Unit 5 Macroeconomics Sample Questions

Which of the following is a supply-side policy designed to increase real GDP?

A) A tax credit on capital investment

How is monetary policy different from fiscal policy?

A) Monetary policy involves the money supply, while fiscal policy involves government taxing and spending decisions

The statement the "the cost of reducing the rate of inflation is that people must lose their jobs" indicates that the speaker believes in a relationship that is usually depicted by which of the following?

A) The short-run Philips curve

Assume that aggregate demand in the economy is excessive, causing demand-pull inflation. Which of the following would be most in accord with appropriate government fiscal policy?

A) an increase in Federal income tax rates.

An expansionary monetary policy may promote long-run growth if it leads to

B) An increase in investment

Which of the following will move the government budget toward surplus?

B) Contractionary fiscal policy

In order to be called automatic, of built-in, stabilizers, which of the following must taxes automatically do in a recessionary period and inflationary period?

B) Decrease in a recessionary period Increase in an inflationary period

When the unemployment rate is 10 percent and the CPI is rising at 2 percent, the federal government cuts taxes and increase government spending. If the federal reserve buys bonds on the open market, interest rates, investment, real GDP, and price level are most likely to change in which of the following ways?

B) Interest Rates - Decrease Investment - Increase Real GDP - Increase Price Level - Increase

An expansionary fiscal policy will result in an increase in the interest rates unless which of the following occurs?

B) The money supply is increased

The appropriate fiscal policy to remedy inflation calls or

B) the federal government to run a surplus

When the unemployment rate is 4.5 percent and the CPI is rising at a 12 percent rate, the federal government raises taxes and cuts government spending. If the federal reserve sells bonds on the open market, interest rates, investment, real GDP, and the price level are most likely to change in which of the following ways?

C) Interest Rates - Increase Investment - decrease Real GDP - decrease Price Level - decrease

If the government increases spending without a tax increase and simultaneously no monetary policy changes are made, which of the following would most likely occur?

C) The rise in income may be smaller than the multiplier would predict because the higher interest rates will stimulate investment spending

If the FED decided to increase the money supply this is the most likely because the economy has

C) high unemployment

The Phillips curve shows the relationship between

C) inflation and unemployment

Automatic stabilizers in the economy include which of the following? 1. A progressive personal income tax 11. Unemployment compensation 111. Congressional action that increase tax rates

D) 1 and 11 only

How do the effects of an increase in SRAS compare to the effects of an increase in AD? An increase in SRAS will increase

D) Real GDP but not price level, while the increase in AD will increase both real GDP and price level

Which of following is true about the relationship between the deficit and the debt? They ...

D) are positively related.

When the Federal Reserve sells government securities, or bonds, on the open market, what effect does this action have on the economy?

D) decrease the money supply; reduces inflation risk

In the short-run, combining an expansionary fiscal policy with a tight money policy is most likely to cause

D) interest rates to rise

Expansionary fiscal policy is so named because it:

D) is designed to expand real GDP

To counter the crowding-out effect on interest rates caused by the government's deficit spending, the federal reserve can

E) Buy bonds through open market operations

Which of the following monetary and fiscal policy combinations would definitely cause an increase in aggregate demand

b) Decrease in Reserve Requirements Decrease Taxes Increase in Government Spending

Which of the following best describes the chain of events known as "crowding-out" as a result of expansionary fiscal policy resulting in a budget deficit?

b) Increase - Demand for LF Increase - Interest Rates Decrease - Investment

Assume that the economy has a low unemployment rate and a high rate of inflation. Which of the following sets of monetary and fiscal policies would be consistent and designed to reduce the rate of inflation?

c) Increase Discount Rate Decrease Government Spending Sell bonds

Which of the following monetary and fiscal policy combinations would definitely cause a decrease in aggregate demand in the short run?

d) Increase Discount rate Decrease Government Spending Sell bonds