ECON 3

D

Discretionary fiscal policy will stabilize the economy most when: A)deficits are incurred during inflations and surpluses during recessions. B)budget surpluses are continuously incurred. C)the budget is balanced each year. D)deficits are incurred during recessions and surpluses during inflations.

B

If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that: A)cost-push inflation has occurred. B)the price level is inflexible downward and a recession has occurred. C)the money supply has declined. D)productivity has declined.

D

If unintended increases in business inventories occur, we can expect: A)an offsetting increase in planned investment. B)inflation. C)an increase in consumption. D)a decline in GDP and rising unemployment.

A

In a private closed economy, when aggregate expenditures equal GDP: A)planned investment equals saving. B)consumption equals aggregate expenditures. C)disposable income equals consumption minus saving. D)consumption equals investment.

D

In a private closed economy, when aggregate expenditures exceed GDP: A)GDP will decline. B)business inventories will rise. C)saving will decline. D)business inventories will fall.

C

A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because: A)government spending is more employment-intensive than is either consumption or investment spending. B)taxes vary directly with income. C)a portion of a tax cut will be saved. D)government spending increases the money supply and a tax reduction does not.

D

A decline in disposable income: A)increases consumption by moving upward along a specific consumption schedule. B)increases consumption because it shifts the consumption schedule upward. C)decreases consumption because it shifts the consumption schedule downward. D)decreases consumption by moving downward along a specific consumption schedule.

D

An appropriate fiscal policy for severe demand-pull inflation is: A)a reduction in interest rates. B)depreciation of the dollar. C)an increase in government spending. D)a tax rate increase.

A

An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the: A)multiplier effect. B)real-balances effect. C)wealth effect. D)net export effect.

C

An inflationary expenditure gap is the amount by which: A)saving exceeds investment at the full-employment GDP. B)aggregate expenditures exceed any given level of GDP. C)aggregate expenditures exceed the full-employment level of GDP. D)equilibrium GDP falls short of the full-employment GDP.

C

Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of: A)the expectation of a recession. B)an increase in disposable income. C)an increase in personal taxes. D)an increase in household wealth.

B

Built-in stability means that: A)an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby stabilize the economy. B)with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus. C)Congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity. D)government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year.

C

Contractionary fiscal policy is so named because it: A)involves a contraction of the nation's money supply. B)necessarily reduces the size of government. C)is aimed at reducing aggregate demand and thus achieving price stability. D)is expressly designed to expand real GDP.

C

The most important determinant of consumption and saving is the: A)level of bank credit. B)price level. C)level of income. D)interest rate.

D

A decrease in aggregate demand will cause a greater decline in real output the: A)larger is the economy's marginal propensity to save. B)more flexible is the economy's price level. C)steeper is the economy's AS curve. D)less flexible is the economy's price level.

C

A major advantage of the built-in or automatic stabilizers is that they: A)simultaneously stabilize the economy and reduce the absolute size of the public debt. B)guarantee that the federal budget will be balanced over the course of the business cycle. C)require no legislative action by Congress to be made effective. D)automatically produce surpluses during recessions and deficits during inflations.

B

A recessionary expenditure gap is: A)the amount by which investment exceeds saving at the full-employment GDP. B)the amount by which the full-employment GDP exceeds the level of aggregate expenditures. C)the amount by which equilibrium GDP falls short of the full-employment GDP. D)the amount by which aggregate expenditures exceed the full-employment level of GDP.

D

Discretionary fiscal policy is so named because it: A)is undertaken at the option of the nation's central bank. B)occurs automatically as the nation's level of GDP changes. C)is invoked secretly by the Council of Economic Advisers. D)involves specific changes in T and G undertaken expressly for stabilization at the option of Congress.

A

Due to automatic stabilizers, when the nation's total income rises, government transfer spending: A)Decreases and tax revenues increase B)Increases and tax revenues decrease C)And tax revenues increase D)And tax revenues decrease

A

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will: A)shift the AD curve to the left. B)not affect the AD curve. C)shift the AD curve to the right. D)increase the equilibrium GDP.

A

In contrast to investment, consumption is: A)relatively stable. B)unmeasurable. C)measurable. D)relatively unstable.

C

In the aggregate expenditures model, technological progress will shift the investment schedule: A)upward and decrease aggregate expenditures. B)downward and increase aggregate expenditures. C)upward and increase aggregate expenditures. D)downward and decrease aggregate expenditures.

A

Investment and saving are, respectively: A)injections and leakages. B)income and wealth. C)leakages and injections. D)stocks and flows.

B

It is true that: A)equal increases in government spending and taxes do not change the equilibrium GDP. B)equal increases in government spending and taxes increase the equilibrium GDP. C)taxes have a stronger effect upon equilibrium GDP than do government purchases. D)equal increases in government spending and taxes reduce the equilibrium GDP.

A

One advantage of automatic fiscal policy over discretionary fiscal policy is that automatic fiscal policy: A)Is not subject to the timing problems of discretionary policy B)Does not produce a cyclical deficit as discretionary policy does C)Has a greater multiplier effect than discretionary policy D)Makes the actual budget a better reflection of the condition of the economy than the Standardized budget

C

Other things equal, a 10 percent decrease in corporate income taxes will: A)decrease the market price of real capital goods. B)have no effect on the location of the investment-demand curve. C)shift the investment-demand curve to the right. D)shift the investment-demand curve to the left.

A)

Other things equal, a decrease in the real interest rate will: A)move the economy downward along its existing investment demand curve. B)shift the investment demand curve to the right. C)move the economy upward along its existing investment demand curve. D)shift the investment demand curve to the left.

A

Other things equal, an increase in an economy's exports will: A)increase its domestic aggregate expenditures and therefore increase its equilibrium GDP. B)lower the marginal propensity to import. C)have no effect on domestic GDP because imports will change by an offsetting amount. D)decrease its domestic aggregate expenditures and therefore decrease its equilibrium GDP.

C

The multiplier is: A)1/(1 - MPS) and 1/MPC. B)1/(1 + MPC) and 1/MPC C)1/MPS and 1/1-MPC

C

When current government expenditures exceed current tax revenues and the economy is achieving full employment: A)fiscal policy is contractionary. B)the cyclically adjusted budget has a surplus. C)the cyclically adjusted budget has a deficit. D)the cyclically adjusted budget has neither a deficit nor a surplus.

C

At equilibrium real GDP in a private closed economy: A)planned saving and consumption are equal. B)the slope of the aggregate expenditures schedule equals the MPS. C)aggregate expenditures and real GDP are equal. D)the MPC must equal the APC.

D

If for some reason households become increasingly thrifty, we could show this by: A)an upward shift of the consumption schedule. B)a movement down along a stable consumption function. C)a downshift of the saving schedule. D)an upward shift of the saving schedule.

A

If the United States wants to increase its net exports in the short term, it might take steps to: A)depreciate the dollar compared to foreign currencies. B)appreciate the dollar compared to foreign currencies. C)increase its GDP. D)reduce existing tariffs and import quotas.

B

Imports have the same effect on the current size of GDP as: A)exports. B)saving. C)consumption. D)investment.

B

Taxes represent: A)an injection of purchasing power, like government spending. B)a leakage of purchasing power, like saving. C)a leakage of purchasing power, like government spending. D)an injection of purchasing power, like investment.

A

The 45-degree line on a graph relating consumption and income shows: A)all the points at which consumption and income are equal. B)all the points at which saving and income are equal. C)the amounts households will plan to save at each possible level of income. D)all the points where the MPC is constant.

B

The U.S. public debt: A)refers to the debts of all units of government—federal, state, and local. B)consists of the historical accumulation of all past federal deficits and surpluses. C)refers to the collective amount that U.S. citizens and businesses owe to foreigners. D)consists of the total debt of U.S. households, businesses, and government.

A

The aggregate expenditures model is built upon which of the following assumptions? A)Prices are fixed. B)Government spending policy has no ability to affect the level of output. C)Prices are fully flexible. D)The economy is at full employment.

A

The amount by which federal tax revenues exceed federal government expenditures during a particular year is the: A)budget surplus. B)Federal Reserve. C)public debt. D)budget deficit.

D

The crowding-out effect of expansionary fiscal policy suggests that: A)consumer and investment spending always vary inversely. B)it is very difficult to have excessive aggregate spending in the U.S. economy. C)tax increases are paid primarily out of saving and therefore are not an effective fiscal device. D)increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

A

The cyclically adjusted budget refers to: A)the size of the federal government's budgetary surplus or deficit when the economy is operating at full employment. B)the inflationary impact that the automatic stabilizers have in a full-employment economy. C)that portion of a full-employment GDP that is not consumed in the year it is produced. D)the number of workers who are underemployed when the level of unemployment is 4 to 5 percent.

D

The effect of imposing a lump-sum tax is to: A) reduce the absolute levels of consumption and saving at each level of GDP and to increase the size of the multiplier. B) increase the absolute levels of consumption and saving at each level of GDP and to increase the size of the multiplier. C) reduce the absolute levels of consumption and saving at each level of GDP and to reduce the size of the multiplier. D) reduce the absolute levels of consumption and saving at each level of GDP but to not change the size of the multiplier.

D

The federal budget deficit is found by: A)subtracting government tax revenues plus government borrowing from government spending in a particular year. B)subtracting government revenues from the noninvestment-type government spending in a particular year. C)cumulating the differences between government spending and tax revenues over all years since the nation's founding. D)subtracting government tax revenues from government spending in a particular year.

D

The immediate determinants of investment spending are the: A)interest rate and the expected price level. B)marginal propensity to consume and the real interest rate. C)level of saving and the real interest rate. D)expected rate of return on capital goods and the real interest rate.

A

The immediate-short-run aggregate supply curve represents circumstances where: A)both input and output prices are fixed. B)both input and output prices are flexible. C)input prices are fixed, but output prices are flexible. D)input prices are flexible, but output prices are fixed.

C

The largest proportion of the U.S. public debt is held by: A)the Federal Reserve System. B)U.S. government agencies. C)the U.S. public (individuals, businesses, financial institutions, and government). D)foreign individuals and institutions.

B

The level of aggregate expenditures in the private closed economy is determined by the: A)intersection of the saving and consumption schedules. B)expenditures of consumers and businesses. C)intersection of the saving schedule and the 45-degree line. D)equality of the MPC and MPS.

B

The most likely way the public debt burdens future generations, if at all, is by: A)reducing real interest rates. B)reducing the current level of investment. C)causing future unemployment. D)causing deflation.

A

The multiplier applies to: A)investment, net exports, and government spending. B)investment but not to net exports or government spending. C)increases in spending but not to decreases in spending. D)spending by the private sector but not by the public sector.

C

The public debt is held as: A)Federal Reserve Notes. B)U.S. gold certificates. C)Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds. D)U.S. securities, corporate bonds, and common stock.

D

Viewed through the aggregate expenditures model, the U.S. recession of 2007-2009 resulted mainly from: A)a fall in the average propensity to save. B)increased taxes. C)reduced government spending. D)insufficient aggregate expenditures.

B

When the Federal government uses taxation and spending actions to stimulate the economy it is conducting: A)Incomes policy B)Fiscal policy C)Employment policy D)Monetary policy

C

Which of the following best describes the idea of a political business cycle? A)Despite good intentions, various timing lags will cause fiscal policy to reinforce the business cycle. B)Politicians are more willing to cut taxes and increase government spending than they are to do the reverse. C)Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections. D)Fiscal policy will result in alternating budget deficits and surpluses.

B

Which of the following fiscal policy actions is most likely to increase aggregate supply? A)An increase in personal income tax rates. B)An increase in government spending on infrastructure that increases private sector productivity. C)A reduction in interest rates that encourages consumers to purchase more durable goods. D)An increase in transfer payments to unemployed workers.

D

Which of the following will not tend to shift the consumption schedule upward? A)A currently small stock of durable goods in the possession of consumers. B )A currently low level of household debt. C)The expectation of future shortages of essential consumer goods. D)The expectation of a future decline in the consumer price index.

A

Which of the following would increase GDP by the greatest amount? A)A $20 billion increase in government spending B)A $20 billion reduction in taxes C)$20 billion increases in both government spending and taxes D)$20 billion decreases in both government spending and taxes