Question 1

Supply-side economics stress that:

Accepted Answer

A) ​aggregate demand is the major determinant of real output. 
B) ​higher tax rates discourage people from working and investing as much as they would at lower tax rates. 
C) ​an increase in government expenditures and tax rates will cause real income to rise. 
D) ​expansionary monetary policy will cause real output to expand without accelerating inflation. 
A) ​aggregate demand is the major determinant of real output. 
B) ​higher tax rates discourage people from working and investing as much as they would at lower tax rates. 
C) ​an increase in government expenditures and tax rates will cause real income to rise. 
D) ​expansionary monetary policy will cause real output to expand without accelerating inflation.

Question 2

The crowding-out effect implies that:

Accepted Answer

A) ​increases in government purchases will lower interest rates and stimulate investment spending. 
B) ​higher taxes reduce both consumption and saving. 
C) ​fiscal policy effects on interest rates will be offset by monetary policy. 
D) ​increases in government purchases increase income and the demand for loanable funds which will choke off some private spending. 
A) ​increases in government purchases will lower interest rates and stimulate investment spending. 
B) ​higher taxes reduce both consumption and saving. 
C) ​fiscal policy effects on interest rates will be offset by monetary policy. 
D) ​increases in government purchases increase income and the demand for loanable funds which will choke off some private spending.

Question 3

If MPC = 0.75, a $40 billion decrease in government purchases would have what size effect on the "first round" of induced added consumption?

Accepted Answer

A) ​$30 billion 
B) ​$40 billion 
C) ​$120 billion 
D) ​$160 billion 
A) ​$30 billion 
B) ​$40 billion 
C) ​$120 billion 
D) ​$160 billion

Question 4

How does a change in taxes primarily affect aggregate demand?

Accepted Answer

A) ​A tax change alters exports and net exports. 
B) ​A tax change alters investment by an equal and opposite amount. 
C) ​A tax change alters disposable income and consumption spending. 
D) ​A tax change alters government purchases by an equal amount. 
A) ​A tax change alters exports and net exports. 
B) ​A tax change alters investment by an equal and opposite amount. 
C) ​A tax change alters disposable income and consumption spending. 
D) ​A tax change alters government purchases by an equal amount.

Question 5

Other things equal, an increase in government purchases combined with an equal increase in taxes would:

Accepted Answer

A) ​increase AD. 
B) ​decrease AD dramatically. 
C) ​decrease AD slightly. 
D) ​leave AD unchanged. 
A) ​increase AD. 
B) ​decrease AD dramatically. 
C) ​decrease AD slightly. 
D) ​leave AD unchanged.

Question 6

Which of the following is an appropriate fiscal policy response to high inflation?

Accepted Answer

A) ​increase interest rates 
B) ​increase government purchases 
C) ​decrease taxes 
D) ​none of the above 
A) ​increase interest rates 
B) ​increase government purchases 
C) ​decrease taxes 
D) ​none of the above

Question 7

If inflation is the most significant issue in the economy, an appropriate fiscal policy response would be to decrease taxation.

Accepted Answer

A) True 
 B)False

Question 8

Budget surpluses exist when:

Accepted Answer

A) ​government spending exceeds its tax revenues. 
B) ​government tax revenues exceed its spending. 
C) ​government spending equals its tax revenues. 
D) ​expansionary fiscal policies increase real GDP and the price level. 
A) ​government spending exceeds its tax revenues. 
B) ​government tax revenues exceed its spending. 
C) ​government spending equals its tax revenues. 
D) ​expansionary fiscal policies increase real GDP and the price level.

Question 9

If the marginal propensity to consume is 0.8, the marginal propensity to save is:

Accepted Answer

A) ​0.8 
B) ​0.4 
C) ​0.2 
D) ​0.3 
A) ​0.8 
B) ​0.4 
C) ​0.2 
D) ​0.3

Question 10

Historically, the largest budget deficits and growing government debt occur during war years.

Accepted Answer

A) True 
 B)False

Question 11

If inflation is a major issue in the economy, what would be the correct fiscal policy response from an economic perspective? Why would members of Congress be unlikely to support such actions?

Accepted Answer

If inflation is the major issue, the cor

Question 12

The most important automatic stabilizer is:

Accepted Answer

A) ​open market operations. 
B) ​the unemployment compensation system. 
C) ​the tax system. 
D) ​the welfare system. 
A) ​open market operations. 
B) ​the unemployment compensation system. 
C) ​the tax system. 
D) ​the welfare system.

Question 13

Why doesn't the government print money in order to solve its debt problems?

Accepted Answer

Government could print more mo

Question 14

When the economy is at the full employment level of real GDP, expansionary fiscal policy will not increase the economy's total output in the long run.

Accepted Answer

A) True 
 B)False

Question 15

To achieve a $500 billion decrease in AD, if the MPC is 0.8, what decrease in government purchases would be called for?

Accepted Answer

A) ​$100 billion 
B) ​$400 billion 
C) ​$500 billion 
D) ​$625 billion 
A) ​$100 billion 
B) ​$400 billion 
C) ​$500 billion 
D) ​$625 billion

Question 16

A policy of a tax cut combined with increases in government purchases would shift the aggregate demand curve to the left.

Accepted Answer

A) True 
 B)False

Question 17

If unemployment is the most significant problem in the economy, which of the following actions would be an appropriate fiscal policy response?

Accepted Answer

A) ​decrease taxes 
B) ​decrease government purchases 
C) ​decrease the federal deficit 
D) ​all of the above 
A) ​decrease taxes 
B) ​decrease government purchases 
C) ​decrease the federal deficit 
D) ​all of the above

Question 18

Which of the following helps explain how the multiplier and crowding-out effect impact the size of the shift in aggregate demand from a tax change.

Accepted Answer

A) ​Tax cuts stimulate consumer spending, earnings and profits rise, which further stimulates consumer spending-the multiplier effect. 
B) ​The higher income leads to an increase in the demand for money, which tends to lead to higher interest rates. 
C) ​The higher interest rates make borrowing more costly and reduce investment spending-the crowding-out effect. 
D) ​All of the above 
A) ​Tax cuts stimulate consumer spending, earnings and profits rise, which further stimulates consumer spending-the multiplier effect. 
B) ​The higher income leads to an increase in the demand for money, which tends to lead to higher interest rates. 
C) ​The higher interest rates make borrowing more costly and reduce investment spending-the crowding-out effect. 
D) ​All of the above

Question 19

The time span between recognition of the need for a policy change and the legislation being signed into a law is known as:

Accepted Answer

A) ​signal lag. 
B) ​implementation lag. 
C) ​impact lag. 
D) ​recognition lag. 
A) ​signal lag. 
B) ​implementation lag. 
C) ​impact lag. 
D) ​recognition lag.

Question 20

Expansionary fiscal policy consists of:

Accepted Answer

A) ​increased government purchases and increased taxes. 
B) ​decreased government purchases and decreased taxes. 
C) ​decreased government purchases and increased taxes. 
D) ​increased government purchases and decreased taxes. 
A) ​increased government purchases and increased taxes. 
B) ​decreased government purchases and decreased taxes. 
C) ​decreased government purchases and increased taxes. 
D) ​increased government purchases and decreased taxes.

Exam 16: The Markets for Labor, Capital, and Land

Supply-side economics stress that:

The crowding-out effect implies that:

If MPC = 0.75, a $40 billion decrease in government purchases would have what size effect on the "first round" of induced added consumption?

How does a change in taxes primarily affect aggregate demand?

Other things equal, an increase in government purchases combined with an equal increase in taxes would:

Which of the following is an appropriate fiscal policy response to high inflation?

If inflation is the most significant issue in the economy, an appropriate fiscal policy response would be to decrease taxation.

Budget surpluses exist when:

If the marginal propensity to consume is 0.8, the marginal propensity to save is:

Historically, the largest budget deficits and growing government debt occur during war years.

If inflation is a major issue in the economy, what would be the correct fiscal policy response from an economic perspective? Why would members of Congress be unlikely to support such actions?

The most important automatic stabilizer is:

Why doesn't the government print money in order to solve its debt problems?

When the economy is at the full employment level of real GDP, expansionary fiscal policy will not increase the economy's total output in the long run.

To achieve a $500 billion decrease in AD, if the MPC is 0.8, what decrease in government purchases would be called for?

A policy of a tax cut combined with increases in government purchases would shift the aggregate demand curve to the left.

If unemployment is the most significant problem in the economy, which of the following actions would be an appropriate fiscal policy response?

Which of the following helps explain how the multiplier and crowding-out effect impact the size of the shift in aggregate demand from a tax change.

The time span between recognition of the need for a policy change and the legislation being signed into a law is known as:

Expansionary fiscal policy consists of:

The Role and Method of Economics

Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Market in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

Income, Poverty and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

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