Question 1

Which of the following is not true about a structural deficit?

Accepted Answer

A) It exists even if the economy is at full employment. 
B) It is influenced by discretionary fiscal spending. 
C) It definitely gets larger as unemployment increases. 
D) It is determined in part by the actions of Congress. 
A) It exists even if the economy is at full employment. 
B) It is influenced by discretionary fiscal spending. 
C) It definitely gets larger as unemployment increases. 
D) It is determined in part by the actions of Congress.

Question 2

Policy tools to influence the macroeconomy include

Accepted Answer

A) Population growth,spending behavior,and invention. 
B) Wars,natural disasters,and trade disruptions. 
C) Tax policy,government spending,and the availability of money. 
D) External shocks and internal market forces. 
A) Population growth,spending behavior,and invention. 
B) Wars,natural disasters,and trade disruptions. 
C) Tax policy,government spending,and the availability of money. 
D) External shocks and internal market forces.

Question 3

If a fiscal stimulus package is enacted after the end of the recession it was intended to cure,this is an example of

Accepted Answer

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

Question 4

Which of the following is both a supply-side and a fiscal policy tool during a recession?

Accepted Answer

A) Deregulation. 
B) Tax cuts. 
C) Welfare programs. 
D) Liberalized immigration laws. 
A) Deregulation. 
B) Tax cuts. 
C) Welfare programs. 
D) Liberalized immigration laws.

Question 5

Alternating periods of economic growth and contraction are referred to as

Accepted Answer

A) Fiscal policy. 
B) A policy lever. 
C) The business cycle. 
D) The fiscal cycle. 
A) Fiscal policy. 
B) A policy lever. 
C) The business cycle. 
D) The fiscal cycle.

Question 6

Which of the following concepts does not represent basic trade-offs faced by a government?

Accepted Answer

A) The production possibilities curve. 
B) Fine-tuning. 
C) Opportunity costs. 
D) The Phillips curve. 
A) The production possibilities curve. 
B) Fine-tuning. 
C) Opportunity costs. 
D) The Phillips curve.

Question 7

Which of the following is the appropriate order of policy responses?

Accepted Answer

A) Response design,recognition,impact,and implementation. 
B) Recognition,response design,implementation,and impact. 
C) Response design,implementation,recognition,and impact. 
D) Recognition,response design,impact,and implementation. 
A) Response design,recognition,impact,and implementation. 
B) Recognition,response design,implementation,and impact. 
C) Response design,implementation,recognition,and impact. 
D) Recognition,response design,impact,and implementation.

Question 8

Since the Second World War,the severity of the business cycle has lessened.

Accepted Answer

A) True 
 B)False

Question 9

Which group believes an increase in the incentives to produce will ultimately move the economy from point A to point C in Figure 18.3?

Accepted Answer

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

Question 10

The structural deficit is

Accepted Answer

A) The deficit that would exist if the economy were at full employment. 
B) Computed on the basis of the current value of automatic stabilizers. 
C) Determined by the president of the United States. 
D) Equivalent to the GDP gap. 
A) The deficit that would exist if the economy were at full employment. 
B) Computed on the basis of the current value of automatic stabilizers. 
C) Determined by the president of the United States. 
D) Equivalent to the GDP gap.

Question 11

The hypothesis that people's spending decisions are based on all available information,including the anticipated effects of government intervention,is known as

Accepted Answer

A) The velocity of money. 
B) Rational expectations. 
C) Fiscal expectations. 
D) Rational responses. 
A) The velocity of money. 
B) Rational expectations. 
C) Fiscal expectations. 
D) Rational responses.

Question 12

Compare the Keynesian and monetarist views about how monetary tools should be used.

Accepted Answer

Keynesians believe that interest rates a

Question 13

Fiscal policy includes

Accepted Answer

A) Open market operations. 
B) Deregulation. 
C) Increasing or decreasing the discount rate. 
D) Discretionary government spending. 
A) Open market operations. 
B) Deregulation. 
C) Increasing or decreasing the discount rate. 
D) Discretionary government spending.

Question 14

External shocks can cause economic forecasts to become invalid.

Accepted Answer

A) True 
 B)False

Question 15

Modern Keynesians believe that fiscal stimulus raises interest rates,which eliminates an AD excess.

Accepted Answer

A) True 
 B)False

Question 16

Average consumer prices are included in the index of leading economic indicators.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

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

Question 18

In a recession,monetarists believe

Accepted Answer

A) Velocity varies in response to fiscal policy. 
B) Interest rates rise to eliminate the recession. 
C) Fiscal policy is ineffective. 
D) Marginal tax rates will automatically decrease. 
A) Velocity varies in response to fiscal policy. 
B) Interest rates rise to eliminate the recession. 
C) Fiscal policy is ineffective. 
D) Marginal tax rates will automatically decrease.

Question 19

Fine-tuning is most consistent with which school of economic thought

Accepted Answer

A) Keynesian or Modern Keynesian economics. 
B) Monetarism or new classical economics. 
C) Supply-side economics or new classical economics. 
D) Marxism. 
A) Keynesian or Modern Keynesian economics. 
B) Monetarism or new classical economics. 
C) Supply-side economics or new classical economics. 
D) Marxism.

Question 20

Many economists argue that government price indexes overstate inflation by 1 to 2 percent.From the point of view of those designing economic policy,this is an example of

Accepted Answer

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

Exam 18: Theory Versus Reality

Which of the following is not true about a structural deficit?

Policy tools to influence the macroeconomy include

If a fiscal stimulus package is enacted after the end of the recession it was intended to cure,this is an example of

Which of the following is both a supply-side and a fiscal policy tool during a recession?

Alternating periods of economic growth and contraction are referred to as

Which of the following concepts does not represent basic trade-offs faced by a government?

Which of the following is the appropriate order of policy responses?

Since the Second World War,the severity of the business cycle has lessened.

Which group believes an increase in the incentives to produce will ultimately move the economy from point A to point C in Figure 18.3?

The structural deficit is

The hypothesis that people's spending decisions are based on all available information,including the anticipated effects of government intervention,is known as

Compare the Keynesian and monetarist views about how monetary tools should be used.

Fiscal policy includes

External shocks can cause economic forecasts to become invalid.

Modern Keynesians believe that fiscal stimulus raises interest rates,which eliminates an AD excess.

Average consumer prices are included in the index of leading economic indicators.

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

In a recession,monetarists believe

Fine-tuning is most consistent with which school of economic thought

Many economists argue that government price indexes overstate inflation by 1 to 2 percent.From the point of view of those designing economic policy,this is an example of

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

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