1.Which U.S. president implemented well-known tax cuts designed to stimulate aggregate demand?

a.

Jimmy Carter

b.

Ronald Reagan

c.

George H. W. Bush

d.

Bill Clinton

10 points

QUESTION 2

1.____ inflation occurs when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises.

a.

Cost-Push

b.

Unnecessary

c.

Overextended

d.

Demand-pull

10 points

QUESTION 3

1.Most of the tax revenue of the U.S. government comes from sales taxes.

True

False

10 points

QUESTION 4

1.The aggregate demand curve slopes _____ and has _____ on the vertical axis.

a.

downward; output

b.

downward; the price level

c.

upward; output

d.

upward; the price level

10 points

QUESTION 5

1.Transfer payments are

a.

monies paid directly to individuals by the government.

b.

not part of the government budget.

c.

a vital part of discretionary fiscal policy.

d.

payments made to government officials who transfer them back to private companies.

10 points

QUESTION 6

1.In the aggregate demand/aggregate supply model, the vertical axis is labeled

a.

Aggregate price level.

b.

Consumption.

c.

GDP.

d.

consumption plus investment plus government spending.

10 points

QUESTION 7

1.The graph below depicts an economy in short-run equilibrium at pointa.For an economy in this situation, contractionary fiscal policies could

a.

move the economy to full employment.

b.

move the economy away from full employment.

c.

lead to a higher price level.

d.

lead to a higher price level and lower employment.

10 points

QUESTION 8

1.What would cause the price level to decrease and employment to increase?

a.

a shift to the left of the aggregate demand curve

b.

a shift to the right of the aggregate demand curve

c.

a shift to the left of the short-run aggregate supply curve

d.

a shift to the right of the short-run aggregate supply curve

10 points

QUESTION 9

1.Cost-push inflation occurs when aggregate supply shifts to the right, causing the price level to increase along with rising unemployment.

True

False

10 points

QUESTION 10

1.In what year did the United States have a federal budget surplus?

a.

2000

b.

2004

c.

2006

d.

2010

10 points

QUESTION 11

1.Suppose the economy is at full employment and a booming stock market encourages consumption spending to rise dramatically. What would be the MOST likely long-run impact?

a.

The price level would fall, and real GDP would rise.

b.

Real GDP first rises and then falls back to long-run equilibrium.

c.

The price level would not change, but a recession would occur.

d.

The price level will fall, and real GDP would fall.

10 points

QUESTION 12

1.Automatic stabilizers are MOST associated with the _____ balanced budget.

a.

cyclically

b.

annually

c.

continually

d.

functionally

10 points

QUESTION 13

1.When the economy is overheating and policymakers pursue contractionary fiscal policy, they express a willingness to trade off _____ output for a _____ price level.

a.

higher; higher

b.

higher; lower

c.

lower; higher

d.

lower; lower

10 points

QUESTION 14

1.Supply-side fiscal policies have the disadvantage of setting up a tradeoff between low inflation and low unemployment rates.

True

False

10 points

QUESTION 15

1.Suppose the government increases aggregate demand to a level that increases GDP above its long-run equilibrium level. What sequence of events would follow?

a.

prices rise; GDP increases; workers demand higher wages; short-run aggregate supply shifts to the left; GDP drops

b.

prices fall; workers receive lower wages; short-run aggregate supply shifts to the right; GDP rises

c.

prices rise; GDP increases; workers demand higher wages; long-run aggregate supply shifts to the left; GDP falls

d.

prices fall; workers receive lower wages; aggregate supply shifts to the right; GDP rises

10 points

QUESTION 16

1.If the marginal propensity to consume is 0.9, what is the size of the multiplier?

a.

0.1

b.

1

c.

9

d.

10

10 points

QUESTION 17

1.In Keynesian macroeconomic equilibrium, there are pressures on the economy to move to a different income level.

True

False

10 points

QUESTION 18

1.Economic growth is shown as a _____ aggregate supply curve.

a.

shift to the left of the long-run

b.

movement up along the short-run

c.

shift to the right of the long-run

d.

shift to the left of the short-run

10 points

QUESTION 19

1.The graph depicts an economy originally in equilibrium at pointe. Assume that the government uses expansionary fiscal policy. Which statement is TRUE?

a.

The movement from pointato pointbis due to increased consumer spending brought about by increased government spending and/or lower taxes.

b.

The movement from pointeto pointais due to workers and suppliers adjusting their expectations to lower price levels.

c.

The movement from pointato pointbis due to workers and suppliers adjusting their expectations to higher price levels.

d.

The movement from pointeto pointais due to decreased consumer spending brought about by increased government spending and/or lower taxes.

10 points

QUESTION 20

1.The spending reduction necessary to bring an overheated economy back to full employment is called the

a.

recessionary gap.

b.

GDP gap.

c.

inflationary gap.

d.

gap analysis

10 points

QUESTION 21

1.When the economy is growing steadily, rising tax revenues and declining transfer payments have a contractionary effect on the economy.

True

False

10 points

QUESTION 22

1.The government can finance a budget deficit by

a.

buying bonds from the Federal Reserve.

b.

buying bonds from the public.

c.

selling assets.

d.

buying assets.

10 points

QUESTION 23

1.Assume that the economy includes only consumers and businesses, and is in equilibrium with income equal to $6 million and consumption spending equal to $5 million. Which statement is correct?

a.

Investment is $1 million.

b.

There is no saving in this economy.

c.

The economy will go into disequilibrium because consumption is not equal to income.

d.

The marginal propensity to consume is 0.83.

10 points

QUESTION 24

1.In the Keynesian model, the price level is _____; in the aggregate demand and supply model, the price level is _____.

a.

fixed; fixed

b.

fixed; flexible

c.

flexible; fixed

d.

flexible; flexible

10 points

QUESTION 25

1._____ will automatically expand or contract in ways that help counter movements of the business cycle.

a.

Autonomous spending

b.

Automatic stabilizers

c.

Discretionary spending

d.

Business investment

10 points

QUESTION 26

1.If income rises from $10,000 to $20,000 and savings increases from $9,000 to $16,000, then the marginal propensity to save is

a.

0.10.

b.

.30.

c.

0.70.

d.

0.80.

10 points

QUESTION 27

1.The Federal Reserve can purchase _____ to fund fiscal policy, resulting in _____.

a.

bonds; a decrease in the money supply

b.

bonds; an increase in the money supply

c.

money; a decrease in the bond supply

d.

money; an increase in the bond supply

10 points

QUESTION 28

1.The long-run aggregate supply curve uses the classical assumptions that all variables are _____ in the long run and that long-run equilibrium occurs at _____ employment.

a.

flexible; full

b.

flexible; less than full

c.

fixed; less than full

d.

fixed; full

10 points

QUESTION 29

1.In the short run, the aggregate supply curve is

a.

horizontal.

b.

negatively sloped.

c.

positively sloped.

d.

vertical.

10 points

QUESTION 30

1.Interest paid on externally held debt does not pose a burden on our economy.

True

False

10 points

QUESTION 31

1.Lowering marginal tax rates and increasing government transfer payments are policies commonly used to increase aggregate supply.

True

False

10 points

QUESTION 32

1.Equilibrium in the Keynesian model requires that withdrawals be the same as

a.

deposits.

b.

debits.

c.

credits.

d.

injections.

10 points

QUESTION 33

1.An increase in taxes

a.

removes money from the economy's spending stream.

b.

stimulates aggregate demand.

c.

is the right policy proposition for fighting a recession.

d.

always helps balance the budget.

10 points

QUESTION 34

1.The Laffer curve demonstrates that

a.

above some point on the tax rate scale, lowering tax rates increases tax revenues.

b.

if tax rates are 100%, there will be large tax revenues.

c.

policymakers can always increase tax revenues by raising tax rates.

d.

policymakers will always reduce tax revenues by raising tax rates.

10 points

QUESTION 35

1.In the simple Keynesian model, if people earn $4 billion and spend $3.5 billion on consumption goods, then savings is $0.5 billion.

True

False

10 points

QUESTION 36

1.The lags associated with spending changes are shorter than the lags associated with tax changes.

True

False

10 points

QUESTION 37

1.Personal consumption expenditures

a.

constitute 30% of GDP.

b.

can be found by subtracting saving from disposable income.

c.

primarily depend on interest rates.

d.

are very unstable as a percentage of GDP over time.

10 points

QUESTION 38

1.Automatic stabilizers include all of these EXCEPT

a.

tax revenues.

b.

transfer payments.

c.

research and development funding.

d.

unemployment insurance.

10 points

QUESTION 39

1.Which event will NOT cause the aggregate demand curve to shift?

a.

Businesses are optimistic about the economy, investing heavily in new equipment.

b.

Consumers' wealth declines because of a drop in the stock market.

c.

A rise in the aggregate price level causes a decline in exports.

d.

The government increases spending on national security in the wake of terrorist attacks.

10 points

QUESTION 40

1.Of the U.S. national debt that is held by the public, _____ hold about ____.

a.

foreigners; 74%

b.

foreigners; 30%

c.

Americans; 30%

d.

foreigners; 40%

10 points

QUESTION 41

1.Suppose the economy is at full employment, and energy prices spike. In the short run, output will _____; in the long run, output will _____.

a.

decrease; remain unchanged

b.

decrease; increase

c.

remain unchanged; decrease

d.

remain unchanged; increase

10 points

QUESTION 42

1.Which event causes an increase in aggregate demand?

a.

decreasing wealth

b.

falling interest rates

c.

decreasing government spending

d.

rising imports

10 points

QUESTION 43

1.A tax decrease will have less of a direct impact on income, employment, and output than will an equivalent increase in government spending.

True

False

10 points

QUESTION 44

1.The market does not necessarily clear in long-run macroeconomic equilibrium.

True

False

10 points

QUESTION 45

1.The balanced budget multiplier does not depend on the marginal propensity to consume.

True

False

10 points

QUESTION 46

1.Which economist promoted public choice theory?

a.

Robert Solow

b.

Adam Smith

c.

James Buchanan

d.

Arthur Laffer

10 points

QUESTION 47

1.The rate of return on investment is the main determinant of investment spending.

True

False

10 points

QUESTION 48

1.Anne and Charlie are discussing the best possible fiscal policy to bring the country out of a recession. Charlie wants to see government reduce taxes by $100 billion. Anne prefers to see government spending increase by $100 billion. Whose proposition would have the larger total impact on aggregate demand?

a.

Anne's, because the government has more information available to it than do households and firms

b.

Anne's, because all of the additional government spending will enter the spending stream, while part of a tax cut would be saved and not spent

c.

Charlie's, because households and firms have a higher marginal propensity to consume than the government

d.

Charlie's, because firms and households are better spenders than the government, whose spending decisions are bogged down in political debating

10 points

QUESTION 49

1.If aggregate expenditures are less than current output

a.

businesses will cut back on output.

b.

businesses will produce more.

c.

employment will rise.

d.

inflation results.

10 points

QUESTION 50

1.Tax decreases do not inject money into the economy.

True

False

10 points

QUESTION 51

1.Aggregate supply increases when

a.

input prices rise.

b.

subsidies are reduced.

c.

there is a decrease in firms' market power.

d.

business expectations are pessimistic.

10 points

QUESTION 52

1.The actual rate of unemployment can never fall below the natural rate of unemployment.

True

False

10 points

QUESTION 53

1.

Equilibrium output is _____ units, and the equilibrium price level is _____.

a.

100; $3,000

b.

2,000; $130

c.

3,000; $100

d.

5,000; $160

10 points

QUESTION 54

1.Which is NOT consistent with the level of output in the long run?

a.

the natural rate of output

b.

full capacity output level

c.

high inflation

d.

the natural rate of unemployment

10 points

QUESTION 55

1.Disposable income equalsG+T.

True

False

10 points

QUESTION 56

1.If the government spends $1 billion to create a wetlands preserve, taxes increase $1 billion to pay for it, and the marginal propensity to consume is 0.75, GDP

a.

decreases by $1 billion.

b.

increases by $1 billion.

c.

increases by $4 billion.

d.

remains unchanged.

10 points

QUESTION 57

1.If aggregate expenditures equal $6,200 and aggregate income equals $5,800, businesses will produce

a.

more, raising both employment and income.

b.

less, lowering both employment and income.

c.

more, raising employment and lowering income.

d.

less, lowering employment and raising income.

10 points

QUESTION 58

1.The nearly $800 billion stimulus package passed in the United States in 2009 focused more on spending than on taxes partly because

a.

increased spending leads to a larger increase in GDP than does the same reduction in taxes.

b.

increased spending leads to a smaller increase in GDP than does the same reduction in taxes.

c.

the government tax multiplier is more than the government spending multiplier.

d.

the government revenue multiplier is about the same as the government tax multiplier.

10 points

QUESTION 59

1.Which statement is correct?

a.

Keynesian economics is unrelated to the events of the Great Depression.

b.

Classical economics approaches the economy as three separate but interrelated sectors, while Keynesian economics looks at the economy as a whole.

c.

Keynesian economics was developed by the Scholastic School at Salamanca in the late medieval period.

d.

The classical school of economics was developed during the classical age of Greece.

10 points

QUESTION 60

1.If income increases across Europe, what will happen to the aggregate demand curve for the United States?

a.

The aggregate demand curve will shift to the right.

b.

The aggregate demand curve will shift to the left.

c.

The aggregate demand curve will shift to the left in the short run and then to the right in the long run.

d.

The aggregate demand curve will not change.