FP
Multipliers
AD
AS
LRAS
10
10
10
10
10
20
20
20
20
20
30
30
30
30
30
40
40
40
40
40
50
50
50
50
50
Automatic stabilizers act like:
A. automatic expansionary fiscal policy
when the economy is in an inflation.
B. automatic expansionary fiscal policy
when the economy is in a recession.
C. an additional multiplier effect.
D. automatic contractionary policy when the
economy is in a recession.
E. automatic budget balancing policies
when the economy is in a recession.
– 10 Points
Which of the following is an automatic
stabilizer?
A. Military spending on the war in Iraq.
B. Unemployment compensation payment
to the unemployed auto worker
C. Disability payments to the war veterans
D. Medicare payments to the elderly.
E. Social Security payments to retired
workers.
– 20 Points
Suppose the economy is currently
experiencing a recessionary gap. Which of
the following fiscal policy options is most
likely to increase real GDP by the largest
amount?
A. a decrease in taxes
B. an increase in government spending
C. an decrease in transfer payments
D. an increase in government purchases,
paid for by an increase in taxes.
E. an increase in taxes.
– 30 Points
A budget surplus would exist when which of
the following occurs?
A. Taxes are greater than government
spending.
B. Taxes are less than government spending.
C. Taxes are less than government spending
plus investment.
D. Investment is less than government
spending less taxes.
E. Consumption spending is greater than
savings.
– 40 Points
Congress increases the personal income tax in order to
balance the budget. Which of the following is likely to
result?
A. Automatic stabilizers will increase the contractionary
impact of the decrease in aggregate demand.
B. Automatic stabilizers will have no impact on the
increase in taxes and aggregate demand.
C. Automatic stabilizers will increase the expansionary
impact of the increase in aggregate demand.
D. Automatic stabilizers will decrease the expansionary
impact of the increase in aggregate demand.
E. Automatic stabilizers will decrease the
contractionary impact of the decrease in aggregate
demand.
– 50 Points
If the MPC is 0.8 and the
government spending decreases
by $50 million, then equilibrium
GDP will decrease by:
A. $40 million.
B. $50 million.
C. $200 million.
D. $250 million.
E. $100 million.
– 10 Points
If the government
increases taxes and its
spending by equal
amounts, what will happen
to aggregate demand—
stay the same, increase, or
decrease?
Increase– 20 Points
Crowding out—
1. What causes crowding out?
Gov. deficit spending to stimulate
the economy.
1. What is the result of crowding
out?
Higher interest rates decreasing
interest-sensitive purchases
– 30 Points
Assume that marginal propensity to consume is 0.8,
and potential output is $800 billion. If current real GDP
is $700 billion, which of the following policies would
bring the economy to potential output?
A.
Increase government spending by $25 billion.
B.
Increase government spending by $100 billion.
C.
Increase government spending by $20
billion.
D.
Decrease government spending by $100 billion.
E.
Increase government spending by $800 billion.
– 40 Points
1/.2= 5
5 x 20= 100
Assume that marginal propensity to
consume is 0.8, and potential output is $800
billion. If current real GDP is $850 billion,
which of the following policies would bring
the economy to potential output?
A. Increase taxes by $50 billion.
B. Increase taxes by $10 billion.
C. Increase taxes by $12.5 billion.
D. Increase transfers by $12.5 billion.
E. Increase government spending by $10
billion.
– 50 Points
A shift left in AD may have been the result of :
A. an increase in investment demand due to
optimistic GDP forecasts.
B. a decrease in investment due to higher interest
rates.
C. decreases in the taxes paid by businesses.
D. lower interest rates.
E. a higher aggregate price level.
– 10 Points
– 20 Points
Changes in aggregate demand can
be caused by changes in:
A.
production technology.
B.
business costs.
C.
raw materials costs.
D.
worker productivity.
E.
government spending.
Which of the following is an expansionary
fiscal policy?
A. an increase in the money supply which
decreases interest rates
B. an increase in taxes which reduces the
budget deficit and decreases
consumption
C. a decrease in government spending on
the space program
D. an increase in unemployment benefit
E. a decrease in welfare and veteran’s
benefits.
– 30 Points
To close an inflationary gap employing fiscal
policy, the government could:
A. reduce budget allocations to interstate
highway construction.
B. increase federal subsidies to state
universities.
C. lower the corporate income tax rate.
D. raise the average amount awarded for
veterans’ benefits.
E. decrease the money supply.
– 40 Points
The aggregate demand curve:
A. slopes downward for the same reasons that an
ordinary demand curve does.
B. slopes downward in part because when the price
level falls the real wealth of the public falls, and this
induces people to change their consumption.
C. slopes downward in part because as the price level
falls the ability of households and firms to borrow
cheaply increases.
D. slopes upward, unlike an ordinary demand curve.
E. is vertical, unlike an ordinary demand cure.
– 50 Points
Economists say that long-run
economic growth is almost entirely
due to:
A. rising productivity. (best answer)
B. population growth. (this could be
true if the labor force grows)
C. a democratically elected
government.
D. a balanced budget.
E. perfectly competitive markets.
– 10 Points
A general decrease in wages will result in
the:
A. aggregate demand shifting to the
right.
B. aggregate demand shifting to the left.
C. short-run aggregate supply shifting to
the right.
D. short-run aggregate supply shifting to
the left.
E. long-run aggregate supply shifting to
the right.
– 20 Points
The short run in macroeconomic analysis is
a period:
A. in which many production costs can be
assumed to be fixed.
B. in which wages become fully flexible.
C. of 2 months, and the long run is a period
greater than 12 months.
D. in which interest rates are fixed.
E. in which the unemployment rate is
assumed constant.
– 30 Points
Stagflation is a combination of:
A. increasing unemployment and
increasing inflation.
B. decreasing unemployment and
decreasing inflation.
C. increasing unemployment and
decreasing inflation.
D. decreasing unemployment and
increasing inflation.
E. increasing unemployment and
deflation.
– 40 Points
Roads, telephone lines,
power facilities, and schools
are examples of a nation's:
A. technostructure.
B. infrastructure.
C. physiostructure.
D. sociostructure.
E. political structure.
– 50 Points
In the long run, the aggregate price level
has:
A. no effect on the quantity of aggregate
output.
B. a positive effect on the quantity of
aggregate output.
C. a negative effect on the quantity of
aggregate output.
D. A positive impact on aggregate output,
but no impact on employment.
E. a positive impact on employment, but no
impact on aggregate output.
– 10 Points
A nation’s potential output is:
A. the level of real GDP that exists when the
economy is experiencing only cyclical
unemployment.
B. the level of real GDP that the economy would
produce if there was no inflation.
C. the level of real GDP that exists when the
actual rate of unemployment is zero.
D. the level of real GDP that the economy would
produce if all prices, including nominal wages,
were sticky.
E. the level of real GDP that the economy would
produce if all prices, including nominal wages,
were fully flexible.
– 20 Points
See Mrs. Powell for the drawing:
If the economy is at point E, which of the following describes the likely
adjustment process? (Point E shows an inflationary period)
A. Nominal wages decrease, and the short-run aggregate supply curve
shifts left until potential output is equal to actual output.
B. Nominal wages increase, and the short-run aggregate supply curve
shifts right until potential output is greater than actual output
C. Nominal wages decrease, and the short-run aggregate supply curve
shifts right until actual and potential output are equal.
D. Nominal wages decrease, and the short-run aggregate supply curve
shifts right until potential output is less than actual output.
E. Nominal wages increase, and the short-run aggregate supply curve
shifts left until actual and potential output are equal.
30 Points
Starting from its potential output, an economy's
government decides to increase spending. In the
long run, an economy will find:
A. that it is producing at an output level which is
greater than its potential output.
B. it is producing at its potential output, but at a
higher aggregate price level.
C. it is producing at an output level which is below
its potential output.
D. it is producing at its potential output level, but at
a lower aggregate price level.
E. it is producing at its potential output, with no
change in the aggregate price level.
– 40 Points
Keynesian economics propagates the economic
ideas:
A. that argue that the government intervention in
the economy can be destabilizing.
B. that argue that the government can help a
depressed economy through fiscal and
monetary policies.
C. that argue that the private sector is perfectly
capable to regulate itself.
D. that argue that the free market system will
always prevail.
E. that economic recessions will self-correct
without active government intervention.
– 50 Points