Question 1

Which of the following groups designs policies that are best at eliminating stagflation?

Accepted Answer

A) Keynesians. 
B) Monetarists. 
C) Supply-side economists. 
D) New classical economists. 
A) Keynesians. 
B) Monetarists. 
C) Supply-side economists. 
D) New classical economists.

Question 2

Refer to Figure 18.1.Which of the following would most likely cause a shift from AD3 to AD2?

Accepted Answer

A) An increase in transfer payments because of a recession. 
B) An increase in the reserve ratio. 
C) A decrease in the discount rate. 
D) An increase in taxes. 
A) An increase in transfer payments because of a recession. 
B) An increase in the reserve ratio. 
C) A decrease in the discount rate. 
D) An increase in taxes.

Question 3

The case for a "hands off" economic policy is based on the widely held belief that

Accepted Answer

A) Fiscal policy works but monetary policy does not. 
B) Monetary policy works but fiscal policy does not. 
C) Discretionary policy can improve the economy in theory but is often impractical in practice. 
D) Economic theory is inadequate to formulate effective discretionary policy. 
A) Fiscal policy works but monetary policy does not. 
B) Monetary policy works but fiscal policy does not. 
C) Discretionary policy can improve the economy in theory but is often impractical in practice. 
D) Economic theory is inadequate to formulate effective discretionary policy.

Question 4

The In the News article titled "Great Recession Officially Ended Last Year" states that the recession that started in December 2007 lasted until June 2009.The National Bureau of Economic Research took over a year to announce that the recession had ended.This suggests that

Accepted Answer

A) There are significant lags in response to policy. 
B) The political business cycle is to blame for the economic situation. 
C) Measurement difficulties prevent policy makers from identifying what is happening in the economy. 
D) Economists could not agree on policy priorities. 
A) There are significant lags in response to policy. 
B) The political business cycle is to blame for the economic situation. 
C) Measurement difficulties prevent policy makers from identifying what is happening in the economy. 
D) Economists could not agree on policy priorities.

Question 5

Income taxes are an automatic stabilizer because when income falls,ceteris paribus,tax receipts

Accepted Answer

A) Fall as taxpayers experience bracket creep. 
B) Fall because income taxes are regressive. 
C) Rise because automatic stabilizers work against the cyclical movements of the GDP. 
D) Fall because taxes are computed on the basis of income. 
A) Fall as taxpayers experience bracket creep. 
B) Fall because income taxes are regressive. 
C) Rise because automatic stabilizers work against the cyclical movements of the GDP. 
D) Fall because taxes are computed on the basis of income.

Question 6

The time it takes for Congress to deliberate over a specific fiscal policy action is an example of

Accepted Answer

A) A multiplier conflict. 
B) A measurement problem. 
C) A design problem. 
D) An implementation problem. 
A) A multiplier conflict. 
B) A measurement problem. 
C) A design problem. 
D) An implementation problem.

Question 7

One In the News article is titled "CBO's Flawed Forecasts." According to the text,the CBO's forecasts typically miss the actual budget balance in the fifth year by

Accepted Answer

A) 1 percent of GDP. 
B) 2 percent of GDP. 
C) 3 percent of GDP. 
D) 4 percent of GDP. 
A) 1 percent of GDP. 
B) 2 percent of GDP. 
C) 3 percent of GDP. 
D) 4 percent of GDP.

Question 8

A growth recession is characterized by

Accepted Answer

A) An increasing unemployment rate with moderate inflation. 
B) An increasing unemployment rate with substantial inflation. 
C) A positive growth rate below 3 percent annually. 
D) A negative growth rate with a low inflation rate. 
A) An increasing unemployment rate with moderate inflation. 
B) An increasing unemployment rate with substantial inflation. 
C) A positive growth rate below 3 percent annually. 
D) A negative growth rate with a low inflation rate.

Question 9

Which of the following is a monetary policy action to eliminate a recession?

Accepted Answer

A) Increased investment in job training programs. 
B) The sale of securities in the open market by the Fed. 
C) A decrease in the marginal tax rate. 
D) A decrease in the discount rate. 
A) Increased investment in job training programs. 
B) The sale of securities in the open market by the Fed. 
C) A decrease in the marginal tax rate. 
D) A decrease in the discount rate.

Question 10

Which economists believe in using government spending and taxes to move the economy from AD1 to AD2 in Figure 18.3?

Accepted Answer

A) Supply-siders. 
B) Monetarists. 
C) Keynesians. 
D) Classical economists. 
A) Supply-siders. 
B) Monetarists. 
C) Keynesians. 
D) Classical economists.

Question 11

The structural deficit declines as the economy moves toward full employment.

Accepted Answer

A) True 
 B)False

Question 12

The In the News article titled "Great Recession Officially Ended Last Year" came out over a year after the recession was statistically declared over.Which of the following obstacles does this article address?

Accepted Answer

A) Measurement problems. 
B) Goal conflicts. 
C) Design problems. 
D) Implementation problems. 
A) Measurement problems. 
B) Goal conflicts. 
C) Design problems. 
D) Implementation problems.

Question 13

The belief that interest rates are the critical policy lever is associated with

Accepted Answer

A) Modern Keynesians. 
B) New classical economists. 
C) Monetarists. 
D) Supply-siders. 
A) Modern Keynesians. 
B) New classical economists. 
C) Monetarists. 
D) Supply-siders.

Question 14

Which of the following is not a policy to reduce stagflation?

Accepted Answer

A) Restricting immigration. 
B) Developing infrastructure. 
C) Investing in human capital. 
D) Deregulation. 
A) Restricting immigration. 
B) Developing infrastructure. 
C) Investing in human capital. 
D) Deregulation.

Question 15

Which of the following is not a supply-side policy to cure inflation?

Accepted Answer

A) Reduced marginal tax rates. 
B) Incentives to encourage saving. 
C) Lower interest rates. 
D) Reduced import barriers. 
A) Reduced marginal tax rates. 
B) Incentives to encourage saving. 
C) Lower interest rates. 
D) Reduced import barriers.

Question 16

In a recession Keynesians emphasize the need to ________ government spending or ________ taxes,which will cause a multiplier reaction.

Accepted Answer

A) increase;decrease 
B) decrease;decrease 
C) increase;increase 
D) decrease;increase 
A) increase;decrease 
B) decrease;decrease 
C) increase;increase 
D) decrease;increase

Question 17

The adjustment in economic policy designed to counteract small changes in economic outcomes

Accepted Answer

A) Is compatible with our design capabilities. 
B) Has been easy to accomplish over the last decade. 
C) Is the concept of fine-tuning. 
D) Is the policy approach favored by most economists. 
A) Is compatible with our design capabilities. 
B) Has been easy to accomplish over the last decade. 
C) Is the concept of fine-tuning. 
D) Is the policy approach favored by most economists.

Question 18

According to new classical economists,policies should be introduced suddenly to surprise the economy in order to

Accepted Answer

A) Prevent political lobbying that results in goal conflicts. 
B) Minimize design problems that impede the implementation of policy. 
C) Prevent anticipatory behavior that defeats the purpose of the policy. 
D) Avoid the lags associated with policy announcements. 
A) Prevent political lobbying that results in goal conflicts. 
B) Minimize design problems that impede the implementation of policy. 
C) Prevent anticipatory behavior that defeats the purpose of the policy. 
D) Avoid the lags associated with policy announcements.

Question 19

Fiscal and monetary policies are most effective in reducing inflation when the aggregate

Accepted Answer

A) Supply curve is horizontal. 
B) Supply curve is vertical. 
C) Supply curve is upward-sloping but not vertical. 
D) Demand curve is vertical. 
A) Supply curve is horizontal. 
B) Supply curve is vertical. 
C) Supply curve is upward-sloping but not vertical. 
D) Demand curve is vertical.

Question 20

Refer to Figure 18.2.The sale of bonds by the Fed in the open market will result in

Accepted Answer

A) A decrease in the money supply and a move from AD2 to AD1. 
B) An increase in the money supply and a move from AD1 to AD2. 
C) A decrease in the money supply and a move from AS2 to AS1. 
D) An increase in the money supply and a move from AS1 to AS2. 
A) A decrease in the money supply and a move from AD2 to AD1. 
B) An increase in the money supply and a move from AD1 to AD2. 
C) A decrease in the money supply and a move from AS2 to AS1. 
D) An increase in the money supply and a move from AS1 to AS2.

Exam 18: Theory Versus Reality

Which of the following groups designs policies that are best at eliminating stagflation?

Refer to Figure 18.1.Which of the following would most likely cause a shift from AD3 to AD2?

The case for a "hands off" economic policy is based on the widely held belief that

The In the News article titled "Great Recession Officially Ended Last Year" states that the recession that started in December 2007 lasted until June 2009.The National Bureau of Economic Research took over a year to announce that the recession had ended.This suggests that

Income taxes are an automatic stabilizer because when income falls,ceteris paribus,tax receipts

The time it takes for Congress to deliberate over a specific fiscal policy action is an example of

One In the News article is titled "CBO's Flawed Forecasts." According to the text,the CBO's forecasts typically miss the actual budget balance in the fifth year by

A growth recession is characterized by

Which of the following is a monetary policy action to eliminate a recession?

Which economists believe in using government spending and taxes to move the economy from AD1 to AD2 in Figure 18.3?

The structural deficit declines as the economy moves toward full employment.

The In the News article titled "Great Recession Officially Ended Last Year" came out over a year after the recession was statistically declared over.Which of the following obstacles does this article address?

The belief that interest rates are the critical policy lever is associated with

Which of the following is not a policy to reduce stagflation?

Which of the following is not a supply-side policy to cure inflation?

In a recession Keynesians emphasize the need to ________ government spending or ________ taxes,which will cause a multiplier reaction.

The adjustment in economic policy designed to counteract small changes in economic outcomes

According to new classical economists,policies should be introduced suddenly to surprise the economy in order to

Fiscal and monetary policies are most effective in reducing inflation when the aggregate

Refer to Figure 18.2.The sale of bonds by the Fed in the open market will result in

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Aggregate Demand

Self-Adjustment or Instability

Fiscal Policy

Deficits and Debt

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Consumer Choice

Elasticity

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Financial Markets

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

International Trade

International Finance

Global Poverty

Filters

Refer to Figure 18.1.Which of the following would most likely cause a shift from AD₃ to AD₂?

Which economists believe in using government spending and taxes to move the economy from AD₁ to AD₂ in Figure 18.3?

In a recession Keynesians emphasize the need to government spending or taxes,which will cause a multiplier reaction.