An increase in aggregate demand is most likely caused by which of the following government decisions with respect to its levels of spending and taxation?

a.

A decrease in government purchases and a decrease in taxation

b.

A decrease in government purchases and an increase in taxation

c.

An increase in government purchases and a decrease in taxation

d.

An increase in government purchases and an increase in taxation

Question47

Which of the following accurately identifies the implementation lag in policy making?

a.

It takes some time for the fixed costs of production to all become variable costs

b.

It takes some time for policy makers to realize that a recessionary or an inflationary gap exists

c.

Some time elapses before a fiscal policy is agreed to and put into effect by its stakeholders

d.

Some time goes by before economic policy has its full effect on aggregate demand and the equilibrium real GDP and price level

Question48

Crowding out is a concept that suggests a direct linkage exists between which of the following?

a.

Borrowing by consumers and inflation rates

b.

Borrowing by firms and foreign exchange rates

c.

Borrowing by the government and interest rates

d.

Lending by auto dealers and road construction completion rates

Question 49

According to the logic behind the Phillips curve, a positive relationship exists between which two of the variables?

a.

Inflation and unemployment

b.

Interest rate and investment

c.

Unemployment and employment

d.

Money demand and the interest rate

Question50

Consider the following graph illustrating the three phases in the relationship between unemployment and inflation. Which of the following statements is correct?

a.

The curve between points 1 and 2 illustrates the recovery phase during which both unemployment and inflation recover to healthier levels

b.

The curve between points 3 and 2 illustrates a recession phase during which both unemployment and inflation rise

c.

The curve between points 3 and 4 illustrates the stagflation phase in which higher employment is achieved at the cost of higher inflation

d.

The curve between points 4 and 5 illustrates the Phillips phase is which there is a tradeoff between unemployment and inflation

Question 51

Consider the equation of exchange, MV = PY, and let velocity, V, be a constant with a value of 1.5. Suppose that the economy is currently experiencing an inflationary gap. A given decrease in the money supply, M, will cause which of the following?

a.

A decrease in both P and Y

b.

Inflation only (increase in P)

c.

Reduction in Y with an unchanged P

d.

Economic boom only (increase in Y)

Question52

Suppose that initially, an economy is operating at its long-run equilibrium real GDP. Which of the following is the outcome in the short-run and in the long-run from an increase in aggregate demand caused by a reduction in taxation?

a.

An inflationary gap occurs in the short-run but the economy returns to potential GDP in the long-run as labor costs rise

b.

An inflationary gap occurs in the short-run but the economy returns to potential GDP in the long-run as labor costs fall

c.

A recessionary gap occurs in the short-run but the economy returns to potential GDP in the long-run as labor costs rise

d.

A recessionary gap occurs in the short-run but the economy returns to potential GDP in the long-run as labor costs fall

Question53

Which of the following is true about fiscal and monetary policy design and implementation?

a.

Both fiscal and monetary policy are the responsibility of the U.S. Congress

b.

Fiscal policy is the responsibility of the U.S. government, whereas monetary policy is the responsibility of the Federal Reserve

c.

Fiscal policy is the responsibility of the Federal Reserve, whereas monetary policy is enacted by the Department of the Treasury

d.

Fiscal policy is implemented by the Federal Deposit Insurance Corporation, whereas monetary policy is implemented by the U.S. government

Question54

Which of the following best contrasts Keynesian and Classical philosophies on equilibrium and employment?

a.

Keynesian economists believe government needs to avoid managing the economy, whereas the Classical economists believe government needs to actively manage the economy

b.

Keynesian economists assert the government is unable to affect employment and equilibrium, whereas Classical economists assert government is able to affect employment and equilibrium

c.

According to Keynesian economists, equilibrium occurs under a situation of partial unemployment, whereas according to Classical economists, equilibrium occurs under a situation of full employment

d.

According to Keynesian economists, equilibrium occurs under a situation of full employment, whereas according to Classical economists, partial equilibrium occurs under a situation of full employment

Question55

Which of the following is among the arguments in support of free trade?

a.

It increases employment in all industries

b.

It makes larger global production possible

c.

It allows all producers to charge higher prices

d.

It allows the use of trade restrictions against foreign competitors