Questions 10 12 13 14

If the government has a balanced budget, the total amount of government debt is A. increasing. B. zero. C. decreasing. D. constant.

D

If the government runs a deficit, the total amount of government debt is A. decreasing. B. constant. C. zero. D. increasing.

D

Business cycles are the result of A. irregular shifts of both the AD and SAS curves. B. irregular shifts of the SAS curve only. C. regular shifts of both the AD and SAS curves. D. regular shifts of the AD curve only.

A

During an expansion, tax revenues ________ and government transfer payments ________. A. increase; decrease B, increase; increase C. decrease; decrease D. decrease; increase

A

If the Fed wished to eliminate an inflationary gap, which of the following would be an appropriate policy? A. raise the federal funds rate B. lower the federal funds rate C. decease the government budget deficit D. buy government securities

A

Suppose the economy is at a short-run equilibrium with real GDP greater than potential GDP. Which of the following fiscal policies would decrease real GDP and the price level? A. an increase in taxes B. a decrease in taxes C. an increase in government expenditure D. None of the above answers is correct.

A

A change in the price level does not shift the aggregate demand curve. True False

True

In 2013, the U.S. government budget had a deficit. By definition, then, A. tax revenues were equal to government outlays. B. tax revenues were less than government outlays. C. tax revenues were greater than government outlays. D. the government debt became negative.

b

Suppose real GDP exceeds potential real GDP. If the government decreases its expenditures on goods and services, then real GDP ________ and the price level ________. A. decreases; falls B. decreases; rises C. increases; rises D. increases; falls

A

Suppose that several European countries enter a recession decreasing U.S. exports. To move U.S. GDP back to potential GDP, the Fed should A. lower the federal funds rate. B. decrease the government's budget deficit. C. increase the government's budget deficit. D. raise the federal funds rate.

A

Disposable income ________ when ________. A. decreases; aggregate income increases B. decreases; taxes increase C. increases; government expenditures decrease D. decreases; transfer payments increase

B

An increase in the quantity of reserves leads to a A. leftward shift in the demand curve for reserves. B. decrease in the price level. C. fall in the federal funds rate. D. reduction in the velocity of circulation.

C

As the money wage rate rises, A. the short-run aggregate supply curve shifts rightward. B. both the long-run aggregate supply curve and the short-run aggregate supply curve shift leftward. C. the short-run aggregate supply curve shifts leftward. D. the long-run aggregate supply curve shifts rightward.

C

Assuming that GDP currently equals potential GDP, a cost-push inflation could result from which of the following? A. a decrease in tax rates B. an increase in the labor force C. a large crop failure that boosts the prices of raw food materials D. an increase in the nation's capital stock

C

By itself, a supply shock such as a hike in the price of oil, can A. cause a wage-price spiral. B. be inflationary as long as there is no policy response. C. not cause inflation. D. cause real GDP to permanently decrease year after year.

C

Cost-push inflation is an inflation that results from an initial ________. A. increase in investment B. decrease in taxes C increase in money wage rates or money prices of raw materials D. increase in taxes

C

Cost-push inflation starts with a A. raising GDP and falling unemployment rate. B. raising GDP and rising unemployment rate. C. falling GDP and rising unemployment rate. D. falling GDP and falling unemployment rate.

C

If the economy is at potential GDP and the Fed increases the quantity of money, then A. potential GDP rises. B. real GDP rises permanently above potential GDP. C. real GDP rises temporarily above potential GDP. D. potential GDP and real GDP both decrease.

C

During a cost-push inflation spiral, the money wage rate ________ and the quantity of money ________. A. does not change; does not change B. increases; does not change C. does not change; increases D. increases; increases

D

If the Fed buys U.S. government securities, A. the federal funds rate will rise. B. the discount rate will rise. C. bank reserves will decrease. D. the federal funds rate will fall.

D

If the Fed fears inflation it will undertake an open market ________ of securities, the federal funds rate will ________ and the long-term real interest rate will ________. A. sale; rise; fall B. purchase; rise; fall C. purchase; fall; rise D. sale; rise; rise

D

In the above figure, which fiscal policy could help move the economy to potential GDP? A. decreasing autonomous taxes B. increasing government expenditure C. decreasing government expenditure D. Both answers A and B are correct.

c

A below full-employment equilibrium A. occurs when real GDP is less than potential GDP. B. occurs when real GDP exceeds potential GDP. C. is not possible in the U.S. economy. D. occurs when the price level is rising very quickly.

A

A change in the full-employment quantity of labor ________ the short-run aggregate supply curve and ________ the long-run aggregate supply curve. A. shifts; shifts B. does not shift; does not shift C. does not shift; shifts D. shifts; does not shift

A

A change in the money wage rate shifts A. the SAS curve but not the LAS curve. B. the LAS curve but not the SAS curve. C. neither the SAS nor the LAS curve. D. both the SAS and LAS curves.

A

A demand-pull inflation initially is characterized by A. increasing real output and a labor shortage. B. decreasing real output and a labor shortage. C. increasing real output and a labor surplus. D. decreasing real output and a labor surplus.

A

A discretionary fiscal policy is a fiscal policy that A. requires action by the Congress. B. is triggered by the state of the economy. C. involves a change in government defense spending. D. involves a change in corporate tax rates.

A

A government that currently has a budget deficit can balance its budget by ________. A. increasing tax revenues by more than it increases outlays B. decreasing tax revenues by more than it increases outlays C. increasing both tax revenues and outlays by the same amount D. decreasing tax revenues by more than it decreases outlays

A

A worldwide recession reduces the amount of U.S. exports, and as a result, aggregate demand decreases. To move U.S. GDP back to potential GDP, the Fed should A. lower the federal funds rate. B. decreasing the quantity of money of money. C. raise the federal funds rate. D. increase the government's budget deficit.

A

An open market purchase of government securities by the Federal Reserve shifts the ________ reserves curve ________. A. supply of; rightward B. demand for; leftward C. demand for; rightward D. supply of; leftward

A

Consumer confidence in the economy rises, and as a result, real GDP increases above potential GDP. To move U.S. GDP back to potential GDP, the Fed should A. raise the federal funds rate. B. decrease the government's budget deficit. C. lower the federal funds rate. D. increase the government's budget deficit.

A

During the financial crisis of 2008-2009, the Fed's actions to supply reserves to the banking system was an attempt to A. make certain that banks had enough liquidity to avoid collapse. B. increase the public's belief that their deposits were insured. C. help the U.S. Treasury finance the TARP. D. limit the troubling rise in asset prices.

A

An increase in government expenditure shifts the AD curve ________ and an increase in taxes shifts the AD curve ________. A. leftward; rightward B. leftward; leftward C. rightward; leftward D. rightward; rightward

C

A Phillips curve measures the relationship between A. the level of money wage rates and GDP. B. the unemployment rate and inflation. C. inflation and GDP. D. unemployment and GDP.

B

A budget surplus occurs when government A. tax revenues equals outlays. B. tax revenues exceeds outlays. C. tax revenues equal social security expenditures. D. outlays exceeds tax revenues.

B

A country has been in existence for only two years. In the first year, tax revenues were $1.0 million and outlays were $1.5 million. In the second year, tax revenues were $1.5 million and outlays were $2.0 million. At the end of the second year, the total government debt was ________. A. $2.5 million B. $1 million C. $3.5 million D. $0.5 million

B

A decrease in foreign incomes A. increases aggregate demand in the United States. B. decreases aggregate demand in the United States. C. decreases the aggregate quantity demanded in the United States. D. increases the aggregate quantity demanded in the United States

B

A decrease in government expenditure shifts the AD curve ________ and a decrease in taxes shifts the AD curve ________. A. rightward; leftward B. leftward; rightward C. rightward; rightward D. leftward; leftward

B

A government incurs a budget deficit when A. exports are greater than imports. B. taxes are less than government outlays. C. exports are less than imports. D. taxes are greater than government outlays.

B

A leftward shift in the aggregate supply curve A. is the result of consumer expenditures exceeding available output. B. is the result of a rise in the price of a key resource. C. increases both the price level and real GDP. D. is the result of the Fed increasing the quantity of money.

B

Aggregate demand in India increased in 2008. In addition, real GDP grew strongly and inflation approached 10 percent. The best explanation for this inflation is that A. there was a movement up along the aggregate demand curve in 2008. B. potential GDP increased, but at a slower rate than aggregate demand. C. potential GDP decreased. D. aggregate supply did not change.

B

Aggregate demand is the relationship between the quantity of real GDP demanded and the ________. A. nominal GDP demanded B. price level C. real wage rate D. money wage rate

B

An increase in the amount of human capital ________ the short-run aggregate supply curve and ________ the long-run aggregate supply curve. A. does not shift; does not shift B. shifts; shifts C. shifts; does not shift D. does not shift; shifts

B

Economic growth in India has averaged about 8.5 percent in recent years and while inflation averaged almost 9 percent. The AS-AD model shows this process as A. rightward shifts in the aggregate demand curve and leftward shifts in the short-run aggregate supply curve. B. rightward shifts in the both the aggregate demand and long-run aggregate supply curves. C. rightward shifts in the short-run aggregate supply curve. D. movements upward along the aggregate demand curve.

B

In October 2008, central banks around the world coordinated a decrease in interest rates. Ben Bernanke, Chairman of the Federal Reserve stated that "policy makers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant." If all the banks enacted the policy simultaneously, which of the following expenditure components would increase in the United States? I. exports II. consumption III. investment A. I, II and III. B. II and III only. C. II only. D. I and III only.

B

A change in ________ creates a movement along the aggregate demand curve but does not shift the aggregate demand curve. A. fiscal policy B. tax rates C. the price level D. None of the above because they all shift the aggregate demand curve.

C

A change in ________ creates a movement along the aggregate demand curve but does not shift the aggregate demand curve. A. fiscal policy B. tax rates C. the price level D. None of the above because they all shift the aggregate demand curve.

C

A change in the full-employment quantity of labor ________ the short-run aggregate supply curve and ________ the long-run aggregate supply curve. A. does not shift; shifts B. does not shift; does not shift C. shifts; shifts D. shifts; does not shift

C

A decrease in government expenditure shifts the AD curve ________ and a decrease in taxes shifts the AD curve ________. A. leftward; leftward B. rightward; rightward C. leftward; rightward D. rightward; leftward

C

A demand-pull inflation requires persistent increases in A. government expenditures. B. tax rates. C. the quantity of money. D. real wages.

C

A fall in income that results in a decrease in tax revenues is an example of ________. A. a recession B. needs-tested tax programs C. automatic fiscal policy D. discretionary fiscal policy

C

All of the following shift the LAS curve EXCEPT A. an increase in the stock of human capital. B. a change in the capital stock. C. an increase in the money wage rate. D. technological progress.

C

If the economy is in long run equilibrium and then aggregate demand increases, in the long run the increase in aggregate demand means that the A. neither the price level nor real GDP will be unaffected. B. the price level will be higher and real GDP will be larger. C. price level will be higher but real GDP will be unaffected. D. real GDP will be larger but the price level will be unaffected.

C

If the federal government's tax revenues are greater than its outlays, then the federal budget has a A. transfer payment. B. deficit. C. surplus. D. balanced budget.

C

Monetary policy affects real GDP by A. creating budget deficits. B. changing aggregate supply. C. changing aggregate demand. D. creating budget surpluses.

C

Suppose that real GDP equals potential GDP, but the government believes that the economy is in a below full-employment equilibrium. As a result, the government increases its expenditure on goods and services. In response to the government's fiscal policy, A. an equilibrium with real GDP less than potential GDP will occur. B. potential GDP decreases. C. aggregate demand will increase. D. None of the above answers is correct.

C

A decrease in government expenditure on goods and services A. increases aggregate demand. B. increases the aggregate quantity demanded. C. decreases the aggregate quantity demanded. D. decreases aggregate demand.

D

A higher price for oil shifts the A. LAS curve leftward. B. AD curve rightward. C. SAS curve rightward. D. SAS curve leftward.

D

A rise in the federal funds rate A. lowers the long-term real interest rate. B. does not change the long-term real interest rate. C. may raise or lower the long-term real interest rate, depending on whether the demand for loanable funds curve has a negative or a positive slope. D. raises the long-term real interest rate.

D

An economy currently has a inflationary gap. An increase in the money wage rate will ________ the inflationary gap and ________ the price level. A. increase; decrease B. decrease; decrease C. increase; increase D. decrease; increase

D

An increase in foreign incomes A. increases the aggregate quantity demanded in the United States. B. decreases the aggregate quantity demanded in the United States. C. decreases aggregate demand in the United States. D. increases aggregate demand in the United States.

D

Demand-pull inflation starts with A. an increase in short-run aggregate supply. B. a decrease in aggregate demand. C. a decrease in short-run aggregate supply. D. an increase in aggregate demand.

D

If the economy is in long run equilibrium and aggregate demand increases, then in the short run A. the price level rises and real GDP does not change. B. nothing happens because the economy is in long run equilibrium. C. real GDP increases and the price level does not change. D. the price level rises and real GDP increases.

D

If the government wants to engage in fiscal policy to increase real GDP, it could A. increase government expenditure in order to increase short-run aggregate supply. B. decrease government expenditure in order to increase short-run aggregate supply. C. decrease government expenditure in order to decrease aggregate demand. D. increase government expenditure in order to increase aggregate demand.

D

Monetary policy is controlled by A. the president. B. the Treasury Department. C. Congress. D. the Federal Reserve.

D