Question 1

1. All of the following fiscal policies will contribute to increasing budget deficits except:Answer

   a.	tax cuts.
   b.	increases in defense expenditures.
   c.	increases in Social Security payments to the elderly and disabled.
   d.	cuts in aid to farmers.

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Question 2

1. In the long-run framework, budget surpluses:Answer

   a.	should be run whenever output dips below potential output.
   b.	should never be run since they crowd out investment in the short run.
   c.	are better than budget deficits over the long run because unlike budget deficits, they increase saving and investment.
   d.	should be run on a permanent basis since they boost saving and investment and stimulate economic growth.

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Question 3

1. A budget deficit is defined as:Answer

   a.	a shortfall of revenues compared to expenditures.
   b.	a shortfall of expenditures compared to revenue.
   c.	accumulated deficits minus accumulated surpluses.
   d.	accumulated surpluses minus accumulated deficits.

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Question 4

1. Deficits may be desirable in the short run if they: Answer

   a.	help to stabilize the economy when the economy falls below potential output.
   b.	increase savings necessary for future investment and growth.
   c.	increase savings necessary for future consumption and demand.
   d.	help to stabilize the economy when the economy is above potential output.

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Question 5

1. A cyclical deficit is the portion of the deficit that exists when: Answer

   a.	the economy is at potential income.
   b.	the economy is beneath potential income.
   c.	inflation is not fully anticipated.
   d.	inflation is fully anticipated.

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Question 6

1. The structural deficit:Answer

   a.	rises as the economy expands and falls when it contracts.
   b.	falls as the economy expands and rises when it contracts.
   c.	changes as actual income changes regardless of potential income.
   d.	does not change when income changes, but changes only when potential income changes.

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Question 7

1. If income falls below its potential and the income tax rate is reduced, this will: Answer

   a.	raise both the cyclical and structural deficits.
   b.	raise the cyclical deficit but reduce the structural deficit.
   c.	reduce the cyclical deficit but raise the structural deficit.
   d.	reduce both the cyclical and structural deficits.

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Question 8

1. Economists generally are: Answer

   a.	more concerned about structural deficits than cyclical deficits.
   b.	equally concerned about structural and cyclical deficits.
   c.	more concerned about cyclical deficits than structural deficits.
   d.	not concerned about structural or cyclical deficits.

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Question 9

1. The concept of fiscal policy refers to the: Answer

   a.	running of a deficit or surplus to affect the level of output in the economy.
   b.	changing of interest rates to affect the level of output in the economy.
   c.	management of exchange rates to affect the trade deficit in the economy.
   d.	setting of wage policies by institutions to affect spending in the economy.

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Question 10

1. Using fiscal policy to stabilize the economy is difficult because: Answer

   a.	potential income is known.
   b.	the effects of policy changes is known with certainty.
   c.	there are time lags involved in the use of fiscal policy.
   d.	the size of the government debt doesn't matter.

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Question 11

1. When interest rates go up, it is: Answer

   a.	more expensive for businesses to borrow, so investment falls.
   b.	more expensive for businesses to borrow, so investment increases.
   c.	cheaper for businesses to borrow, so investment falls.
   d.	cheaper for businesses to borrow, so investment increases.

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Question 12

1. Which of the following is an automatic stabilizer? Answer

   a.	Military expenditures
   b.	Social Security benefits
   c.	Unemployment compensation
   d.	Property taxes

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Question 13

1. In terms of fiscal policy, which of the following is an example of a fiscal automatic stabilizer?Answer

   a.	The reduction in the money supply that occurs as banks become less willing to make loans during a recession
   b.	The reduction in wages that occurs as the economy goes into a recession
   c.	The increase in government spending that occurs as the result of new spending bills passed by Congress
   d.	The rise in tax revenue that occurs as a result of growth in real GDP

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Question 14

1. The unemployment rate is the number of people: Answer

   a.	without a job divided by the population.
   b.	without a job and looking divided by the population.
   c.	without a job divided by the labor force
   d.	without a job and looking for work divided by the labor force.

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Question 15

1. The number of people over age 16 in an economy willing and able to work, is known as the: Answer

   a.	labor force participation rate.
   b.	unemployment rate.
   c.	labor force.
   d.	employment force.

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Question 16

1. Underemployment includes people: Answer

   a.	who work "off-the-books" to avoid tax liabilities.
   b.	who are working part time, or not using all their skills, at a full-time job.
   c.	who are tired of looking for a job, so they quit looking, but still want one.
   d.	whose skills are not in demand anymore.

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Question 17

1. People who work part-time, or have a full-time job that doesn't use all their skills, are included in: Answer

   a.	the underemployed.
   b.	discouraged workers.
   c.	phantom employment.
   d.	cyclical unemployment.

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Question 18

1. The target rate of unemployment is defined as the: Answer

   a.	highest sustainable rate of unemployment achievable under existing conditions.
   b.	lowest sustainable rate of unemployment achievable under existing conditions.
   c.	unemployment rate at which there is no cyclical or structural unemployment.
   d.	the rate of unemployment that will eliminate the business cycle.

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Question 19

1. Structural unemployment: Answer

   a.	includes cyclical unemployment.
   b.	is generally greater than cyclical unemployment.
   c.	is generally less than cyclical unemployment.
   d.	cannot be reduced with demand side policies.

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Question 20

1. Unemployment caused by recession is called: Answer

   a.	frictional unemployment.
   b.	cyclical unemployment.
   c.	natural unemployment.
   d.	structural unemployment.

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Question 21

1. Asset inflation is when: Answer

   a.	asset prices rise regardless of their real value.
   b.	the money supply rises leads to inflation.
   c.	asset prices rise more than their real value.
   d.	expansionary fiscal policy leads to inflation.

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Question 22

1. What is the difference between inflation and deflation? Answer

   a.	Inflation is a rise in the general price level over time while deflation is a fall in the general price level over time.
   b.	Inflation is a continuous rise in the price level while deflation is a one-time rise in prices.
   c.	Deflation is a continuous rise in the price level while inflation is a one-time rise in prices.
   d.	Inflation happens when all prices are rising, while deflation happens when only some prices are rising.

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Question 23

1. If 2013 is the base year, what is the price index in 2014?Answer

   a.	75
   b.	100.
   c.	125.
   d.	150.

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Question 24

1. Inflation:Answer

   a.	can obscure relative price changes.
   b.	redistributes income.
   c.	can undermine faith in the monetary system, the economy, and the government if it is high enough.
   d.	makes society poorer on average.

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Question 25

1. A situation in which the price level increases at an extremely high rate is called: Answer

   a.	hyperinflation.
   b.	disinflation
   c.	inflation
   d.	stagflation

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Question 26

1. A measurement problem associated with the CPI is: Answer

   a.	economists base the estimates on a sample of consumers.
   b.	it includes nonmarket activities that have lower inflation.
   c.	that a base year approach is inherently problematic.
   d.	that it is based on a fixed basket of goods.

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Question 27

1. The equation of exchange is expressed as: Answer

   a.	MR = PQ.
   b.	MV = PQ.
   c.	MPP = P.
   d.	MR = MC.

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Question 28

1. As a percentage of total imports, how have U.S. imports from China and India changed in the last 15 years? Answer

   a.	They have remained roughly the same.
   b.	They have risen.
   c.	They have fallen.
   d.	They rose initially and then dropped back to the original level.

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Question 29

1. Duties imposed by the U.S. government on imported Chinese frozen and canned shrimp are an example of: Answer

   a.	tariffs
   b.	quotas
   c.	voluntary restrictions.
   d.	regulatory trade restrictions.

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Question 30

1. An import quota does which of the following? Answer

   a.	Decreases the price of the imported good for the consumer
   b.	Increases the price of the domestic good for the consumer
   c.	Redistributes income from domestic producers to domestic consumers
   d.	Decreases the price received by foreign producers