Macroeconomics Chapter 11

By how much would government purchases have to change if the government wanted to increase income by $1,000 and the MPC were 0.9?

$100

T or F: Discretionary fiscal policy works by shifting the short-run aggregate supply curve.

False

T or F: Expansionary and contractionary gaps are automatically eliminated by shifts in aggregate demand.

False

Which of the following best describes the concept of laissez-faire?

Government should not intervene in the economy.

Which of the following is not true about classical economists?

They sought government intervention in markets to promote fairness.

T or F: Government transfer payments are a good example of an automatic stabilizer.

True

T or F: Keynes believed that the economy does not automatically move toward an equilibrium at full employment.

True

Given the desire of politicians to get reelected, they might try in the short run to use the economic tool of

fiscal policy

Which of the following are used in fiscal policy?

government purchases, transfer payments, and taxes

The goal of fiscal policy after the Great Depression was to

influence aggregate demand

Which of the following is not a tool of fiscal policy?

money supply

Which of the following best describes stagflation?

rising unemployment and inflation rates

Which of the following factors did not contribute to the federal budget surpluses in the 1990s?

slower consumer spending

Supply-side economics emphasized government policies to

stimulate real GDP by improving incentives to work

The Golden Age of fiscal policy was during

the 1960s

Keynes thought that one macroeconomic problem is that

the equilibrium level of output can fall below the potential level

Which of the following is an example of an automatic stabilizer?

unemployment compensation

Lags in the approval and implementation of fiscal policy

weaken fiscal policy as a tool of economic stabilization