Question 1

Which is the largest source of federal government revenue and which is the largest single area of government expenditure in Australia?

Accepted Answer

The largest source of federal

Question 2

Tax reduction and simplification should ________ long-run aggregate supply and ________ aggregate demand.

Accepted Answer

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

Question 3

Consider the hypothetical information in the following table for potential GDP,real GDP and the price level in 2013 and in 2014 if the government does not use fiscal policy.   If the government wants to keep real GDP at its potential level in 2014,it should

Accepted Answer

A)  decrease income taxes. 
B)  decrease government purchases. 
C)  decrease interest rates. 
D)  increase interest rates. 
A)  decrease income taxes. 
B)  decrease government purchases. 
C)  decrease interest rates. 
D)  increase interest rates.

Question 4

Government deficits tend to increase during

Accepted Answer

A)  recessions and booms. 
B)  periods of economic contraction and recession. 
C)  periods of below- or above-average growth. 
D)  periods of increased financial uncertainty. 
A)  recessions and booms. 
B)  periods of economic contraction and recession. 
C)  periods of below- or above-average growth. 
D)  periods of increased financial uncertainty.

Question 5

An increase in government purchases of $200 billion will shift the aggregate demand curve to the right by

Accepted Answer

A)  $200 billion. 
B)  less than $200 billion. 
C)  more than $200 billion. 
D)  None of these options is correct. This policy shifts the long-run aggregate supply curve. 
A)  $200 billion. 
B)  less than $200 billion. 
C)  more than $200 billion. 
D)  None of these options is correct. This policy shifts the long-run aggregate supply curve.

Question 6

If actual inflation is less than expected inflation

Accepted Answer

A)  the actual real wage is greater than the expected real wage. 
B)  the unemployment rate falls. 
C)  the actual real wage equals the expected real wage. 
D)  firms will hire more workers than they planned. 
A)  the actual real wage is greater than the expected real wage. 
B)  the unemployment rate falls. 
C)  the actual real wage equals the expected real wage. 
D)  firms will hire more workers than they planned.

Question 7

If the government wanted to try to counteract the effects of a recession,it could

Accepted Answer

A)  increase tax rates. 
B)  increase taxes by a fixed amount. 
C)  increase government purchases. 
D)  decrease defence spending. 
A)  increase tax rates. 
B)  increase taxes by a fixed amount. 
C)  increase government purchases. 
D)  decrease defence spending.

Question 8

Poorly timed discretionary policy can do more harm than good.Getting the timing right with fiscal policy is generally

Accepted Answer

A)  less difficult than with monetary policy. 
B)  far less difficult than with monetary policy. 
C)  more difficult than with monetary policy. 
D)  about the same difficulty as with monetary policy. 
A)  less difficult than with monetary policy. 
B)  far less difficult than with monetary policy. 
C)  more difficult than with monetary policy. 
D)  about the same difficulty as with monetary policy.

Question 9

An increase in income taxes will reduce the rate of increase in aggregate demand but will have no effect on aggregate supply.

Accepted Answer

A) True 
 B)False

Question 10

If the economy is growing beyond potential GDP,which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

Accepted Answer

A)  liquidity and a decrease in interest rates. 
B)  government purchases. 
C)  oil prices. 
D)  taxes. 
A)  liquidity and a decrease in interest rates. 
B)  government purchases. 
C)  oil prices. 
D)  taxes.

Question 11

If the economy were in a recession,we would expect government expenditure to be

Accepted Answer

A)  high and tax revenues to be high, probably leading to a budget deficit. 
B)  high and tax revenues to be low, probably leading to a budget deficit. 
C)  low and tax revenues to be low, probably leading to a budget surplus. 
D)  high and tax revenues to be low, probably leading to a budget surplus. 
A)  high and tax revenues to be high, probably leading to a budget deficit. 
B)  high and tax revenues to be low, probably leading to a budget deficit. 
C)  low and tax revenues to be low, probably leading to a budget surplus. 
D)  high and tax revenues to be low, probably leading to a budget surplus.

Question 12

The largest source of revenue for the Australian federal government is

Accepted Answer

A)  personal income tax. 
B)  company and petroleum resource tax. 
C)  petrol excise. 
D)  superannuation tax. 
A)  personal income tax. 
B)  company and petroleum resource tax. 
C)  petrol excise. 
D)  superannuation tax.

Question 13

Borrowing to pay for long-term capital expenditures makes sense as the benefits are received

Accepted Answer

A)  in the current year so the burden of paying for them should be spread over many years. 
B)  over many years so the burden of paying for them should be spread over many years. 
C)  in the current year so the burden of paying for them should be paid in the current year. 
D)  over many years so the burden of paying for them should be paid in the current year. 
A)  in the current year so the burden of paying for them should be spread over many years. 
B)  over many years so the burden of paying for them should be spread over many years. 
C)  in the current year so the burden of paying for them should be paid in the current year. 
D)  over many years so the burden of paying for them should be paid in the current year.

Question 14

If workers fail to believe that rising inflation will eventually result in comparable increases in wages,but firms do understand this,then there is a

Accepted Answer

A)  negative relationship between unemployment and inflation in the short run. 
B)  positive relationship between unemployment and inflation in the short run. 
C)  negative relationship between unemployment and inflation in the long run. 
D)  positive relationship between unemployment and inflation in the long run. 
A)  negative relationship between unemployment and inflation in the short run. 
B)  positive relationship between unemployment and inflation in the short run. 
C)  negative relationship between unemployment and inflation in the long run. 
D)  positive relationship between unemployment and inflation in the long run.

Question 15

An increase in government spending may expedite recovery from a recession in the short run,but in the long run,this policy may

Accepted Answer

A)  reduce investment in new capital. 
B)  make domestic businesses less competitive in international markets if the dollar appreciates in value. 
C)  raise interest rates and reduce consumer expenditures on cars and new houses. 
D)  All of these options are correct. 
A)  reduce investment in new capital. 
B)  make domestic businesses less competitive in international markets if the dollar appreciates in value. 
C)  raise interest rates and reduce consumer expenditures on cars and new houses. 
D)  All of these options are correct.

Question 16

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.8,the tax rate is 0.1,and the marginal propensity to import equals 0.2.

Accepted Answer

A)  2.1 
B)  1.9 
C)  1.7 
D)  1.4 
A)  2.1 
B)  1.9 
C)  1.7 
D)  1.4

Question 17

Expansionary fiscal policy should shift the

Accepted Answer

A)  aggregate demand curve to the left. 
B)  aggregate demand curve to the right. 
C)  short-run aggregate supply curve to the left. 
D)  short-run aggregate supply curve to the right. 
A)  aggregate demand curve to the left. 
B)  aggregate demand curve to the right. 
C)  short-run aggregate supply curve to the left. 
D)  short-run aggregate supply curve to the right.

Question 18

Explain how lowered taxes on capital gains and dividends might increase aggregate supply.

Accepted Answer

A lender earns a capital gain if he/she

Question 19

Figure 17.5  
-Refer to Figure 17.5.If government purchases increase by $100 billion and lead to an ultimate increase in aggregate demand as shown in the graph,the difference in real GDP between point A and point B will be

Accepted Answer

A)  $100 billion. 
B)  less than $100 billion. 
C)  more than $100 billion. 
D)  There is insufficient information given here to make a conclusion. 
A)  $100 billion. 
B)  less than $100 billion. 
C)  more than $100 billion. 
D)  There is insufficient information given here to make a conclusion.

Question 20

Consider the hypothetical information in the following table for potential GDP,real GDP and the price level in 2013 and in 2014 if the government does not use fiscal policy.   If the government wants to keep real GDP at its potential level in 2014,it should

Accepted Answer

A)  increase income taxes. 
B)  increase government purchases. 
C)  decrease interest rates. 
D)  increase interest rates. 
A)  increase income taxes. 
B)  increase government purchases. 
C)  decrease interest rates. 
D)  increase interest rates.

Which is the largest source of federal government revenue and which is the largest single area of government expenditure in Australia?

Tax reduction and simplification should long-run aggregate supply and aggregate demand.

Consider the hypothetical information in the following table for potential GDP,real GDP and the price level in 2013 and in 2014 if the government does not use fiscal policy. If the government wants to keep real GDP at its potential level in 2014,it should

Government deficits tend to increase during

An increase in government purchases of $200 billion will shift the aggregate demand curve to the right by

If actual inflation is less than expected inflation

If the government wanted to try to counteract the effects of a recession,it could

Poorly timed discretionary policy can do more harm than good.Getting the timing right with fiscal policy is generally

An increase in income taxes will reduce the rate of increase in aggregate demand but will have no effect on aggregate supply.

If the economy is growing beyond potential GDP,which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

If the economy were in a recession,we would expect government expenditure to be

The largest source of revenue for the Australian federal government is

Borrowing to pay for long-term capital expenditures makes sense as the benefits are received

If workers fail to believe that rising inflation will eventually result in comparable increases in wages,but firms do understand this,then there is a

An increase in government spending may expedite recovery from a recession in the short run,but in the long run,this policy may

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.8,the tax rate is 0.1,and the marginal propensity to import equals 0.2.

Expansionary fiscal policy should shift the

Explain how lowered taxes on capital gains and dividends might increase aggregate supply.

Figure 17.5 -Refer to Figure 17.5.If government purchases increase by $100 billion and lead to an ultimate increase in aggregate demand as shown in the graph,the difference in real GDP between point A and point B will be

Consider the hypothetical information in the following table for potential GDP,real GDP and the price level in 2013 and in 2014 if the government does not use fiscal policy. If the government wants to keep real GDP at its potential level in 2014,it should

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

Which is the largest source of federal government revenue and which is the largest single area of government expenditure in Australia?

Tax reduction and simplification should ________ long-run aggregate supply and ________ aggregate demand.

Consider the hypothetical information in the following table for potential GDP,real GDP and the price level in 2013 and in 2014 if the government does not use fiscal policy. If the government wants to keep real GDP at its potential level in 2014,it should

Government deficits tend to increase during

An increase in government purchases of $200 billion will shift the aggregate demand curve to the right by

If actual inflation is less than expected inflation

If the government wanted to try to counteract the effects of a recession,it could

Poorly timed discretionary policy can do more harm than good.Getting the timing right with fiscal policy is generally

An increase in income taxes will reduce the rate of increase in aggregate demand but will have no effect on aggregate supply.

If the economy is growing beyond potential GDP,which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

If the economy were in a recession,we would expect government expenditure to be

The largest source of revenue for the Australian federal government is

Borrowing to pay for long-term capital expenditures makes sense as the benefits are received

If workers fail to believe that rising inflation will eventually result in comparable increases in wages,but firms do understand this,then there is a

An increase in government spending may expedite recovery from a recession in the short run,but in the long run,this policy may

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.8,the tax rate is 0.1,and the marginal propensity to import equals 0.2.

Expansionary fiscal policy should shift the

Explain how lowered taxes on capital gains and dividends might increase aggregate supply.

Figure 17.5 -Refer to Figure 17.5.If government purchases increase by $100 billion and lead to an ultimate increase in aggregate demand as shown in the graph,the difference in real GDP between point A and point B will be

Consider the hypothetical information in the following table for potential GDP,real GDP and the price level in 2013 and in 2014 if the government does not use fiscal policy. If the government wants to keep real GDP at its potential level in 2014,it should

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

Tax reduction and simplification should long-run aggregate supply and aggregate demand.