66) An important reason the Federal Reserve would not want to keep interest rates at 0% forever is that doing so would:

a) raise the possibility of higher unemployment because lower interest rates slow economic growth.

b) restrict the money supply, making it harder for banks to lend money.

c) limit the ability of the Fed to use expansionary monetary policy when the next recession occurs.

d) make borrowing for homes and major purchases more expensive.

67) The Taylor rule for federal funds targeting places:

a) more weight on the inflation gap than the output gap.

b) equal weight on the inflation and output gaps.

c) more weight on the output gap than the inflation gap.

d) no weight on the inflation gap.

68) When government spending results in higher interest rates due to rising debt, what happens to consumption and investment according to a monetarist economist?

a) Consumption and investment decrease due to the liquidity trap.

b) Consumption and investment increase due to the crowding out effect.

c) Consumption and investment increase due to the liquidity trap.

d) Consumption and investment decrease due to the crowding out effect.

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

a) True

b) False

70) Mandatory spending, as opposed to discretionary spending, must work its way through Congress each year.

a) True

b) False

71) Which statement regarding discretionary and mandatory spending is correct?

a) Discretionary spending is authorized by permanent laws.

b) Mandatory spending programs include national defense, income security, and education.

c) Discretionary spending has steadily grown as a percentage of the federal budget since the 1960s.

d) Mandatory spending may act as an automatic stabilizing force in the macro economy.

72) If the ultimate goal of fiscal policy aimed at aggregate supply is achieved, what happens to the aggregate price level and aggregate output?

b) aggregate price level decreases; aggregate output decreases

c) aggregate price level increases; aggregate output increases

d) aggregate price level increases; aggregate output decreases

aggregate price level decreases; aggregate output increases

73) _____ are securities issued by the government with terms to maturity ranging from 1 to 10 years.

a) U.S. savings bonds

b) Treasury bonds

c) Treasury notes

d) Treasury bills

74) _____ are securities with a maturity period of a year or less that sell at a discount.

a) U.S. savings bonds

b) Treasury bills

c) Treasury bonds

d) Treasury notes

75) The solution to the simultaneous presence of inflation and unemployment is to implement policies that shift the:

a) short-run aggregate supply curve to the left.

b) short-run aggregate supply curve to the right.

c) aggregate demand curve to the left.

d) aggregate demand curve to the right.

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

a) True

b) False

77) Which statement is TRUE regarding the possible effects of a tax change?

a) Higher tax rates on business profits encourage firms to boost production.

b) Higher taxes on household income have no effect on the amount of labor households wish to supply.

c) Higher marginal tax rates tend to depress economic activity.

d) Lower taxes on household income reduce aggregate supply.

78) Which statement does NOT refer to a potential problem associated with cyclically balancing the federal budget?

a) Politicians find it difficult to cut spending or raise taxes.

b) Different phases of the business cycle are not of equal length or severity.

c) Forecasting the turning point of the economy is very difficult.

d) Most economists agree that the federal budget should be balanced annually to avoid adding to the deficit.

79) Which statement(s) is/are TRUE?

I. The first priority for economists who favor a functional finance approach to the federal budget is to determine whether the budget is in surplus or deficit.

II. Slowly growing and fully employed economies do not have important public debt or deficit issues.

III. The government's primary job, according to those who favor functional finance, is to provide the public goods and services citizens want.

a) I only

b) III only

c) I and II only

d) II and III only

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

a) True

b) False