $50 million increase in equilibrium real GDP,then the MPC is

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Exam 17: Monetary Policy

Following a decrease in government spending,as the price level falls we would expect the level of interest rates to ________ and investment to ________.

Increases in government spending result in ________ in the short run,and permanent increases in government spending result in ________ in the long run.

How can tax simplification be beneficial to the economy?

Which of the following may be an appropriate policy if real equilibrium GDP falls below the long-run aggregate supply curve?

Explain why the timing of fiscal policy may be more difficult than the timing of monetary policy.

Show the impact of tax reduction and simplification using the dynamic aggregate demand and aggregate supply model.Clearly show and identify the impact of the tax change.Show what happens to the price level and real GDP because of the tax change.

Short-run resource crowding out is likely to be less of a problem when the economy is

Figure 17.2 -If policy makers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply,the appropriate fiscal policy response is to

Expansionary fiscal policy ________ the price level and ________ equilibrium real GDP.

Is government debt bad for the economy?

Contractionary fiscal policy aims to reduce the rate of increase in aggregate demand.

Autonomous expenditure is a type of expenditure that does not depend on

Fiscal policy refers to the

If an increase in investment spending of $20 million results in a $200 million increase in equilibrium real GDP,then the multiplier is

Using the following table,answer the following questions.The numbers in the table are in billions of dollars. a. What is the equilibrium level of real GDP? b. What is the MPC? c. If investment spending declines by 50,what will happen to equilibrium GDP?

In the case of an upward-sloping aggregate supply curve,the change in real GDP brought about by a change in government spending will be less than that predicted by the simple government purchases multiplier.

The government purchases multiplier always has a positive sign and the tax multiplier always has a negative sign.

If an increase in autonomous consumption spending of $10 million results in a $50 million increase in equilibrium real GDP,then the MPC is

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Following a decrease in government spending,as the price level falls we would expect the level of interest rates to and investment to .

Increases in government spending result in in the short run,and permanent increases in government spending result in in the long run.

Expansionary fiscal policy the price level and equilibrium real GDP.