Question 1

The FOMC is the

Accepted Answer

A) report the Fed gives to Congress twice a year. 
B) report that summarizes the economy across Fed districts. 
C) group within the Fed that makes monetary policy decisions. 
D) name of the meeting that the Fed has with Congress twice a year. 
E) interest rate the Fed most directly influences. 
A) report the Fed gives to Congress twice a year. 
B) report that summarizes the economy across Fed districts. 
C) group within the Fed that makes monetary policy decisions. 
D) name of the meeting that the Fed has with Congress twice a year. 
E) interest rate the Fed most directly influences.

Question 2

If federal taxes are cut by $10 billion,aggregate demand

Accepted Answer

A) increases by $10 billion. 
B) increases by $10 billion multiplied by the government expenditure multiplier. 
C) increases by $10 billion multiplied by the tax multiplier. 
D) decreases by $10 billion. 
E) decreases by $10 billion multiplied by the tax multiplier. 
A) increases by $10 billion. 
B) increases by $10 billion multiplied by the government expenditure multiplier. 
C) increases by $10 billion multiplied by the tax multiplier. 
D) decreases by $10 billion. 
E) decreases by $10 billion multiplied by the tax multiplier.

Question 3

Fiscal policies that move the economy toward potential GDP without a change in policy are called

Accepted Answer

A) routine stabilizers. 
B) automatic stabilizers. 
C) spending stabilizers. 
D) economic stabilizers. 
E) GDP stabilizers. 
A) routine stabilizers. 
B) automatic stabilizers. 
C) spending stabilizers. 
D) economic stabilizers. 
E) GDP stabilizers.

Question 4

An example of automatic fiscal policy is

Accepted Answer

A) Congress passing a tax rate reduction package. 
B) the federal government expanding spending at the Department of Education. 
C) expenditure for unemployment compensation increasing as economic growth slows. 
D) the Federal Reserve reducing interest rates as economic growth slows. 
E) a change in taxes that has no multiplier effect. 
A) Congress passing a tax rate reduction package. 
B) the federal government expanding spending at the Department of Education. 
C) expenditure for unemployment compensation increasing as economic growth slows. 
D) the Federal Reserve reducing interest rates as economic growth slows. 
E) a change in taxes that has no multiplier effect.

Question 5

Ignoring any supply-side effects,to close a recessionary gap of $100 billion with a government expenditure multiplier of 5,the government could

Accepted Answer

A) increase government expenditure on goods and services by $100 billion. 
B) increase government expenditure on goods and services by $20 billion. 
C) raise taxes by $100 billion. 
D) raise taxes by more than $20 billion. 
E) decrease government expenditure on goods and services by $20 billion. 
A) increase government expenditure on goods and services by $100 billion. 
B) increase government expenditure on goods and services by $20 billion. 
C) raise taxes by $100 billion. 
D) raise taxes by more than $20 billion. 
E) decrease government expenditure on goods and services by $20 billion.

Question 6

Define the balanced budget multiplier and explain how it works.In your answer,ignore any supply-side effects.

Accepted Answer

The balanced budget multiplier indicates

Question 7

-Using the data in the above table,if potential GDP for this economy is $25 billion,then in order to restore full employment,the federal funds rate can be

Accepted Answer

A) lowered so that government expenditure on goods and services increase. 
B) raised so that consumption expenditure,investment,and net exports increase. 
C) lowered so that consumption expenditure,investment,and net exports increase. 
D) raised so that net exports increase. 
E) lowered so that consumption expenditure and investment increase,though net exports decrease. 
A) lowered so that government expenditure on goods and services increase. 
B) raised so that consumption expenditure,investment,and net exports increase. 
C) lowered so that consumption expenditure,investment,and net exports increase. 
D) raised so that net exports increase. 
E) lowered so that consumption expenditure and investment increase,though net exports decrease.

Question 8

Since 2000,the U.S.government has generally had a government budget ________ and so the national debt has ________.

Accepted Answer

A) surplus;decreased 
B) surplus;increased 
C) deficit;decreased 
D) deficit;increased 
E) deficit;not changed 
A) surplus;decreased 
B) surplus;increased 
C) deficit;decreased 
D) deficit;increased 
E) deficit;not changed

Question 9

If the Federal Reserve lowers the Federal funds rate,

Accepted Answer

A) other short-term interest rates fall. 
B) net exports decreases. 
C) other short-term interest rates rise. 
D) the price level falls. 
E) Both answers A and C are correct. 
A) other short-term interest rates fall. 
B) net exports decreases. 
C) other short-term interest rates rise. 
D) the price level falls. 
E) Both answers A and C are correct.

Question 10

A $100 million decrease in government expenditure on goods and services leads to an even larger decrease in aggregate demand because of

Accepted Answer

A) induced changes in consumption expenditures. 
B) automatic fiscal policy. 
C) induced changes in aggregate supply. 
D) discretionary fiscal policy. 
E) the reinforcing effect of monetary policy. 
A) induced changes in consumption expenditures. 
B) automatic fiscal policy. 
C) induced changes in aggregate supply. 
D) discretionary fiscal policy. 
E) the reinforcing effect of monetary policy.

Question 11

Automatic stabilizers decrease the impact of a recession on the level of economic activity because they

Accepted Answer

A) reduce the interest rate and so allow firms to increase their level of investment. 
B) increase taxes so the budget is always balanced. 
C) raise the exchange rate so U.S.exports become more attractive to foreigners. 
D) mean disposable income does not change by as much as real GDP. 
E) increase the quantity of money in circulation. 
A) reduce the interest rate and so allow firms to increase their level of investment. 
B) increase taxes so the budget is always balanced. 
C) raise the exchange rate so U.S.exports become more attractive to foreigners. 
D) mean disposable income does not change by as much as real GDP. 
E) increase the quantity of money in circulation.

Question 12

The balanced budget multiplier is based on the point that the ________ multiplier is larger than the ________ multiplier so that an equal increase in government expenditure and taxes ________ aggregate demand.

Accepted Answer

A) tax;expenditure;does not change 
B) expenditure;tax;does not change 
C) expenditure;tax;decreases 
D) expenditure;tax;increases 
E) tax;expenditure;decreases 
A) tax;expenditure;does not change 
B) expenditure;tax;does not change 
C) expenditure;tax;decreases 
D) expenditure;tax;increases 
E) tax;expenditure;decreases

Question 13

There are four limitations to the effectiveness of discretionary fiscal policy.Which item below is NOT one of these limitations?

Accepted Answer

A) shrinking area of lawmaker discretion 
B) lawmaking time lag 
C) estimating potential GDP 
D) fiscal multiplier 
E) economic forecasting 
A) shrinking area of lawmaker discretion 
B) lawmaking time lag 
C) estimating potential GDP 
D) fiscal multiplier 
E) economic forecasting

Question 14

The national debt is

Accepted Answer

A) tax revenue minus government outlays. 
B) government outlays minus tax revenue. 
C) the amount borrowed by the government to finance past budget deficits. 
D) the amount lent by the government of past budget surpluses. 
E) the excess of this year's budget surplus minus this year's budget deficit. 
A) tax revenue minus government outlays. 
B) government outlays minus tax revenue. 
C) the amount borrowed by the government to finance past budget deficits. 
D) the amount lent by the government of past budget surpluses. 
E) the excess of this year's budget surplus minus this year's budget deficit.

Question 15

When there is a threat of inflation in the economy,the Fed can ________ the federal funds rate so as to ________ aggregate demand and ________ the price level.

Accepted Answer

A) lower;increase;decrease 
B) raise;decrease;increase 
C) lower;increase;increase 
D) raise;decrease;decrease 
E) raise;increase;decrease 
A) lower;increase;decrease 
B) raise;decrease;increase 
C) lower;increase;increase 
D) raise;decrease;decrease 
E) raise;increase;decrease

Question 16

Depending on the relative size of the federal government's expenditures and tax revenues,the federal government's budget can be in three possible conditions.What are the three possible conditions and what is the relationship of federal government expenditures and tax revenues for each?

Accepted Answer

The federal government's budget could ha

Question 17

Which of the following statements about the ripple effects of monetary policy is FALSE? Monetary policy can

Accepted Answer

A) raise the federal funds rate,thereby decreasing the quantity of money,raising the real interest rate,and decreasing investment. 
B) lower the federal funds rate,thereby increasing the supply of loanable funds,and lowering the exchange rate. 
C) lower the federal funds rate,thereby lowering the real interest rate and increasing aggregate demand. 
D) raise the federal funds rate and shift the aggregate demand curve leftward. 
E) raise the federal funds rate,thereby raising the real interest rate and increasing potential GDP. 
A) raise the federal funds rate,thereby decreasing the quantity of money,raising the real interest rate,and decreasing investment. 
B) lower the federal funds rate,thereby increasing the supply of loanable funds,and lowering the exchange rate. 
C) lower the federal funds rate,thereby lowering the real interest rate and increasing aggregate demand. 
D) raise the federal funds rate and shift the aggregate demand curve leftward. 
E) raise the federal funds rate,thereby raising the real interest rate and increasing potential GDP.

Question 18

In 2009,Congress passed tax laws to reduce income tax rates for some taxpayers.This action is called

Accepted Answer

A) a discretionary fiscal policy. 
B) a discretionary revenue policy. 
C) an automatic fiscal policy. 
D) an annual tax policy. 
E) induced tax policy. 
A) a discretionary fiscal policy. 
B) a discretionary revenue policy. 
C) an automatic fiscal policy. 
D) an annual tax policy. 
E) induced tax policy.

Question 19

An example of a fiscal stimulus is

Accepted Answer

A) increasing the quantity of money. 
B) lowering the interest rate. 
C) decreasing government expenditure. 
D) decreasing needs-tested spending. 
E) cutting taxes. 
A) increasing the quantity of money. 
B) lowering the interest rate. 
C) decreasing government expenditure. 
D) decreasing needs-tested spending. 
E) cutting taxes.

Question 20

If the government increases expenditure by $40 billion and increases tax revenue by $40 billion,what is the impact on aggregate demand? Explain your answer.

Accepted Answer

Aggregate demand increases.The governmen

The FOMC is the

If federal taxes are cut by $10 billion,aggregate demand

Fiscal policies that move the economy toward potential GDP without a change in policy are called

An example of automatic fiscal policy is

Ignoring any supply-side effects,to close a recessionary gap of $100 billion with a government expenditure multiplier of 5,the government could

Define the balanced budget multiplier and explain how it works.In your answer,ignore any supply-side effects.

-Using the data in the above table,if potential GDP for this economy is $25 billion,then in order to restore full employment,the federal funds rate can be

Since 2000,the U.S.government has generally had a government budget and so the national debt has .

If the Federal Reserve lowers the Federal funds rate,

A $100 million decrease in government expenditure on goods and services leads to an even larger decrease in aggregate demand because of

Automatic stabilizers decrease the impact of a recession on the level of economic activity because they

The balanced budget multiplier is based on the point that the multiplier is larger than the multiplier so that an equal increase in government expenditure and taxes aggregate demand.

There are four limitations to the effectiveness of discretionary fiscal policy.Which item below is NOT one of these limitations?

The national debt is

When there is a threat of inflation in the economy,the Fed can the federal funds rate so as to aggregate demand and the price level.

Depending on the relative size of the federal government's expenditures and tax revenues,the federal government's budget can be in three possible conditions.What are the three possible conditions and what is the relationship of federal government expenditures and tax revenues for each?

Which of the following statements about the ripple effects of monetary policy is FALSE? Monetary policy can

In 2009,Congress passed tax laws to reduce income tax rates for some taxpayers.This action is called

An example of a fiscal stimulus is

If the government increases expenditure by $40 billion and increases tax revenue by $40 billion,what is the impact on aggregate demand? Explain your answer.

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Global Markets in Action

Externalities: Pollution, education, and Health Care

Production and Cost

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and Economic Growth

Money and the Monetary System

Aggregate Supply and Aggregate Demand

Filters

Exam 20: Fiscal Policy and Monetary Policy

The FOMC is the

If federal taxes are cut by $10 billion,aggregate demand

Fiscal policies that move the economy toward potential GDP without a change in policy are called

An example of automatic fiscal policy is

Ignoring any supply-side effects,to close a recessionary gap of $100 billion with a government expenditure multiplier of 5,the government could

Define the balanced budget multiplier and explain how it works.In your answer,ignore any supply-side effects.

-Using the data in the above table,if potential GDP for this economy is $25 billion,then in order to restore full employment,the federal funds rate can be

Since 2000,the U.S.government has generally had a government budget ________ and so the national debt has ________.

If the Federal Reserve lowers the Federal funds rate,

A $100 million decrease in government expenditure on goods and services leads to an even larger decrease in aggregate demand because of

Automatic stabilizers decrease the impact of a recession on the level of economic activity because they

The balanced budget multiplier is based on the point that the ________ multiplier is larger than the ________ multiplier so that an equal increase in government expenditure and taxes ________ aggregate demand.

There are four limitations to the effectiveness of discretionary fiscal policy.Which item below is NOT one of these limitations?

The national debt is

When there is a threat of inflation in the economy,the Fed can ________ the federal funds rate so as to ________ aggregate demand and ________ the price level.

Depending on the relative size of the federal government's expenditures and tax revenues,the federal government's budget can be in three possible conditions.What are the three possible conditions and what is the relationship of federal government expenditures and tax revenues for each?

Which of the following statements about the ripple effects of monetary policy is FALSE? Monetary policy can

In 2009,Congress passed tax laws to reduce income tax rates for some taxpayers.This action is called

An example of a fiscal stimulus is

If the government increases expenditure by $40 billion and increases tax revenue by $40 billion,what is the impact on aggregate demand? Explain your answer.

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Global Markets in Action

Externalities: Pollution, education, and Health Care

Production and Cost

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and Economic Growth

Money and the Monetary System

Aggregate Supply and Aggregate Demand

Filters

Since 2000,the U.S.government has generally had a government budget and so the national debt has .

The balanced budget multiplier is based on the point that the multiplier is larger than the multiplier so that an equal increase in government expenditure and taxes aggregate demand.

When there is a threat of inflation in the economy,the Fed can the federal funds rate so as to aggregate demand and the price level.