Question 1

By how much would government purchases have to change if the government wanted to increase income by $1,000 and the MPC were 0.9?

Accepted Answer

A) $100 
B) $900 
C) $1,000 
D) $10,000/9 
E) $10,000 
A) $100 
B) $900 
C) $1,000 
D) $10,000/9 
E) $10,000

Question 2

During a recession,unemployment insurance ensures that

Accepted Answer

A) the disposable income of those who are unemployed will increase above the usual level 
B) disposable income does not fall by as much as GDP decreases 
C) disposable income increases as GDP falls 
D) the marginal propensity to consume increases 
E) the marginal propensity to consume decreases 
A) the disposable income of those who are unemployed will increase above the usual level 
B) disposable income does not fall by as much as GDP decreases 
C) disposable income increases as GDP falls 
D) the marginal propensity to consume increases 
E) the marginal propensity to consume decreases

Question 3

Suppose that the economy has an expansionary gap of $1,000 and the MPC equals 0.8.With an upward-sloping short-run aggregate supply curve,the government can close the gap if it increases autonomous net taxes by

Accepted Answer

A) $1,000 
B) $800 
C) $250 
D) more than $250 
E) less than $250 
A) $1,000 
B) $800 
C) $250 
D) more than $250 
E) less than $250

Question 4

Which of the following is a difference between John Maynard Keynes and the classical economists?

Accepted Answer

A) Keynes did not believe that unemployment was a serious long-term problem; the classical economists did. 
B) Keynes did not believe that the economy was always in equilibrium; the classical economists did. 
C) Keynes did not believe that the economy necessarily settled at full employment; the classical economists did. 
D) Keynes believed that the economy was always in equilibrium; the classical economists did not. 
E) Keynes believed that a general glut of output was a good thing for the economy; the classical economists believed a glut created an unemployment problem for the economy. 
A) Keynes did not believe that unemployment was a serious long-term problem; the classical economists did. 
B) Keynes did not believe that the economy was always in equilibrium; the classical economists did. 
C) Keynes did not believe that the economy necessarily settled at full employment; the classical economists did. 
D) Keynes believed that the economy was always in equilibrium; the classical economists did not. 
E) Keynes believed that a general glut of output was a good thing for the economy; the classical economists believed a glut created an unemployment problem for the economy.

Question 5

Which of the following is not true about classical economists?

Accepted Answer

A) They criticized mercantilism as an economic system. 
B) They advocated laissez-faire policies to promote economic growth. 
C) They believed the economy would naturally tend toward full employment. 
D) They believed prices and wages were flexible. 
E) They sought government intervention in markets to promote fairness. 
A) They criticized mercantilism as an economic system. 
B) They advocated laissez-faire policies to promote economic growth. 
C) They believed the economy would naturally tend toward full employment. 
D) They believed prices and wages were flexible. 
E) They sought government intervention in markets to promote fairness.

Question 6

If people base their spending decision more on permanent income than current income,then

Accepted Answer

A) consumption spending will be more responsive to a temporary change in income than a change in permanent income 
B) shifts in aggregate supply will be less predictable than if spending was based on current income 
C) consumption spending will fluctuate more widely than if such spending was determined by current income 
D) shifts in short-run aggregate supply will be more predictable than if spending was based on current income 
E) attempts to fine-tune the economy with temporary tax rate adjustments will be less effective 
A) consumption spending will be more responsive to a temporary change in income than a change in permanent income 
B) shifts in aggregate supply will be less predictable than if spending was based on current income 
C) consumption spending will fluctuate more widely than if such spending was determined by current income 
D) shifts in short-run aggregate supply will be more predictable than if spending was based on current income 
E) attempts to fine-tune the economy with temporary tax rate adjustments will be less effective

Question 7

The distinction between discretionary fiscal policy and the use of automatic stabilizers is that

Accepted Answer

A) only discretionary fiscal policy can stimulate the economy 
B) only automatic stabilizers can stimulate the economy 
C) discretionary fiscal policy,once adopted,is built into the structure of the economy 
D) automatic stabilizers,once adopted,are built into the structure of the economy 
E) only discretionary fiscal policy can be used by the federal government 
A) only discretionary fiscal policy can stimulate the economy 
B) only automatic stabilizers can stimulate the economy 
C) discretionary fiscal policy,once adopted,is built into the structure of the economy 
D) automatic stabilizers,once adopted,are built into the structure of the economy 
E) only discretionary fiscal policy can be used by the federal government

Question 8

If fiscal policy is used to close an expansionary gap,the

Accepted Answer

A) SRAS curve shifts leftward and the price level falls 
B) SRAS curve shifts rightward and the price level increases 
C) SRAS curve shifts rightward and the price level falls 
D) AD curve shifts leftward and the price level decreases 
E) AD curve shifts rightward and the price level decreases 
A) SRAS curve shifts leftward and the price level falls 
B) SRAS curve shifts rightward and the price level increases 
C) SRAS curve shifts rightward and the price level falls 
D) AD curve shifts leftward and the price level decreases 
E) AD curve shifts rightward and the price level decreases

Question 9

Classical economists believed that if investment were greater than saving,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 10

An increase in the federal budget deficit

Accepted Answer

A) only occurs when there is a deficit in the balance of trade 
B) creates deflation 
C) decreases aggregate demand 
D) decreases aggregate quantity demanded along a stationary aggregate demand curve 
E) raises the equilibrium level of output and employment 
A) only occurs when there is a deficit in the balance of trade 
B) creates deflation 
C) decreases aggregate demand 
D) decreases aggregate quantity demanded along a stationary aggregate demand curve 
E) raises the equilibrium level of output and employment

Question 11

A federal budget deficit occurs when

Accepted Answer

A) there is deflation 
B) federal government purchases exceed net taxes 
C) there is inflation 
D) aggregate demand is greater than aggregate supply 
E) aggregate supply is greater than aggregate demand 
A) there is deflation 
B) federal government purchases exceed net taxes 
C) there is inflation 
D) aggregate demand is greater than aggregate supply 
E) aggregate supply is greater than aggregate demand

Question 12

The opposite of a laissez-faire economic policy is

Accepted Answer

A) active government intervention 
B) a reliance on prices to adjust to changing market conditions 
C) classical economics 
D) neoclassical economics 
E) quantity supplied creates its own quantity demanded 
A) active government intervention 
B) a reliance on prices to adjust to changing market conditions 
C) classical economics 
D) neoclassical economics 
E) quantity supplied creates its own quantity demanded

Question 13

The "Golden Age" of fiscal policy--the decade in which it was most in political favor and in which it seemed to work best--was

Accepted Answer

A) the 1930s 
B) the 1940s 
C) the 1950s 
D) the 1960s 
E) the 1970s 
A) the 1930s 
B) the 1940s 
C) the 1950s 
D) the 1960s 
E) the 1970s

Question 14

Exhibit 11-1  
-In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS50 in Exhibit 11-1,what would be the short-run equilibrium level of real GDP and the price level?

Accepted Answer

A) $300 and 20 
B) $500 and 20 
C) $300 and 40 
D) $500 and 50 
E) $300 and 50 
A) $300 and 20 
B) $500 and 20 
C) $300 and 40 
D) $500 and 50 
E) $300 and 50

Question 15

When spending by the federal government exceeds net taxes,

Accepted Answer

A) the price level tends to rise 
B) the money supply must fall 
C) the aggregate demand curve shifts leftward 
D) aggregate supply moves leftward 
E) there is a federal budget surplus 
A) the price level tends to rise 
B) the money supply must fall 
C) the aggregate demand curve shifts leftward 
D) aggregate supply moves leftward 
E) there is a federal budget surplus

Question 16

Suppose that the economy is experiencing an expansionary gap of $1,000 and the MPC equals 0.8.With an upward-sloping short-run aggregate supply curve,the government can close the gap if it decreases purchases by

Accepted Answer

A) $1,000 
B) $800 
C) $200 
D) more than $200 
E) less than $200 
A) $1,000 
B) $800 
C) $200 
D) more than $200 
E) less than $200

Question 17

A $100 billion increase in government purchases has a greater effect on real GDP than a $100 billion reduction in net taxes because

Accepted Answer

A) some of the income consumers gain from the tax reduction will be saved rather than spent 
B) some of the income consumers gain from the tax reduction will be spent on services rather than products 
C) some of the income consumers gain from the tax reduction will be spent on goods made in foreign countries 
D) the consumers' MPC is higher than the government's 
E) the consumers' MPC is 1 
A) some of the income consumers gain from the tax reduction will be saved rather than spent 
B) some of the income consumers gain from the tax reduction will be spent on services rather than products 
C) some of the income consumers gain from the tax reduction will be spent on goods made in foreign countries 
D) the consumers' MPC is higher than the government's 
E) the consumers' MPC is 1

Question 18

Which of the following did classical economists believe caused depressions and high unemployment?

Accepted Answer

A) wars 
B) tax increases 
C) poor crop growing seasons 
D) changing tastes 
E) All of the answers are correct 
A) wars 
B) tax increases 
C) poor crop growing seasons 
D) changing tastes 
E) All of the answers are correct

Question 19

Which of the following factors did not contribute to the federal budget surpluses in the 1990s?

Accepted Answer

A) higher taxes on the rich 
B) more federal government spending discipline 
C) market globalization 
D) slower consumer spending 
E) rising business optimism based on technological innovation 
A) higher taxes on the rich 
B) more federal government spending discipline 
C) market globalization 
D) slower consumer spending 
E) rising business optimism based on technological innovation

Question 20

The natural rate of unemployment is that rate at which the economy achieves its potential real GDP.

Accepted Answer

A) True 
 B)False

Exam 12: Fiscal Policy

By how much would government purchases have to change if the government wanted to increase income by $1,000 and the MPC were 0.9?

During a recession,unemployment insurance ensures that

Suppose that the economy has an expansionary gap of $1,000 and the MPC equals 0.8.With an upward-sloping short-run aggregate supply curve,the government can close the gap if it increases autonomous net taxes by

Which of the following is a difference between John Maynard Keynes and the classical economists?

Which of the following is not true about classical economists?

If people base their spending decision more on permanent income than current income,then

The distinction between discretionary fiscal policy and the use of automatic stabilizers is that

If fiscal policy is used to close an expansionary gap,the

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

An increase in the federal budget deficit

A federal budget deficit occurs when

The opposite of a laissez-faire economic policy is

The "Golden Age" of fiscal policy--the decade in which it was most in political favor and in which it seemed to work best--was

Exhibit 11-1 -In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS50 in Exhibit 11-1,what would be the short-run equilibrium level of real GDP and the price level?

When spending by the federal government exceeds net taxes,

Suppose that the economy is experiencing an expansionary gap of $1,000 and the MPC equals 0.8.With an upward-sloping short-run aggregate supply curve,the government can close the gap if it decreases purchases by

A $100 billion increase in government purchases has a greater effect on real GDP than a $100 billion reduction in net taxes because

Which of the following did classical economists believe caused depressions and high unemployment?

Which of the following factors did not contribute to the federal budget surpluses in the 1990s?

The natural rate of unemployment is that rate at which the economy achieves its potential real GDP.

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

Filters

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

Exhibit 11-1 -In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS₅₀in Exhibit 11-1,what would be the short-run equilibrium level of real GDP and the price level?