Macro

"Crowding in" refers to federal government deficits: a. used for public infrastructure that will offset any decline in business investment. b. which reduce private business and consumption spending. c. which reduce future rates of economic growth. d. all of these.

A

1. Classical economists believe that: a. price flexibility automatically directs market economies to full employment. b. budget deficits and surpluses were necessary to control economic fluctuations. c. market economies suffer prolonged periods of recessions and depressions. d. market economies are inherently unstable.

A

20. During the Great Depression of the 1930s in the U.S., the aggregate demand curve intersected the aggregate supply curve in the: a. horizontal portion of the aggregate supply curve. B. upward-sloping part of the aggregate supply curve. c. vertical portion of the aggregate supply curve. d. all segments of the aggregate supply curve.

A

25.Which of the following statements is true? a. a reduction in tax rates along the downward-sloping portion of the Laffer curve would increase tax revenues. b. according to supply-side fiscal policy, lower tax rates would shift the "AS" curve to the left, expanding the economy and creating some inflation. c. The presence of the automatic stabilizers always destabilizes the economy. d. none of the above.

A

30. The crowding-out effect refers to: a. higher interest rates and reduced private spending that results from financing federal budget deficits. b. higher future taxes accompanying budget deficits to reduce private consumption. c. the inflation rate to rise when the unemployment rate is low. d. increases in private savings to reduce interest rates and, thereby, crowd-out government

A

A decrease in real GDP would affect the U.S. economy by: a.cutting tax revenues and raising government expenditures. b.cutting government expenditures and raising tax revenues. c.raising both tax revenues and government expenditures. d.cutting both government expenditures and tax revenues.

A

According to the Laffer curve, when the tax rate is 100 percent, tax revenue will be: a.0. b.at the maximum value. c.the same as it would be at a 50 percent tax rate. d.greater than it would be at a 50 percent tax rate. e.the same as it would be at a 20 percent tax rate.

A

Crowding out refers to the situation in which: a. borrowing by the federal government raises interest rates and causes firms to invest less. b. foreigners sell their bonds and purchase U.S. goods and services. c. borrowing by the federal government causes state and local governments to lower their taxes. d. none of the above.

A

Expansionary fiscal policy consists of: a.increasing government spending. b.increasing payroll taxes to finance health care. c.decreasing government spending. d.raising the minimum wage.

A

If the economy is experiencing inflation, then the most appropriate government policy would be to: a.shift the aggregate demand curve by using a tax increase coupled with spending cuts. b.shift the aggregate demand curve by using a tax increase coupled with more spending. c.shift the aggregate demand curve by using a tax cut coupled with spending cuts. d.shift the aggregate demand curve by using a tax cut coupled with more spending. e.shift the aggregate supply curve by using a tax cut coupled with spending cuts.

A

If the federal government has a budget surplus, then the national debt is: a. reduced b. fully repaid c. negative d. interest-free.

A

If the federal government runs a budget deficit, but the budget deficit as a percent of GDP is less than the growth rate of real output, the: a. national debt will decrease as a share of GDP. b. national debt will remain a constant share of GDP. c. national debt will increase as a share of GDP. d. none of the above.

A

If the federal government runs a budget deficit, but the budget deficit as a percent of GDP is less than the growth rate of real output, the: a. national debt will decrease as a share of GDP. b. national debt will remain a constant share of GDP. c. national debt will increase as a share of GDP. d. size of the national debt (in dollar value) will decline.

A

If the federal government were to run a budget deficit, this would: a. increase the size of the national debt. b. reduce the size of the national debt. c. leave the size of the national debt unchanged. d. increase the national debt only if the government also expands the supply of money.

A

In the U.S. economy, the effect on federal tax revenues and spending of an increase in the unemployment rate is to: a.cut tax revenues and raise expenditures. c.raise both tax revenues and expenditures. b.cut expenditures and raise tax revenues. d.cut both expenditures and tax revenues.

A

In the above diagram, a movement from AD3 to AD4 will lead to: a. Higher GDP & higher inflation. b. Lower GDP & lower inflation. c. Higher inflation & lower GDP. d. Higher GDP & unchanged inflation. e. Unchanged GDP & lower inflation

A

In the intermediate range of the aggregate supply curve in a country, higher aggregate demand will increase: a. both the price level and real GDP. b. real GDP without raising the price level. c. the price level without affecting real GDP. d. the price level but reduce real GDP.

A

In the upward-sloping segment of the aggregate supply curve (the intermediate range), a. when GDP increases, the price level rises. b. when GDP increases, the price level does not change. c. when GDP decreases, the price level rises. d. when GDP increases, the price level falls.

A

More producers/sellers in the economy will shift the aggregate: a. supply curve rightward. b. supply curve leftward. c. demand curve rightward. d. demand curve leftward.

A

Suppose workers become pessimistic about their future employment in South Korea, which causes them to save more and spend less (decreased "C"), which will lead to a leftward shift in the aggregate demand curve. And assuming the economy is on the intermediate range of the aggregate supply curve. As an economic analyst, you would suggest that consumer confidence has to increase otherwise in the Korean economy: a. Both real GDP and the price level will fall. b. Real GDP will fall and the price level will rise. c. Real GDP will rise and the price level will fall. d. Both real GDP and the price level will rise.

A

Suppose workers in a country become pessimistic about their future employment, which causes them to save more and spend less (AD shifts leftward). If the economy is on the intermediate range of the aggregate supply curve, then: a. both real GDP and the price level will fall. b. real GDP will fall and the price level will rise. c. real GDP will rise and the price level will fall. d. real GDP and the price level will rise.

A

The aggregate demand curve slopes downward indicating that: a. an increase in the general price level will reduce the dollar values of aggregate quantity of goods and services demanded (GDP). b. an increase in the general price level will increase the $ value of aggregate quantity of goods and services demanded (GDP). c. an increase in the CPI will have no effects on the $ values of aggregate quantity of goods/services demanded (GD). d. all of the above.

A

The crowding-out effect theorists claim that: a.higher interest rates and reduced private spending are the results of federal budget deficits. b. budget deficits don't affect current or future consumption. c. the inflation rate is guaranteed to fall as a result of budget deficits d. none of the above.

A

The national debt is unlikely to cause national bankruptcy because the: a. national debt can be refinanced by issuing new bonds. b. interest on the public debt equals GDP. c. national debt cannot be shifted to future generations for repayment. d. federal government cannot refinance the outstanding national debt.

A

The sum of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) always equals: a. 1. b. 0. c. the interest rate. d. all of the above.

A

Unemployment compensation payments: a.fall during periods of prosperity and thus reduce federal budget deficits. b.fall during periods of prosperity and thus increase federal budget deficits. c.remain the same. d.rise during periods of prosperity and thus increase federal budget deficits.

A

What is the difference between the federal budget deficit and the national debt? a. The budget deficit is the amount by which expenditures exceed revenues in a particular year, while the national debt is the cumulative effect of all past budget deficits and surpluses. b. The budget deficit is the cumulative effect of all prior national debts. c. The national debt includes all outstanding bonds, while the budget deficit excludes bonds held by government agencies. d. This is a trick question because there is no difference between the budget deficit and the national debt.

A

What is the difference between the federal budget deficit and the national debt? a.The budget deficit is the amount by which expenditures exceed revenues in a particular year, while the national debt is the cumulative effect of all past budget deficits and surpluses. b. The budget deficit is the cumulative effect of all prior national debts. c. The national debt includes all outstanding bonds, while the budget deficit excludes bonds held by government agencies. d. none of the above.

A

When an economy dips into recession, automatic stabilizers will: a.enlarge the budget deficit (or reduce the surplus). b.reduce the budget deficit (or increase the surplus). c.ensure that the budget remains in balance. d.expand the supply of money and, thereby, stimulate aggregate demand.

A

When the U. S. federal government runs a budget deficit, it borrows money by selling: a. Treasury bills, notes, and bonds. c. its gold reserves. b. publicly owned land. d. financial assets located in foreign banks.

A

When the aggregate demand curve in an economy, say, in China, shifts "faster" to the right, intersecting the aggregate supply curve on its upward-sloping segment, a. demand-pull inflation occurs. b. cost-push inflation occurs. c. No inflation occurs. d. All of the above.

A

Which of the following would shift the investment demand curve leftward? a. An increase in business taxes. b. A decrease in business taxes. c. A tax credit for new investment. d. All of the above.

A

10.Which of the following would most likely occur if the federal government increased its spending and enlarged the size of the budget deficit during a period of full employment? a.The rate of inflation would decline. b.The rate of inflation would rise. c.A recession would develop. d.Interest rates would fall.

B

15. Which of the following would cause a rightward shift in the aggregate supply curve of a country? a. Larger-than-expected wage increases. b. Lower oil prices. c. Increased "C" or "G". d. Greater government regulation.

B

21. The aggregate supply curve will be vertical when: a. output can be increased without an increase in the price level. b. the economy is operating at full-employment capacity. c. the AD is shifting to the left. d. all of the above

B

30. How will a significant decrease in the world price of crude oil influence the economy of an oil-importing country such as the United States? a. aggregate supply will decrease, leading to a decrease in real GDP. b. aggregate supply will increase, leading to an increase in real GDP. c. aggregate supply will increase, leading to an increase in prices and GDP. d. all of the above.

B

35. A concern about crowding out caused by increased government borrowing is that: a. interest rates on private borrowing fall. b. lower rates of economic growth can result from a decline in business investment spending. c. the federal government may default on its loans. d. foreign lenders find it less attractive to help finance federal deficits.

B

40. Automatic stabilizers stabilize the level of real GDP because: a.Congress quickly changes spending and tax revenue. b.federal expenditures and tax revenues change as the level of real GDP changes. c.the spending and tax multiplier are constant. d.wages are controlled by the minimum wage law.

B

45.In the above Exhibit, if the aggregate demand curve is at AD1, the government should: a.raise taxes to move to AD2. b.cut taxes to move to AD2. c.cut taxes to move to AD3. d.cut spending to move to AD2. e.not change its behavior.

B

5. The real balances effect predicts that higher prices/higher inflation: a. make people worse off by reducing the value of their wealth, leading them to save more and spend less. b. make people worse off by reducing the value of their wealth, leading them to save less and spend more. c. make people better off by increasing the value of their wealth, leading them to save more and spend less. d. all of the above.

B

5.When the federal government is running a budget deficit: a. government tax revenues exceed government expenditures. b. government expenditures exceed government tax revenues. c. the economy must be in an economic recession. d. the size of the national debt will decline.

B

A government spending and taxation policy to achieve macroeconomic goals is known as: a.countercyclical policy. b.fiscal policy. c.monetary policy. d.a balanced budget. e.presidential discretion.

B

A reduction in regulation will shift the aggregate: a. supply curve leftward. b. supply curve rightward. c. upward movement along the same aggregate supply curve. d. all of the above.

B

According to the crowding-out view, budget deficits will: a. reduce interest rates. b. increase interest rates and decrease private investment. c. reduce the investments of foreigners in the United States. d. all of the above.

B

According to the net exports effect, as the U.S. made products' price level falls relative to the rest of the world (ROW), a. foreigners buy fewer U.S. made goods. b. foreigners buy more U.S. goods & Americans buy less foreign made goods. c. the aggregate demand curve shifts to the left. d. the aggregate demand curve shifts to the right. e. none of the above.

B

Along the Keynesian range of the aggregate supply curve, an increase in the aggregate demand curve will increase: a. both the price level and real GDP. b. only real GDP. c. only the price level. d. real GDP and reduce the price level.

B

As the marginal propensity to consume (MPC) decreases, the spending multiplier: a. increases. b. decreases. c. remains constant. d. all of the above.

B

Assume Congress enacts a $500 billion increase in spending and a $500 billion tax increase to finance the additional government spending. The result of this balanced-budget approach is a: a.$500 billion decrease in aggregate demand. b.$500 billion increase in aggregate demand. c.$1,000 billion increase in aggregate demand. d.$1,000 billion decrease in aggregate demand.

B

Cost-push inflation occurs when the: a. AD curve shifts leftward while the aggregate supply curve remains the same. b. AS curve shifts leftward while the AD curve remains the same c. AD curve shifts rightward while the AS curve remains the same. d. aggregate supply curve shifts rightward.

B

If the economy is experiencing less than full-employment, the Keynesian school recommends that the government: a.do nothing to stimulate the economy. b.undertake fiscal policy to stimulate aggregate demand. c.balance the budget to stimulate aggregate demand. d.all of the above

B

Income tax collections: a.fall during periods of prosperity, thus increase federal budget deficits. b.rise during periods of prosperity, thus reduce federal budget deficits. c.fall during recessions, thus increase the problem of inflation. d.rise during recessions, thus increase the problem of unemployment.

B

Lower tax rates encourage employers and employees to invest and work more, resulting in more output and a larger govt tax revenues." This statement most closely reflects which of the following schools of economic thought? a.Keynesians. b.Supply-side economics. c.Monetarists. d.None of the above.

B

The federal budget process begins when federal agencies submit their budget requests to the: a. Treasury Department. b. Council of Economic Advisors (CEA). c. The federal reserve system. d. Congressional Budget Office (CBO).

B

When the economy enters a recession, automatic stabilizers create: a.higher taxes. b.more discretionary spending. c.budget deficits. d.budget surpluses.

C

Which of the following is true? a. A budget deficit will have no impact on the national debt. b. A budget deficit will increase the national debt. c. A balanced budget will increase the national debt. d. A budget surplus will increase the national debt.

B

1. The national debt is: a. the difference between a nation's exports and imports of goods and services. b. the sum of the personal debt (borrowed by individuals/families) of all citizens in the United States. c. the past & current cumulative budget deficits of the federal government. d. equal to only the current size of the budget deficit.

C

15. Between 1998 and 2001, the federal budget was: a. never in surplus. b. in deficit. c. in surplus. d. none of the above.

C

20. The sum of past federal budget deficits is the: a. GDP debt. b. trade debt plus GDP c. national debt. d. Congressional debt.

C

25. Along the classical or vertical range of the aggregate supply curve of a country, an increase in the aggregate demand curve, in the long run, will increase: a. both the price level and real GDP. b. only real GDP. c. only the price level. d. real GDP and reduce the price level.

C

35. Stagflation is a period of time when the economy is experiencing: a. inflation and low unemployment. b. high unemployment and low levels of inflation at the same time. c. high inflation and high unemployment at the same time. d. low inflation and low unemployment at the same time.

C

35.Fiscal policy is government action to influence aggregate demand and in turn to influence the level of real GDP and the price level, through: a.expanding and contracting the money supply. b.regulation of net exports. c.changes in government spending and/or tax revenues. d.encouraging businesses to invest.

C

37.Which of the following is emphasized by supply-side economics? a.The impact of budget deficits on interest rates and aggregate demand. b.The impact of government spending on aggregate demand, output, and employment. c.The impact of marginal tax rates on aggregate supply. d.The impact of budget deficits on the rate of taxation in the future.

C

Based on the Interest Rate Effect (a reason behind downward sloping AD curve), you are recommending the fiscal policy makers to keep inflation contained, because a higher inflation in the economy would: a. Make people better off by increasing the value of their wealth (the wealth effect), leading them to save more and spend less. b. Increase borrowing by consumers, producers, etc., leading to lower interest rates and more demand for goods/services. c. Increase borrowing by consumers, producers, etc., leading to higher interest rates and less quantity demanded for goods/services. d. All of the above.

C

Demand-pull inflation in a country is associated with a(n): a. decrease in the aggregate supply curve. b. increase in the aggregate supply curve. c. increase in the aggregate demand curve. d. decrease in the aggregate demand curve.

C

Due to identification lag & implementation lag, a..Keynesians argue that expansionary fiscal policies are not productive. b..Keynesians argue that only contractionary fiscal policies are productive. c..Non-Keynesians argue that expansionary fiscal policies are not productive. d..All of the above are the correct answers.

C

During the Reagan administration, the Laffer curve was used to ague that: a.the supply-side effects of tax cuts are relatively small. b.discretionary tax cuts are unwise because they create stagflation. c.lower income tax rates could increase tax revenues. d.a "flat tax" would simplify the tax code and stimulate economic growth.

C

If aggregate demand of an economy decreases in the intermediate range of the aggregate supply curve then the: a. price level rises and real GDP falls. b. price level rises and real GDP rises. c. price level falls and real GDP falls. d. price level falls and real GDP rises.

C

If an inflationary boom exists, the appropriate fiscal policy is to: a.increase the budget deficit. b.increase government spending and hold taxes constant. c.decrease government spending and/or raise taxes. d.hold government spending constant and decrease taxes.

C

Other things constant, an increase in resource prices will: a. increase aggregate demand. b. decrease aggregate demand. c. decrease aggregate supply. d. increase aggregate supply.

C

Supply-siders argue that: a. reductions in government spending cut infrastructure investment which hurts private sector investment. b. increases in government spending increase infrastructure investment which helps private sector investment. c. increases in government spending causes private sector investment to fall because the government pushes up interest rates. d. reductions in government spending cause private sector investment to fall because the government pushes up interest rates by borrowing. e. increases in government spending causes consumption spending to fall because the government purchases push up interest rates.

C

Suppose a decrease in federal income tax stimulates real GDP (AD shifts!!) without affecting the price level. What is the relevant range of the aggregate supply curve in this case? a. The classical range. b. The intermediate range. c. The Keynesian range. d. The monetarist range.

C

Suppose the economy of a country is on the intermediate range of the aggregate supply curve. Which of the following would reduce both real GDP and the price level? a. A decrease in aggregate supply. b. An increase in aggregate supply. c. A decrease in aggregate demand. d. An increase in aggregate demand.

C

Suppose you are an economist and, based on the economic analysis, you have found that, as a result of the current economic policy, the U.S. dollar is expected to depreciate. Further, assuming the U.S. economy is dependent on imported oil. You suggest to the govt that the U.S. dollar needs to appreciate otherwise the economy will bump into Stagflation, which means the economy will experience: a. Low Inflation and low unemployment. b. High unemployment and deflation at the same time. c. High inflation and high unemployment at the same time. d. None of the above.

C

The findings of a macroeconomic analysis state that the U.S. aggregate demand for goods/services needs to increase (outward shift in the AD curve). Which of the following do you think will likely shift the AD curve outward? a A higher price level (higher inflation) in the economy. b. An increase in the interest rates. c. An increase in Americans' wealth due to a substantial increase in the value of stocks. d. A decrease in income in Japan and Western Europe.

C

The national debt is best described as the: a. amount by which this year's federal spending exceeds its taxes. b. value of all U. S. Treasury bonds owned by foreigners. c. sum of all federal budget deficits, past and present. d. percentage of GDP needed to finance a country's investment.

C

The popular theory prior to the great depression that the economy will automatically adjust to achieve full employment in the long run is: a. supply-side economics. b. Keynesian economics. c. classical economics d.. all of the above.

C

The second school of thought in macroeconomics is known as: a. The Classical School. b. Rational expectations c. The Keynesian economics. d. Monetarism. e. None of the above.

C

When an economy is operating below its potential capacity, Keynesian economists argue that: a.taxes should be raised if the government is currently running a budget deficit. b.taxes should be lowered but only if the government is running a budget surplus. c.the government should cut taxes and/or increase spending in order to stimulate aggregate demand. d.all of these.

C

When the relative (to the rest of the world) prices of the U.S. made goods rise, a. there is a world-wide decreased demand for borrowed money. b. producers' demand for new machinery increases, contributing to an increase in aggregate demand. c. Americans tend to buy more foreign goods and services. d. the French, Canadians, and Japanese would find our exports more attractive.

C

Which of the following events is most likely to create stagflation? a. An increase in the money supply. b. A reduction in the amount spent on national defense. c. A doubling of oil prices. d. A decrease in investment spending.

C

Which of the following is/are relatively correct regarding demand pull & cost push inflation: a. Both are equally dangerous b. Demand pull, when within a reasonable range, is more dangerous c. Cost push is more dangerous d. Both are equally beneficial for the economy

C

Which of the following would be your recommendations to the European policy makers regarding turning the European economy into a more efficient economy: a.An increase in unemployment compensation in Europe, reducing the power of employers to fire their employees, and an increase in the annual vacation time. b.A decrease in unemployment compensation in Europe, reducing the power of employers to fire their employees, and an increase the annual vacation time. c.A decrease in unemployment compensation & its duration in Europe, increasing the power of employers to fire their employees, and a decrease in the annual vacation time. d.All of the above.

C

"Lower marginal tax rates encourage people to work, save, and invest, resulting in more output and a larger tax base." This statement most closely reflects which of the following schools of economic thought? a.Keynesian. c.Aggregate demandian. b.Adam Smithian. d.Supply-side economics.

D

1. The aggregate demand (AD) curve indicates the relationship between: a. the real wage rate and the quality of resources demanded by producers of goods and services. b. the interest rate and the amount of loanable funds demanded by borrowers. c. the natural rate of unemployment and the demand for goods and services when the economy is in long-run equilibrium. d. the general price level (CPI) and the dollar value of aggregate quantity of goods and services demanded (GDP).

D

10. Which of the following is a valid concern about federal budget deficits? a. The welfare of future generations will not be affected by the size of the national debt that they inherit. b. national debt will lead to the bankruptcy of the government. c. When the debt comes due, future generations will never be able to pay it off. d. If the increases in the national debt leads to a significant decrease in the private sector's investment, aggregate demand will be reduced.

D

10. Which of the following would shift the aggregate demand curve in an economy to the left? a. An increase in exports. b. An increase in investment. c. An increase in government spending. d. A decrease in government spending "G".

D

20.Supply-side economics is based on the theory that: a.budget deficits will stimulate demand, output, and employment. b.Lower budget deficits will lead to higher interest rates. c.higher tax rates will increase tax revenues. d.increases in aggregate supply lower the price level.

D

40. A primary emphasis of the Keynesian school is that the economy: a. Has a tendency to always create full-employment level of output. b. Has a tendency to always create inflationary pressure at all levels of output. c. Is driven by the supply-side of the market. d. Remains at/around the full employment level by the help of fiscal and/or monetary policies.

D

According to supply-side fiscal policy, reducing tax rates on wages and profits will: a.create demand-pull inflation. b.lower the price level but may trigger a recession. c.result in stagflation. d.reduce both unemployment and inflation.

D

An expansionary fiscal policy may include: a.increases in government spending. b.increases in transfer payments. c.reductions in taxes. d.All of these.

D

As the size of a nation's outstanding debt gets larger and larger relative to the size of the economy: a.eventually it will become difficult for the country to borrow in global credit markets. b. the country will have to pay higher interest rates in order to induce investors to purchase its bonds. c. at some point, the country will be more or less forced to bring spending into line with revenues in order to maintain the confidence of investors. d. all of the above.

D

Assuming AD remains the same, an increase in aggregate supply (AS) will cause the price level to: a. rise and GDP to rise b. rise and GDP to fall. c. rise and the unemployment rate to fall. d. fall and GDP to rise.

D

Assuming AD remains unchanged, the effect of an increase in aggregate supply is a(n): a. increase in the general level of prices and a decrease in real output. b. increase in the general level of prices and an increase in real output. c. decrease in the general level of prices and a decrease in real output. d. decrease in the general level of prices and an increase in real output.

D

Assuming the U.S. economy starts to observe a strong economic growth (similar to the economic growth in the 990s). The economic theory suggests that such strong economic growth could lead to higher demand pull inflation. Now, as an economic advisor, in order to avoid inflation in the economy, which of the following would you recommend to the U.S. policy makers? a.The American economy's aggregate supply curve needs to be shifted outward. b.The American economy's aggregate demand curve should continue shifting outward. c.The American economy's long run aggregate supply curve should be shifted outward. d.All of the above.

D

Assuming you theorize that the short run aggregate supply curve of the economy of Germany needs to be shifted outward in order for the economy to expand. Which of the following policy prescription(s) would you recommend to the Chancellor of Germany? a.Increased tax rates and increased amount of government regulation. b.Increased tax rates and no changes in the existing govt regulation. c.Significantly Increased tax rates & small decrease in current govt regulation. d.Decreased tax rates and decreased the amount of government regulation.

D

Contractionary fiscal policy is deliberate government action to influence the economy through: a.expanding and contracting the money supply. b.encouraging business to expand or contract investment. c.regulating net exports. d.decreasing government spending or increasing taxes.

D

External debt is that portion of the national debt: a. held by private investors in the country. b. held by the Federal Reserve. c. that the United States does not intend to repay. d. held by foreigners.

D

If remained within a reasonable range, the national debt is unlikely to cause national bankruptcy because the federal government can: a.raise taxes. b. mange to pay interest income on national debt. c. refinance its debt. d. all of the above.

D

If the economy is experiencing unemployment, then the most appropriate fiscal policy would be to: a.shift the aggregate demand curve by using a tax increase coupled with spending cuts. b.shift the aggregate demand curve by using a tax increase. c.shift the aggregate demand curve by decreasing the money supply in the economy. d.shift the aggregate demand curve by using a tax cut coupled with more spending.

D

In the above Exhibit, if the aggregate demand curve is at AD3, the government should: a.raise taxes to move to AD1. b.cut taxes to move to AD2. c.cut taxes to move to AD1. d.cut spending to move to AD2. e.not change its behavior.

D

In the horizontal segment of the aggregate supply curve (the Keynesian range of AS), by increasing AD (outward shift in the AD curve), a. both GDP & inflation increase. b. GDP increases & inflation decreases. c. both GDP & inflation decrease. d. inflation remains the same & real GDP increases.

D

It is likely that the higher natural rate of unemployment in Europe is partially due to: a.higher unemployment compensation. b.higher duration of unemployment compensation. c.reduced employers' power to fire employees. d.all of the above.

D

John Maynard Keynes and his followers argue that the extension of great depression was primarily the result of: a.excessive government spending. b.large budget deficits. c.the fixed monetary policies of the Fed.d.insufficient aggregate spending "AD" on goods and services.

D

Keynesian analysis stresses that a tax cut that increases the government's budget deficit or reduces its budget surplus: a.is appropriate during a period of inflation. b.will increase the money supply. c.will stimulate aggregate supply and, thereby, promote employment. d.will stimulate aggregate demand and, thereby, promote employment.

D

Supply-siders feel that high levels of government spending: a. assist private sector investing by creating infrastructure. b. have no impact on private sector investment. c. complement private spending. d. cause private sector investment to decline because of crowding out. e. cause private sector spending to decrease because of increases in corporate taxes to finance the government spending.

D

Suppose the economy is on the classical range of the aggregate supply curve and has a problem with inflation. Which of the following fiscal policy would you recommend to the U.S. president and congress to implement in this situation? a.An increase in the money supply. b.Less government regulation. c.Increase federal spending. d.Higher taxes.

D

The aggregate supply curve: a. shows the level of real GDP (produced) at different possible price levels during a period of time. b. is horizontal in the Keynesian range. c. is vertical in the classical range. d. all of these.

D

The downward (negative) slope of the aggregate demand curve is caused by: a. the real balances effect, the interest rate effect, and the price level effect. b. the real balances effect, the money supply effect, and the net exports effect. c. the interest rate effect, the net exports effect, and the real GDP effect. d. the real balances effect, the interest rate effect, and the net exports effect. e. all of the above.

D

The national debt is unlikely to cause national bankruptcy because the federal government can: A. Raise taxes B. Refinance its debt C. refinance its debt D. All of these.

D

The theory of crowding-in effect: a. Is advocated by Keynesians. b. States that during recessions, an increase in "G" by borrowing leads to an increase in "G" as well as "C" & "I". c. States that during recessions, increased "G" by borrowing shifts AD curve outward to the full employment level. d. All of the above.

D

The total accumulated debt of the federal government due to deficit spending is called the: a. federal deficit. b. Congressional debt. c. deficit debt ceiling. d. national debt.

D

To finance a federal budget deficit, the U.S. Treasury borrows by selling: a. Treasury bills. b. Treasury notes. c. Treasury bonds. d. All of these.

D

Which of the following U.S. Treasury securities represents ownership of the national debt? a. Bonds owned by the banks and insurance companies. b. Bonds owned by private individuals. c. Bonds owned by foreigners. d. All of these.

D

Which of the following are inherent in classical theory? a. Flexible prices. b. Flexible wages. c. Long-run full employment. d. All of these.

D

Which of the following is an automatic stabilizer that moves the federal budget toward deficit during an 37.Which of the following is emphasized by supply-side economics? a.The impact of budget deficits on interest rates and aggregate demand. b.The impact of government spending on aggregate demand, output, and employment. c.The impact of marginal tax rates on aggregate supply. d.The impact of budget deficits on the rate of taxation in the future.37.Which of the following is emphasized by supply-side economics?

D

Which of the following is an example of an automatic stabilizer? a.Congress legislates lower tax rates to increase consumption and investment. b.Tax rates are increased during a recession to maintain a balanced budget. c.A regressive income tax system reduces tax revenues (as a share of income) as income expands. d.Revenues from the corporate income tax increase sharply during a business boom but decline substantially during a recession, even though no new tax legislation has been enacted.

D

Which of the following is not a reason for the downward slope of the aggregate demand curve? a. real balances effect b. interest-rate effect c. net exports effect d. government spending "G

D

Which of the following would NOT shift the investment demand curve? a. A decrease in the wages of workers. b. A change in producers' expectations. c. A change in international events. d. A change in the interest rate. e.None of the above is the correct answer.

D

Which of the following would not shift the investment demand curve? a. An increase in the business taxes. b. A decrease in business taxes. c. A tax credit for new investment. d. None of the above is the answer

D

"Crowding out" is the theory that an increase in our federal government's budget deficit will likely: a. increase the national debt. b. increase interest rates. c. decrease borrowing by households and businesses d. reduce the impact of the spending multiplier implies because of crowding out. e. all of these.

E

15.Supply-siders argue that: a.increase in incentives to workers and businesses (decreasing income tax & corporate tax by the govt) will lead workers to work more & producers to produce more in the economy. b.decrease in income tax will lead to higher supply of labor which means that workers will work more & accept lower wages (the supply curve of labor shifts outward). c.employers will be hiring more workers and more goods/services will be produced. d.the short run and the long run AS curves will shift outward and the economy will keep expanding in the short as well as long run. e.all of the above.

E

25. Which of the following is false? a. The national debt's size decreased steadily after World War II. b. The national debt increases in size whenever the federal government has a surplus budget. c. The size of the national debt currently is about the same size as it was during World War II. d. All of the above are true. e. All of the above are false.

E

30.Assuming you are a Supply-Side economist and are asked to prescribe a policy that will combat both recession and inflation in India. Which of the following would you recommend? a.Increase in incentives to workers and businesses (decreasing income tax & corporate tax by the govt) will likely lead workers to work more & producers to produce more in the economy. b.Decrease in income tax will likely lead to higher supply of labor which m Means that workers will work more & accept lower wages (the supply of labor increases). c.Employers will be hiring more workers and more goods/services will be produced. d.The short run and the long run AS curves will shift outward and the economy will keep expanding in the short as well as long run. e.All of the above.

E

5. The theory of "Crowding out" suggests that shifting the AD curve through government's budget deficit will likely: a. increase the national debt. b. increase interest rates. c. decrease borrowing by households and businesses d. reduce the impact of the spending multiplier implies because of crowding out. e. all of these.

E

An advocate of supply-side fiscal policy would advocate which of the following? a.Subsidies to produce technological advances. b.Reduction in regulation. c.Reduction in resource prices. d.Reduction in taxes.e.All of these.

E

Assuming the Federal Reserve has kept the U.S. interest rates at a lower level (which means borrowers move downward along the same investment demand curve) in order to stimulate investment (through borrowing) in the economy. However, economic analysis shows that investors are not responding to this policy effectively. As an economist, you believe that a shift in the investment demand curve is needed. Which of the following would you recommend a.Reduced govt regulations. b. Optimistic producers' expectations. c. Favorable (to businesses) international events. d. Reduced tax on the profits of corporations. e.All of the above are the correct answers.

E

Assuming the U.S. president and congress plan on formulating an expansionary fiscal Because this policy will appreciate the U.S. Dollar. All of the above. policy of increasing "G" by borrowing, ceteris paribus. And your analysis indicates that the U.S. needs to expand its exports of goods/services. Which of the following would you use an argument(S) to convince the govt not to use the policy at this specific time: a. Because this policy will increase the prices of the U.S. produced goods in the world market relatively to the prices of the goods produced elsewhere. b. Because this policy will increase incentives for foreigners to invest in buying the U.S. assets such as the U.S. govt bonds. c. Because this policy will increase deficit in the U.S. international trade. d. Because this policy will appreciate the U.S. Dollar. e. All of the above

E

Assuming you have analyzed the labor market of the European Union and found that the market needs adjustments from the supply side. You recommend to the EU fiscal policy makers that incentives be granted to workers (decreasing income tax rate), which will likely result in: a.The supply curve of labor in the EU to shift to the left resulting a decrease in wages. b.The supply curve of labor to always remain unchanged. c.The supply curve & demand curve of labor are irrelevant in the labor market. d.The demand curve for labor shifts to the left. e.The supply curve of labor in the EU to shift to the right resulting a decrease in wages.

E

In the above Exhibit, if the aggregate demand curve is at AD2, the government should: a.raise taxes to move to AD1. b.cut taxes to move to AD3. c.cut taxes to move to AD3. d.cut spending to move to AD3. e.not change its policy.

E

In the classical range of the aggregate supply curve, an increase in "AD" will lead to: a. higher inflation in the short run. b. the return of the economy back to full employment in the long run. c. lower unemployment in the short run. d. higher inflation in the long run. e. all of the above.

E

Relative to the size of its GDP, the current U.S. national debt is: a.the highest in the developed world. b. the highest in the U.S. history. c. 125 percent of its GDP. d. all of the above e.none of the above is the correct answer.

E

Supply-side economists argue that less government spending: a. will contract the productive side of the economy. b. will result in more crowding out. c. causes higher rates of unemployment and inflation. d. would cause interest rates to increase dramatically. e. would make more investment capital available at lower rates of interest to the private sector.

E

Which of the following groups believes that the economy can achieve full employment without inflation through tax reductions and deregulation? a.Monetarists. b.Keynesian school. c.Neo-Keynesian school. d.Rational expectations school. e.Supply-side school.

E

45. The net exports effect means that, when the U.S. inflation rate decreases, the prices of the U.S. produced goods/services (relative to the prices of the goods/services produced elsewhere in the world) decrease, foreigners purchase more of the U.S. made goods/services ("X" increases) whereas, simultaneously, Americans buy less of the foreign made goods (a decrease in "M"); which means a downward movement along the same Aggregate demand curve and vice versa. We are assuming that the exchange rate remains the same.

T

46. The interest rate effect means that as inflation in a country, for example, The United Kingdom, decreases, the purchasing power of the existing money in this economy increases, the demand for borrowing decreases, the country's interest rates decrease, AND in the second round, as the interest rates decrease, the U.K. consumers, businesses, etc., start to borrow more, which lead to an increase in the quantity demanded of goods/services in the U.K. (downward movement along the AD curve).

T

An increase in consumers' income/wealth leads to an increase in "C" which shifts the AD curve outward & vice versa.

T

As the income level of foreigners increases or $ depreciates, foreigners purchase more good/services including the goods/services made in the U.S. which leads to an outward shift in the U.S. aggregate demand curve & vice versa.

T

During the great depression, the govt investment as "New Deals" included the building of: a. Approximately 650,000 miles of highways. b. Approximately 80,000 bridges. c. Approximately 125,000 buildings. d. Approximately 700 miles of airport runways e. All of the above are the correct answers.

e