ECON 2030 Final

Because the revenue from personal income taxes increases as disposable incomeincreases: A. the multiplier effect decreases. B. the marginal propensity to consume decreases as income increases. C. the multiplier effect increases. D. the marginal propensity to save increases as income decreases.

A

Changes in aggregate demand can be caused by changes in: A. the stock of physical capital. B. business costs. C. raw materials costs. D. the expenses of complying with government regulations.

A

If policy makers want to increase real GDP by $100 billion and the marginal propen-sity to consume is 0.75, they________ should taxes by ___________. A. decrease; more than $25 billion B. decrease; less than $25 billion C. increase; more than $25 billion D. increase; less than $25 billion

A

In general, a change in the price level, all other things unchanged, causes: A. a movement along the aggregate demand curve. B. a shift of the aggregate demand curve. C. both a movement along the aggregate demand curve and a shift in the curve. D. no change in the purchasing power of assets.

A

In the long run, the aggregate price level falls. This could result from: A. a leftward shift in AD. B. a rightward shift in AD. C. a leftward shift in short-run AS. D. more spending by consumers.

A

Public debt is: A. the total debt owed by the government to individuals and institutions outside of government. B. the total amount that the government owes during a given fiscal year. C. likely to increase when the government uses contractionary fiscal policy. D. the amount that the government owes itself.

A

Suppose the marginal propensity to consume is 0.8. If the government cut taxes by $100 billion, then real GDP would increase by $500 billion. A. True B. False

A

The point at which the long-run aggregate supply curve touches the x-axis is known as: A. potential output. B. the accelerator point. C. the multiplier point. D. the self-correcting economy point.

A

Automatic stabilizers are government spending and taxation rules that cause fiscal policy to be automatically contractionary when the economy contracts and automatically expansionary when the economy expands. A. True B. False

B

Budget deficits almost always: A. decrease with inflation and increase with deflation. B. increase when unemployment rises and decrease when unemployment falls. C. decrease when unemployment rises and increase when unemployment falls. D. increase when the aggregate price level rises and decreases when the aggregate price level falls.

B

Discretionary fiscal policy entails: A. changing the money supply to influence interest rates and investment spending. B. using government spending or tax policy to affect aggregate demand. C. lifting trade barriers on imports. D. setting policy to raise the natural rate of unemployment.

B

If the economy is at potential output and consumption spending suddenly decreases because of a fall in consumer confidence, the appropriate fiscal policy is: A. a decrease in government transfers. B. an increase in government spending. C. a decrease in government spending. D. an increase in the money supply to decrease interest rates.

B

Suppose the equilibrium aggregate price level and the equilibrium level of real GDP are both rising. This is probably the effect of a(n) _____________ in aggregate ______________. A. increase; supply B. increase; demand C. decrease; supply D. decrease; demand

B

The__________________ curve shows the positive relationship between the aggregate price level and the quantity of aggregate output supplied when wages and prices are not fully flexible. A. aggregate demand B. short-run aggregate supply C. aggregate spending D. long-run aggregate supply

B

When the government decides to increase taxes to fight an inflationary gap, it is: A. most likely to increase the budget deficit. B. an example of discretionary fiscal policy. C. an example of an automatic stabilizer. D. likely to dampen the effects of inflation but not to lead to a correction.

B

Which fiscal policy would make a budget surplus larger or a budget deficit smaller? A. an increase in government purchases of goods and services B. lower government transfers C. lower taxes D. higher interest rates

B

A change in taxes shifts the aggregate demand curve by than a change in ____________ government spending for goods and services and has a ________ effect on real GDP. A. more; smaller B. more; larger C. less; smaller D. less; larger

C

A(n)__________ would likely shift the short-run aggregate supply curve to the left. A. decrease in consumer spending B. decrease in the price of oil C. increase in the price of oil D. increase in consumer spending

C

An expansionary fiscal policy either ________ government spending or ____________ taxes. A. increases; increases B. decreases; increases C. increases; decreases D. decreases; decreases

C

Contractionary fiscal policy includes: A. decreasing taxes. B. decreasing the money supply. C. decreasing government expenditures. D. increasing government expenditures.

C

If the Fed decreases the quantity of money in circulation, interest rates would ________ investment spending would ___________ and the aggregate demand curve shifts to the __________. A. decrease; increases; right B. decrease; decreases; left C. increase; decreases; left D. increase; decreases; right

C

Suppose the economy is operating at an output of $4,000 billion. Assume further-more that potential output is $5,000 billion and the marginal propensity to consume is 0.75. would close this recessionary gap. A. A $25 billion increase in government spending B. A $25 billion increase in taxes C. A $250 billion increase in government spending D. A $1,000 billion increase in government spending

C

Which statement is CORRECT? A. Automatic stabilizers indicate deliberate action by policy makers. B. Discretionary fiscal policy shows automatic adjustments without any specific ef- fort by policy makers. C. Discretionary fiscal policy indicates deliberate action by policy makers. D. Automatic stabilizers are risky to use and sometimes can get the economy desta- bilized.

C

A recessionary gap can be closed with: A. contractionary monetary policy. B. an increase in taxes. C. a decrease in government purchases. D. expansionary fiscal policy.

D

An improvement in the business outlook of firms is a type of positive _______________shock and therefore shifts the ________________________ curve to the ______________. A. supply; long-run aggregate supply; right B. demand; aggregate demand; left C. supply; short-run aggregate supply; right D. demand; aggregate demand; right

D

Positive unplanned inventory investment leads to: A. prices increasing. B. production increasing. C. firms hiring more workers. D. production decreasing.

D

Reducing taxes in response to a recession is an example of policy. A. monetary B. investment C. consumption D. fiscal

D

The national debt ______________ when the federal government incurs a _______________. A. falls; deficit B. rises; surplus C. stays the same; surplus D. rises; deficit

D