Question 1

Which of the following is an accurate statement concerning the macroeconomy of the United States?

Accepted Answer

A) The goals of full employment,price stability and vigorous economic growth are frequently met. 
B) The economy continues to experience the ups and downs of the business cycle. 
C) The ups and downs of the business cycle have been more severe since World War II. 
D) Politics never takes precedence over the country's economic problems. 
A) The goals of full employment,price stability and vigorous economic growth are frequently met. 
B) The economy continues to experience the ups and downs of the business cycle. 
C) The ups and downs of the business cycle have been more severe since World War II. 
D) Politics never takes precedence over the country's economic problems.

Question 2

Modern Keynesians believe the government should use a policy of laissez faire to address a recession.

Accepted Answer

A) True 
 B)False

Question 3

New classical economists differ from traditional classical economists because new classical economists

Accepted Answer

A) Focus on budget restraint and the use of monetary policy when the economy overheats. 
B) Believe people's rational expectations will lead them to offset government policy. 
C) Believe that economic failures are inherent in a capitalist economy. 
D) Believe tax cuts and government spending should be used to increase demand and output. 
A) Focus on budget restraint and the use of monetary policy when the economy overheats. 
B) Believe people's rational expectations will lead them to offset government policy. 
C) Believe that economic failures are inherent in a capitalist economy. 
D) Believe tax cuts and government spending should be used to increase demand and output.

Question 4

The idea of rational expectations suggests that

Accepted Answer

A) Only economic policies that people can anticipate are effective. 
B) It is unrealistic for Congress to balance the federal budget during a recession. 
C) Discretionary policies and fine-tuning can move the economy to full employment. 
D) Economic policies are ineffective if the policies are anticipated. 
A) Only economic policies that people can anticipate are effective. 
B) It is unrealistic for Congress to balance the federal budget during a recession. 
C) Discretionary policies and fine-tuning can move the economy to full employment. 
D) Economic policies are ineffective if the policies are anticipated.

Question 5

Automatic stabilizers cause an increase in total revenue for the government as the economy enters a recession.

Accepted Answer

A) True 
 B)False

Question 6

Economic forecasts

Accepted Answer

A) Drive economic policy for both the Fed and Congress. 
B) Drive economic policy for the Fed but not for Congress. 
C) Drive economic policy for Congress but not for the Fed. 
D) Are basically inaccurate,so the Fed and Congress pay little attention to them. 
A) Drive economic policy for both the Fed and Congress. 
B) Drive economic policy for the Fed but not for Congress. 
C) Drive economic policy for Congress but not for the Fed. 
D) Are basically inaccurate,so the Fed and Congress pay little attention to them.

Question 7

A fiscal policy cure for inflation might include

Accepted Answer

A) A reduction in government spending. 
B) An increase in the reserve requirement. 
C) Reductions in marginal tax rates for corporations and households. 
D) Infrastructure development. 
A) A reduction in government spending. 
B) An increase in the reserve requirement. 
C) Reductions in marginal tax rates for corporations and households. 
D) Infrastructure development.

Question 8

Which of the following is an example of supply-side policy?

Accepted Answer

A) Selling bonds in the open market. 
B) The purchase of military goods by the government. 
C) Tax incentives for business investment. 
D) Changes in the reserve requirement. 
A) Selling bonds in the open market. 
B) The purchase of military goods by the government. 
C) Tax incentives for business investment. 
D) Changes in the reserve requirement.

Question 9

The opportunity costs of different policies must be weighed to solve which of the following obstacles?

Accepted Answer

A) Rational expectations problems. 
B) Measurement problems. 
C) Goal conflicts. 
D) Implementation problems. 
A) Rational expectations problems. 
B) Measurement problems. 
C) Goal conflicts. 
D) Implementation problems.

Question 10

Which of the following groups believes that people will realize what the government is attempting to do and take action to offset government policy?

Accepted Answer

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

Question 11

Which of the following is an accurate statement about supply-side policy?

Accepted Answer

A) The aggregate supply curve should be shifted to the right during periods of inflation and to the left during a recession. 
B) The aggregate supply curve should be shifted to the left during periods of inflation and to the right during a recession. 
C) The aggregate supply curve should be shifted to the right during periods of both inflation and recession. 
D) The aggregate supply curve should be left alone. 
A) The aggregate supply curve should be shifted to the right during periods of inflation and to the left during a recession. 
B) The aggregate supply curve should be shifted to the left during periods of inflation and to the right during a recession. 
C) The aggregate supply curve should be shifted to the right during periods of both inflation and recession. 
D) The aggregate supply curve should be left alone.

Question 12

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

Accepted Answer

A) Fed discount rate. 
B) Discretionary fiscal policy that must be determined by Congress and the president. 
C) Changes that are triggered by the economy and not by government decision makers. 
D) Supply-side policies that Congress designs to stimulate the economy. 
A) Fed discount rate. 
B) Discretionary fiscal policy that must be determined by Congress and the president. 
C) Changes that are triggered by the economy and not by government decision makers. 
D) Supply-side policies that Congress designs to stimulate the economy.

Question 13

If the economy is experiencing a recessionary GDP gap from a negative demand shock,then aggregate

Accepted Answer

A) Supply must be increased to curtail the ensuing inflation 
B) Supply must be decreased so that producers will have fewer goods to sell. 
C) Demand must be increased so that producers can sell more goods. 
D) Demand must be decreased further to adjust to the new,lower natural rate of employment. 
A) Supply must be increased to curtail the ensuing inflation 
B) Supply must be decreased so that producers will have fewer goods to sell. 
C) Demand must be increased so that producers can sell more goods. 
D) Demand must be decreased further to adjust to the new,lower natural rate of employment.

Question 14

Which of the following groups believes that the private sector takes actions based on rational expectations to offset policy actions?

Accepted Answer

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

Question 15

A tax cut can best be characterized as

Accepted Answer

A) Both fiscal and supply-side policy. 
B) Both monetary and supply-side policy. 
C) Fiscal policy only. 
D) Monetary policy only. 
A) Both fiscal and supply-side policy. 
B) Both monetary and supply-side policy. 
C) Fiscal policy only. 
D) Monetary policy only.

Question 16

Refer to Figure 18.1.Which of the following would most likely cause a shift from AD1 to AD2?

Accepted Answer

A) An increase in transfer payments because of a recession. 
B) An increase in the tax rate. 
C) A decrease in the money supply through open market operations. 
D) A decrease in government spending. 
A) An increase in transfer payments because of a recession. 
B) An increase in the tax rate. 
C) A decrease in the money supply through open market operations. 
D) A decrease in government spending.

Question 17

Which of the following actions results in the shortest lag between recognition of a problem and an appropriate stabilization response?

Accepted Answer

A) Congress takes authority over stabilization and is not required to wait for the executive branch to respond. 
B) The appropriation and authorization responsibilities of Congress are transferred to the executive branch in order to eliminate congressional lags. 
C) Congress writes legislation providing more automatic stabilizers in the economy. 
D) Congress provides limited authority to the president to alter fiscal or monetary policy for the purpose of stabilization. 
A) Congress takes authority over stabilization and is not required to wait for the executive branch to respond. 
B) The appropriation and authorization responsibilities of Congress are transferred to the executive branch in order to eliminate congressional lags. 
C) Congress writes legislation providing more automatic stabilizers in the economy. 
D) Congress provides limited authority to the president to alter fiscal or monetary policy for the purpose of stabilization.

Question 18

Which of the following supply-side efforts was embraced by the second Bush administration in 2001?

Accepted Answer

A) Reduction of the deficit. 
B) Increase in government environmental regulations. 
C) Reduction in marginal tax rates. 
D) Reduction in spending on infrastructure. 
A) Reduction of the deficit. 
B) Increase in government environmental regulations. 
C) Reduction in marginal tax rates. 
D) Reduction in spending on infrastructure.

Question 19

The reason unemployment claims are a good leading indicator of economic activity is that they reflect

Accepted Answer

A) Orders for new goods. 
B) Hours worked per week. 
C) Automatic stabilizers. 
D) Industry layoffs and hiring. 
A) Orders for new goods. 
B) Hours worked per week. 
C) Automatic stabilizers. 
D) Industry layoffs and hiring.

Question 20

Which of the following does not determine fiscal policy?

Accepted Answer

A) The president. 
B) Congress through government expenditures. 
C) Congress through tax laws. 
D) The Federal Reserve. 
A) The president. 
B) Congress through government expenditures. 
C) Congress through tax laws. 
D) The Federal Reserve.

Exam 18: Theory Versus Reality

Which of the following is an accurate statement concerning the macroeconomy of the United States?

Modern Keynesians believe the government should use a policy of laissez faire to address a recession.

New classical economists differ from traditional classical economists because new classical economists

The idea of rational expectations suggests that

Automatic stabilizers cause an increase in total revenue for the government as the economy enters a recession.

Economic forecasts

A fiscal policy cure for inflation might include

Which of the following is an example of supply-side policy?

The opportunity costs of different policies must be weighed to solve which of the following obstacles?

Which of the following groups believes that people will realize what the government is attempting to do and take action to offset government policy?

Which of the following is an accurate statement about supply-side policy?

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

If the economy is experiencing a recessionary GDP gap from a negative demand shock,then aggregate

Which of the following groups believes that the private sector takes actions based on rational expectations to offset policy actions?

A tax cut can best be characterized as

Refer to Figure 18.1.Which of the following would most likely cause a shift from AD1 to AD2?

Which of the following actions results in the shortest lag between recognition of a problem and an appropriate stabilization response?

Which of the following supply-side efforts was embraced by the second Bush administration in 2001?

The reason unemployment claims are a good leading indicator of economic activity is that they reflect

Which of the following does not determine fiscal policy?

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 AD₁ to AD₂?