38. A decrease in government spending is an example of:

a. contractionary fiscal policy.

b. expansionary fiscal policy.

c. easy monetary policy.

d. tight monetary policy.

39. In the output market, the impact of a decrease in government spending is:

a. short-run AD curve shifts to the right, resulting in higher price and higher output.

b. short-run AD curve shifts to the left, resulting in lower price and lower output.

c. short-run AS curve shifts to the right, resulting in higher price and lower output.

d. short-run AS curve shifts to the left, resulting in lower price and higher output.

40. In the money market, a decrease in government spending will cause interest rate to

a. increase.

b. decrease.

c. stay unchanged.

d. None of the above.

41. The multiplier effect refers to the fact that each dollar spent by the government can raise aggregate demand for goods and services by:

a. less than a dollar.

b. a dollar exactly.

c. more than a dollar.

d. none of the above.Government spending and aggregate demand are not related.

42. Given a marginal propensity to consume (MPC) of 95% (0.95), and an increase in government spending of $5 billion, the spending multiplier and the maximum increase in aggregate demand for goods and services are (Spending multiplier = 1/(1 - MPC)):

a. Multiplier =1.Maximum increase in aggregate demand = $5 billion.

b. Multiplier =5.Maximum increase in aggregate demand = $25 billion.

c. Multiplier = 10.Maximum increase in aggregate demand = $50 billion.

d. Multiplier = 20.Maximum increase in aggregate demand = $100 billion.

43. The crowding-out effect of an increase in government spending refers to:

a. there are too many bureaucrats, too crowded.

b. there are too many beneficiaries, therefore the per capita impact is small.

c. the offset in aggregate demand that results when the increase in government spending raises the interest rate and thereby reduces investment spending.

d. the drop in export as a result of increased government spending.

44. Automatic stabilizer (also called non-discretionary fiscal policy or built-in stability) means that:

a.a federal balanced budget will offset the procyclical tendencies created by state and local finance.

b. under our current tax and spending system, tax revenue automatically goes down and government spending automatically goes up in recession, helping to stimulate aggregate demand.As the economy improves, the opposite happens - tax revenue automatically goes up and government spending automatically goes down.

c. Congress will automatically change tax rates and expenditure programs in response to business cycles.

d. government expenditures and tax receipts automatically balance over the business cycle.

45.The sharp oil price increases in the U.S. in the 1970's caused:

a. the AD curve to shift to the right, resulting in economic boom.

b. the AD curve to shift to the left, resulting in decrease in both price level and output.

c. the short-run AS curve to shift to the right, resulting in lower price level and higher output.

d. the short-run AS curve to shift to the left, resulting in higher price level and unemployment (stagflation).

46.Graphically, demand-pull inflation is shown as a:

a.rightward shift of the short-runAS curve .

b.leftward shift of the short-run AS curve.

c.rightward shift of the AD curve.

d.leftward shift of the AD curve.