Question 1

The difference between the classical approach and the Keynesian approach to fiscal policy is

Accepted Answer

A) Keynesians believe that natural forces in the economy would tend toward full employment 
B) Keynesians believe that natural forces in the economy would not tend toward full employment,but they were distrustful of government's ability to stimulate the economy 
C) classical economists believe that the economy would not achieve its potential GDP but that any action of the government would make matters worse 
D) Keynesians believe that it may be necessary that government increase aggregate demand so as to stimulate output and employment,if the economy is to achieve its potential output 
E) both the classical economists and Keynesians were equally distrustful of government intervention in the economy 
A) Keynesians believe that natural forces in the economy would tend toward full employment 
B) Keynesians believe that natural forces in the economy would not tend toward full employment,but they were distrustful of government's ability to stimulate the economy 
C) classical economists believe that the economy would not achieve its potential GDP but that any action of the government would make matters worse 
D) Keynesians believe that it may be necessary that government increase aggregate demand so as to stimulate output and employment,if the economy is to achieve its potential output 
E) both the classical economists and Keynesians were equally distrustful of government intervention in the economy

Question 2

The Cash for Clunkers program was intended to help the US auto industry and help the environment.Which of the following is often cited as a unintended consequence of the program?

Accepted Answer

A) it contributed to an increase in the US trade deficit 
B) it helped Toyota surpass GM as the #1 auto maker in the world 
C) it helped used car dealers more than new car dealers 
D) it led to an acceleration of inflation in the US economy 
E) it neglected to help other hard hit sectors of the economy 
A) it contributed to an increase in the US trade deficit 
B) it helped Toyota surpass GM as the #1 auto maker in the world 
C) it helped used car dealers more than new car dealers 
D) it led to an acceleration of inflation in the US economy 
E) it neglected to help other hard hit sectors of the economy

Question 3

Economists and policy makers questioned the effectiveness of discretionary fiscal policy during the 1970s for all the following reasons except

Accepted Answer

A) the difficulty of estimating the natural rate of unemployment 
B) the time lags involved in implementing fiscal policy 
C) the existence of possible feedback effects of fiscal policy on aggregate supply 
D) the distinction between current and permanent income 
E) the problems of inflation and unemployment were basically solved 
A) the difficulty of estimating the natural rate of unemployment 
B) the time lags involved in implementing fiscal policy 
C) the existence of possible feedback effects of fiscal policy on aggregate supply 
D) the distinction between current and permanent income 
E) the problems of inflation and unemployment were basically solved

Question 4

John Maynard Keynes influenced the use of fiscal policy in the U.S.by arguing effectively that

Accepted Answer

A) balancing the national budget at all times was sound economic policy 
B) natural economic forces were not necessarily adequate to move the economy toward its potential output level 
C) the government did not need to stimulate output in order for the economy to achieve its potential output level 
D) increases in taxes and increases in government purchases are equally effective in closing an expansionary gap 
E) increases in taxes and increases in government purchases are equally effective in closing a contractionary gap 
A) balancing the national budget at all times was sound economic policy 
B) natural economic forces were not necessarily adequate to move the economy toward its potential output level 
C) the government did not need to stimulate output in order for the economy to achieve its potential output level 
D) increases in taxes and increases in government purchases are equally effective in closing an expansionary gap 
E) increases in taxes and increases in government purchases are equally effective in closing a contractionary gap

Question 5

The steepness of the short-run aggregate supply curve depends on

Accepted Answer

A) the price level 
B) a larger than expected simple multiplier 
C) a smaller than expected simple multiplier 
D) the increase only in labor costs as output expands 
E) how sharply production costs increase as output expands 
A) the price level 
B) a larger than expected simple multiplier 
C) a smaller than expected simple multiplier 
D) the increase only in labor costs as output expands 
E) how sharply production costs increase as output expands

Question 6

Exhibit 11-3  
-In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS110 in Exhibit 11-3,what would be the short-run equilibrium level of real GDP and the price level?

Accepted Answer

A) $14 trillion and 110 
B) $14 trillion and 105 
C) $12 trillion and 105 
D) $12 trillion and 110 
E) the short-run equilibrium of real gdp and the price level cannot be determined from the exhibit 
A) $14 trillion and 110 
B) $14 trillion and 105 
C) $12 trillion and 105 
D) $12 trillion and 110 
E) the short-run equilibrium of real gdp and the price level cannot be determined from the exhibit

Question 7

The Cash for Clunkers program was intended to help the US auto industry and help the environment.Which of the following is often cited as a unintended consequence of the program?

Accepted Answer

A) it removed used cars and recyclable used car parts from the market 
B) it helped Toyota surpass GM as the #1 auto maker in the world 
C) it helped used car dealers more than new car dealers 
D) it led to an acceleration of inflation in the US economy 
E) it contributed to an increase in the US trade deficit 
A) it removed used cars and recyclable used car parts from the market 
B) it helped Toyota surpass GM as the #1 auto maker in the world 
C) it helped used car dealers more than new car dealers 
D) it led to an acceleration of inflation in the US economy 
E) it contributed to an increase in the US trade deficit

Question 8

One disadvantage of discretionary fiscal policy is that it can return the economy to its potential level of output but at the cost of increasing the price level.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following might be considered the most expansionary set of fiscal policies?

Accepted Answer

A) increase in government purchases,increase in taxes,and decrease in transfer payments 
B) decrease in government purchases,increase in taxes,and decrease in transfer payments 
C) increase in government purchases,decrease in taxes,and increase in transfer payments 
D) increase in government purchases,increase in taxes,and increase in transfer payments 
E) decrease in government purchases,decrease in taxes,and decrease in transfer payments 
A) increase in government purchases,increase in taxes,and decrease in transfer payments 
B) decrease in government purchases,increase in taxes,and decrease in transfer payments 
C) increase in government purchases,decrease in taxes,and increase in transfer payments 
D) increase in government purchases,increase in taxes,and increase in transfer payments 
E) decrease in government purchases,decrease in taxes,and decrease in transfer payments

Question 10

Most government transfer programs are

Accepted Answer

A) also government spending programs 
B) examples of monetary policy rather than fiscal policy 
C) designed mainly to offset macroeconomic instability 
D) discretionary fiscal policies 
E) automatic stabilizers 
A) also government spending programs 
B) examples of monetary policy rather than fiscal policy 
C) designed mainly to offset macroeconomic instability 
D) discretionary fiscal policies 
E) automatic stabilizers

Question 11

Exhibit 11-2  
-If the government wants the economy illustrated in Exhibit 11-2 to be at full employment,it should

Accepted Answer

A) increase taxes 
B) decrease transfer payments 
C) decrease government purchases 
D) wait for the SRAS curve to shift to the left 
E) do none of the above 
A) increase taxes 
B) decrease transfer payments 
C) decrease government purchases 
D) wait for the SRAS curve to shift to the left 
E) do none of the above

Question 12

Suppose that instead of using discretionary fiscal policy to close an expansionary gap,policy makers left the economy alone.What would probably happen?

Accepted Answer

A) depression would result 
B) the economy would be stuck in an expansionary gap 
C) the aggregate demand curve would shift,eliminating the problem 
D) the gap would close after a spurt of inflation 
E) the short-run aggregate supply curve would shift to the right 
A) depression would result 
B) the economy would be stuck in an expansionary gap 
C) the aggregate demand curve would shift,eliminating the problem 
D) the gap would close after a spurt of inflation 
E) the short-run aggregate supply curve would shift to the right

Question 13

Discretionary fiscal policy is policy that

Accepted Answer

A) is developed in secret 
B) applies to some states but not others 
C) applies to some industries but not others 
D) works automatically without public announcement or plan 
E) is an intentional change in taxation or government spending 
A) is developed in secret 
B) applies to some states but not others 
C) applies to some industries but not others 
D) works automatically without public announcement or plan 
E) is an intentional change in taxation or government spending

Question 14

To close an expansionary gap using fiscal policy,the government can

Accepted Answer

A) increase government spending 
B) increase government spending and decrease taxes at the same time 
C) decrease taxes 
D) decrease government spending or increase taxes 
E) decrease government spending by the size of the gap 
A) increase government spending 
B) increase government spending and decrease taxes at the same time 
C) decrease taxes 
D) decrease government spending or increase taxes 
E) decrease government spending by the size of the gap

Question 15

Classical economists believed that if saving were greater than investment,the interest rate would __________,causing saving to __________ and investment to __________ until the two were equal.

Accepted Answer

A) rise; decrease; increase 
B) fall; decrease; increase 
C) fall; increase; decrease 
D) rise; increase; decrease 
E) fall; increase; increase 
A) rise; decrease; increase 
B) fall; decrease; increase 
C) fall; increase; decrease 
D) rise; increase; decrease 
E) fall; increase; increase

Question 16

The Classical economists believed in the self-correcting nature of the economic system.They believed that the major adjustment

Accepted Answer

A) mechanisms was government assistance 
B) mechanisms were inflexible wages and prices and flexible interest rates 
C) mechanisms were flexible wages,prices and interest rates 
D) mechanisms were sticky wages,prices and interest rates 
E) mechanisms were inflexible interest rates and flexible wages and prices 
A) mechanisms was government assistance 
B) mechanisms were inflexible wages and prices and flexible interest rates 
C) mechanisms were flexible wages,prices and interest rates 
D) mechanisms were sticky wages,prices and interest rates 
E) mechanisms were inflexible interest rates and flexible wages and prices

Question 17

Which of the following is not a tool of fiscal policy?

Accepted Answer

A) money supply 
B) government purchases 
C) taxes 
D) Social Security program 
E) unemployment benefits 
A) money supply 
B) government purchases 
C) taxes 
D) Social Security program 
E) unemployment benefits

Question 18

Exhibit 11-3  
-The economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS110 in Exhibit 11-3 is facing an expansionary gap.

Accepted Answer

A) True 
 B)False

Question 19

The classical economists believed that the economy automatically move toward equilibrium at full employment.

Accepted Answer

A) True 
 B)False

Question 20

During economic contractions,transfer payments such as welfare benefits

Accepted Answer

A) automatically increase,reducing incomes further 
B) automatically increase,reducing the impact of the contraction on disposable income 
C) automatically decrease,because tax revenues fall and welfare benefits are no longer affordable 
D) are decreased,as a discretionary move on the part of Congress to stimulate expansion 
E) are increased,as a discretionary move on the part of Congress to cushion recipients against the negative effects of economic contraction 
A) automatically increase,reducing incomes further 
B) automatically increase,reducing the impact of the contraction on disposable income 
C) automatically decrease,because tax revenues fall and welfare benefits are no longer affordable 
D) are decreased,as a discretionary move on the part of Congress to stimulate expansion 
E) are increased,as a discretionary move on the part of Congress to cushion recipients against the negative effects of economic contraction

Exam 12: Fiscal Policy

The difference between the classical approach and the Keynesian approach to fiscal policy is

The Cash for Clunkers program was intended to help the US auto industry and help the environment.Which of the following is often cited as a unintended consequence of the program?

Economists and policy makers questioned the effectiveness of discretionary fiscal policy during the 1970s for all the following reasons except

John Maynard Keynes influenced the use of fiscal policy in the U.S.by arguing effectively that

The steepness of the short-run aggregate supply curve depends on

Exhibit 11-3 -In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS110 in Exhibit 11-3,what would be the short-run equilibrium level of real GDP and the price level?

The Cash for Clunkers program was intended to help the US auto industry and help the environment.Which of the following is often cited as a unintended consequence of the program?

One disadvantage of discretionary fiscal policy is that it can return the economy to its potential level of output but at the cost of increasing the price level.

Which of the following might be considered the most expansionary set of fiscal policies?

Most government transfer programs are

Exhibit 11-2 -If the government wants the economy illustrated in Exhibit 11-2 to be at full employment,it should

Suppose that instead of using discretionary fiscal policy to close an expansionary gap,policy makers left the economy alone.What would probably happen?

Discretionary fiscal policy is policy that

To close an expansionary gap using fiscal policy,the government can

Classical economists believed that if saving were greater than investment,the interest rate would __________,causing saving to __________ and investment to __________ until the two were equal.

The Classical economists believed in the self-correcting nature of the economic system.They believed that the major adjustment

Which of the following is not a tool of fiscal policy?

Exhibit 11-3 -The economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS110 in Exhibit 11-3 is facing an expansionary gap.

The classical economists believed that the economy automatically move toward equilibrium at full employment.

During economic contractions,transfer payments such as welfare benefits

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand, supply, and Markets

Introduction to Macroeconomics

Tracking the Useconomy

Unemployment and Inflation

Productivity and Growth

Aaggregate Expenditure and Aggregate Demand

Baggregate Expenditure and Aggregate Demand

Aggregate Supply

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy

Macro Policy Debate: Active or Passive

International Trade

Externalities and the Environment

International Finance

Economic Development

understanding Graphs

National Income Accounts

The Algebra of Demand-Side Equilibrium

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Exhibit 11-3 -In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS₁₁₀in Exhibit 11-3,what would be the short-run equilibrium level of real GDP and the price level?

Classical economists believed that if saving were greater than investment,the interest rate would ,causing saving to and investment to __ until the two were equal.

Exhibit 11-3 -The economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS₁₁₀in Exhibit 11-3 is facing an expansionary gap.