Question 1

To help fight a recession,the government could

Accepted Answer

A)  decrease government spending to balance the budget. 
B)  decrease taxes to increase aggregate demand. 
C)  lower interest rates by decreasing the cash rate. 
D)  conduct contractionary fiscal policy by raising taxes. 
A)  decrease government spending to balance the budget. 
B)  decrease taxes to increase aggregate demand. 
C)  lower interest rates by decreasing the cash rate. 
D)  conduct contractionary fiscal policy by raising taxes.

Question 2

Give examples of automatic stabilisers.Explain how automatic stabilisers work when there is an economic boom.

Accepted Answer

Examples of automatic stabilisers are un

Question 3

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.If the tax change is not effective and labour supply and savings do not increase because of the tax change,then the tax change will

Accepted Answer

A)  decrease the price level below P2. 
B)  increase output above Y2. 
C)  not change the price level. 
D)  shift LRAS2 to the right. 
A)  decrease the price level below P2. 
B)  increase output above Y2. 
C)  not change the price level. 
D)  shift LRAS2 to the right.

Question 4

Reducing taxes by a specific fixed amount will usually

Accepted Answer

A)  lower income and lower spending. 
B)  raise income and lower spending. 
C)  lower income and raise spending. 
D)  raise income and raise spending. 
A)  lower income and lower spending. 
B)  raise income and lower spending. 
C)  lower income and raise spending. 
D)  raise income and raise spending.

Question 5

Figure 17.7  
-Suppose that the economy is at point A on the Phillips curve in Figure 17.7.If the aggregate demand curve shifts to the right by less than the long-run aggregate supply,then the economy will

Accepted Answer

A)  remain at point A on the Phillips curve. 
B)  move to point B on the Phillips curve. 
C)  move to point C on the Phillips curve. 
D)  move to point D on the Phillips curve. 
A)  remain at point A on the Phillips curve. 
B)  move to point B on the Phillips curve. 
C)  move to point C on the Phillips curve. 
D)  move to point D on the Phillips curve.

Question 6

The Australian federal budget was in surplus during the

Accepted Answer

A)  early 1990s. 
B)  early to mid-2000s. 
C)  mid-1970s. 
D)  early 1980s. 
A)  early 1990s. 
B)  early to mid-2000s. 
C)  mid-1970s. 
D)  early 1980s.

Question 7

Long lags associated with the legislative process in implementing fiscal policy can make it more difficult to use than monetary policy.

Accepted Answer

A) True 
 B)False

Question 8

If the government purchases multiplier equals 2,and real GDP is $14 trillion with potential GDP $14.5 trillion,then government purchases would need to increase by ________ to restore the economy to potential GDP.

Accepted Answer

A)  $7.25 trillion 
B)  $1 trillion 
C)  $500 billion 
D)  $250 billion 
A)  $7.25 trillion 
B)  $1 trillion 
C)  $500 billion 
D)  $250 billion

Question 9

Show the effects of tax reduction and simplification using the dynamic aggregate demand and supply model.To simplify the analysis,assume that the aggregate demand curve does not change.How does the analysis change if the tax change does not change labour supply and has little or no effect on savings and investment?

Accepted Answer

The economy's initial equilibrium is at

Question 10

Figure 17.2  
-In Figure 17.2,suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B.Which of the following policies could the government use to move the economy to point C?

Accepted Answer

A)  Increase government purchases 
B)  Decrease government purchases 
C)  Increase income taxes 
D)  Sell commonwealth government bonds and securities 
A)  Increase government purchases 
B)  Decrease government purchases 
C)  Increase income taxes 
D)  Sell commonwealth government bonds and securities

Question 11

It can be ________ difficult to effectively time fiscal policy than monetary policy because ________.

Accepted Answer

A)  more; fiscal policy can be quickly decided and changed 
B)  more; fiscal policy takes longer to implement 
C)  less; monetary policy takes longer to decide and change 
D)  less; monetary policy takes longer to implement 
A)  more; fiscal policy can be quickly decided and changed 
B)  more; fiscal policy takes longer to implement 
C)  less; monetary policy takes longer to decide and change 
D)  less; monetary policy takes longer to implement

Question 12

What is the formula for the multiplier? Explain why this formula is considered to be too simple.

Accepted Answer

Multiplier = @#IMG-DLM& .
The formula ignores the

Question 13

During economic contractions,government expenditure automatically

Accepted Answer

A)  falls because of programs such as unemployment benefits. 
B)  rises because of programs such as unemployment benefits. 
C)  falls because of the progressive income tax system. 
D)  rises because of the progressive income tax system. 
A)  falls because of programs such as unemployment benefits. 
B)  rises because of programs such as unemployment benefits. 
C)  falls because of the progressive income tax system. 
D)  rises because of the progressive income tax system.

Question 14

Figure 17.4  
-To try to combat inflation,the government could

Accepted Answer

A)  decrease government spending. 
B)  decrease taxes. 
C)  lower interest rates. 
D)  conduct expansionary fiscal policy. 
A)  decrease government spending. 
B)  decrease taxes. 
C)  lower interest rates. 
D)  conduct expansionary fiscal policy.

Question 15

A deliberate policy change in taxes and government spending to influence the level of aggregate demand is called

Accepted Answer

A)  an automatic stabiliser. 
B)  discretionary fiscal policy. 
C)  a fiscal deficit. 
D)  a fiscal surplus. 
A)  an automatic stabiliser. 
B)  discretionary fiscal policy. 
C)  a fiscal deficit. 
D)  a fiscal surplus.

Question 16

Both Milton Friedman and Edmund Phelps argued that

Accepted Answer

A)  there was no trade-off between inflation and unemployment in the long run. 
B)  the Phillips curve represented a menu of policy choices in the long run. 
C)  permanently higher inflation was the cost of permanently lower unemployment in the long run. 
D)  permanently higher unemployment was the cost of permanently lower inflation in the long run. 
A)  there was no trade-off between inflation and unemployment in the long run. 
B)  the Phillips curve represented a menu of policy choices in the long run. 
C)  permanently higher inflation was the cost of permanently lower unemployment in the long run. 
D)  permanently higher unemployment was the cost of permanently lower inflation in the long run.

Question 17

Suppose the federal budget is balanced when GDP is at potential GDP.If equilibrium GDP falls below potential

Accepted Answer

A)  this will result in a budget deficit. 
B)  the budget will remain balanced. 
C)  transfer payments will decrease automatically. 
D)  tax revenues will increase automatically. 
A)  this will result in a budget deficit. 
B)  the budget will remain balanced. 
C)  transfer payments will decrease automatically. 
D)  tax revenues will increase automatically.

Question 18

How could the existence of unemployment benefits or other transfer programs reduce the severity of an economic contraction?

Accepted Answer

Workers who are laid off during an econo

Question 19

An equal increase in government purchases and taxes will cause

Accepted Answer

A)  an increase in real GDP. 
B)  no change in real GDP. 
C)  an increase in the budget surplus. 
D)  a reduction in the cyclically adjusted budget surplus. 
A)  an increase in real GDP. 
B)  no change in real GDP. 
C)  an increase in the budget surplus. 
D)  a reduction in the cyclically adjusted budget surplus.

Question 20

Figure 17.4  
-In Figure 17.4,if fiscal policy is successful at moving the economy from point B to equilibrium at potential GDP,which of the following will occur?

Accepted Answer

A)  The price level will rise. 
B)  Deflation will occur. 
C)  Unemployment will fall. 
D)  Unemployment will rise. 
A)  The price level will rise. 
B)  Deflation will occur. 
C)  Unemployment will fall. 
D)  Unemployment will rise.

To help fight a recession,the government could

Give examples of automatic stabilisers.Explain how automatic stabilisers work when there is an economic boom.

Reducing taxes by a specific fixed amount will usually

Figure 17.7 -Suppose that the economy is at point A on the Phillips curve in Figure 17.7.If the aggregate demand curve shifts to the right by less than the long-run aggregate supply,then the economy will

The Australian federal budget was in surplus during the

Long lags associated with the legislative process in implementing fiscal policy can make it more difficult to use than monetary policy.

If the government purchases multiplier equals 2,and real GDP is $14 trillion with potential GDP $14.5 trillion,then government purchases would need to increase by ________ to restore the economy to potential GDP.

Figure 17.2 -In Figure 17.2,suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B.Which of the following policies could the government use to move the economy to point C?

It can be difficult to effectively time fiscal policy than monetary policy because .

What is the formula for the multiplier? Explain why this formula is considered to be too simple.

During economic contractions,government expenditure automatically

Figure 17.4 -To try to combat inflation,the government could

A deliberate policy change in taxes and government spending to influence the level of aggregate demand is called

Both Milton Friedman and Edmund Phelps argued that

Suppose the federal budget is balanced when GDP is at potential GDP.If equilibrium GDP falls below potential

How could the existence of unemployment benefits or other transfer programs reduce the severity of an economic contraction?

An equal increase in government purchases and taxes will cause

Figure 17.4 -In Figure 17.4,if fiscal policy is successful at moving the economy from point B to equilibrium at potential GDP,which of the following will occur?

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

To help fight a recession,the government could

Give examples of automatic stabilisers.Explain how automatic stabilisers work when there is an economic boom.

Reducing taxes by a specific fixed amount will usually

Figure 17.7 -Suppose that the economy is at point A on the Phillips curve in Figure 17.7.If the aggregate demand curve shifts to the right by less than the long-run aggregate supply,then the economy will

The Australian federal budget was in surplus during the

Long lags associated with the legislative process in implementing fiscal policy can make it more difficult to use than monetary policy.

If the government purchases multiplier equals 2,and real GDP is $14 trillion with potential GDP $14.5 trillion,then government purchases would need to increase by ________ to restore the economy to potential GDP.

Figure 17.2 -In Figure 17.2,suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B.Which of the following policies could the government use to move the economy to point C?

It can be ________ difficult to effectively time fiscal policy than monetary policy because ________.

What is the formula for the multiplier? Explain why this formula is considered to be too simple.

During economic contractions,government expenditure automatically

Figure 17.4 -To try to combat inflation,the government could

A deliberate policy change in taxes and government spending to influence the level of aggregate demand is called

Both Milton Friedman and Edmund Phelps argued that

Suppose the federal budget is balanced when GDP is at potential GDP.If equilibrium GDP falls below potential

How could the existence of unemployment benefits or other transfer programs reduce the severity of an economic contraction?

An equal increase in government purchases and taxes will cause

Figure 17.4 -In Figure 17.4,if fiscal policy is successful at moving the economy from point B to equilibrium at potential GDP,which of the following will occur?

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

It can be difficult to effectively time fiscal policy than monetary policy because .