Unit 5 All Quiz Fiscal Policy / Loanable Funds Quiz

Suppose many businesses want to increase their stock of capital goods and decide to borrow funds to do it. Which would be the likely result of this event?

Interest rates would increase

There will be pressure on the interest rate for loanable funds to increase when:

Quantity demanded exceeds the quantity supplied

Which statement about interest rates is false?

The supply of loanable funds is independent of the rate of interest

The amount by which government expenditures exceed revenues during a particular year is the:

budget deficit

A firm considering whether to borrow money to purchase a capital good will compare the rate of interest for the loan with the:

rate of return on the investment.

The federal budget deficit is found by:

subtracting government tax revenues from government spending in a particular year.

The public debt is the amount of money that:

the Federal government owes to holders of U.S. securities

Which will increase the supply of loanable funds? An increase in the:

Savings of households

Suppose the Federal government had budget surpluses of $80 billion in year 1 and $120 billion in year 2 but had budget deficits of $10 billion in year 3 and $40 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four year,s the Federal government's public debt would have:

decreased by $150 billion.

Suppose the price level is fixed, the MPC is 0.5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should:

increase govenrment expenditures by $50 billion.

You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $500 billion (2) investment = $50 billion (3) government purchases = $100 billion (4) net export = $20 billion If the full-employment level of GDP for this economy is $620 billion, then what combination of actions would be most consistent with closing the GDP-gap here?

Decrease government spending and increase taxes

An economy is experiencing a high rate of inflation. The government wants to reduce consumption by $36 billion to reduce inflationary pressure. The MPC is 0.75. By how much should the government raise taxes to achieve its objective?

$12 billion

Which of the following represents the most expansionary fiscal policy?

a $10 billion increase in government spending

An appropriate fiscal policy for a severe recession is:

a decrease in tax rates.

Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward:

an excess of government expenditures over tax receipts.

Suppose the Federal government had budget surpluses of $80 billion in year 1 and $120 billion in year 2 but had budget deficits of $10 billion in year 3 and $40 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the Federal govenrment's public debt would have:

decreased by $150 billion.

If the MPC is an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by:

decreasing taxes by $25 billion.

You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $400 billion (2) investment = $40 billion (3) government purchases = $90 billion (4) net export = $25 billion If the full-employment level of GDP for this economy is $600 billion, then what combination of actions would be most consistent with closing the GDP-gap here?

increase government spending and decrease taxes

A decrease in the supply of loanable funds and an increase in the demand for lonable funds fill:

increase the interest rate, but the quantity of funds loaned may either increase or decrease

Contractionary fiscal policy is so named because it:

is aimed at reducing aggregate demand and thus achieving price stability.

Expansionary fiscal policy is so named because it:

is designed to expand real GDP

A contractionary fiscal policy is shown as a:

leftward shift in the economy's aggregate demand curve.

Fiscal policy refers to the:

manipulation of government spending and taxes to stabilize domestic output, employment, and the price level.

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions the government should:

reduce tax rates and/or increase government spending.

An expansionary fiscal policy is shown as:

rightward shift in the economy's aggregate demand curve.

Which factor will decrease demand for loanable funds?

A general business recession that produces high rates of unemployment