Question 1

Which statements do economists NOT agree on?

Accepted Answer

A)  Increases in the money supply shift aggregate demand to the right. 
B)  In the long run, increases in the money supply increase prices, but not output. 
C)  Recessions are associated with decreases in consumption, investment, and employment. 
D)  Government should use fiscal policy to try and stabilize the economy. 
A)  Increases in the money supply shift aggregate demand to the right. 
B)  In the long run, increases in the money supply increase prices, but not output. 
C)  Recessions are associated with decreases in consumption, investment, and employment. 
D)  Government should use fiscal policy to try and stabilize the economy.

Question 2

Which of the following shifts aggregate demand right?

Accepted Answer

A)  an increase in government expenditures or a decrease in the price level 
B)  a decrease in government expenditures or an increase in the price level 
C)  an increase in government expenditures, but not a change in the price level 
D)  a decrease in the price level, but not an increase in government expenditures 
A)  an increase in government expenditures or a decrease in the price level 
B)  a decrease in government expenditures or an increase in the price level 
C)  an increase in government expenditures, but not a change in the price level 
D)  a decrease in the price level, but not an increase in government expenditures

Question 3

Which statement is consistent with the supply-side theories?

Accepted Answer

A)  The Bank of Canada should use monetary policy only to control the rate of inflation. 
B)  The government should promote full employment and production. 
C)  The government should periodically increase the minimum wage and unemployment insurance benefits. 
D)  Tax cuts influence the aggregate supply significantly. 
A)  The Bank of Canada should use monetary policy only to control the rate of inflation. 
B)  The government should promote full employment and production. 
C)  The government should periodically increase the minimum wage and unemployment insurance benefits. 
D)  Tax cuts influence the aggregate supply significantly.

Question 4

In a small open economy with perfect capital mobility, if exchange rates are fixed, how could aggregate demand be increased?

Accepted Answer

A)  by increasing government expenditures 
B)  by increasing tax rates 
C)  by increasing the money supply 
D)  by decreasing the money supply 
A)  by increasing government expenditures 
B)  by increasing tax rates 
C)  by increasing the money supply 
D)  by decreasing the money supply

Question 5

What are the effects of a change in taxes on consumption and aggregate demand?

Accepted Answer

A)  If taxes increase, consumption increases and aggregate demand shifts right. 
B)  If taxes increase, consumption decreases and aggregate demand shifts left. 
C)  If taxes decrease, consumption increases and aggregate demand shifts left. 
D)  If taxes decrease, consumption decreases and aggregate demand shifts right. 
A)  If taxes increase, consumption increases and aggregate demand shifts right. 
B)  If taxes increase, consumption decreases and aggregate demand shifts left. 
C)  If taxes decrease, consumption increases and aggregate demand shifts left. 
D)  If taxes decrease, consumption decreases and aggregate demand shifts right.

Question 6

A decrease in government spending initially and primarily shifts which curve in what direction?

Accepted Answer

A)  aggregate demand right 
B)  aggregate demand left 
C)  aggregate supply right 
D)  aggregate supply left 
A)  aggregate demand right 
B)  aggregate demand left 
C)  aggregate supply right 
D)  aggregate supply left

Question 7

Assuming no crowding-out, investment-accelerator, or multiplier effects, how will a $100 billion increase in government expenditures shift aggregate demand?

Accepted Answer

A)  It will shift aggregate demand right by more than $100 billion. 
B)  It will shift aggregate demand right by $100 billion. 
C)  It will shift aggregate demand right by less than $100 billion. 
D)  It will shift aggregate demand left by more than $100 billion. 
A)  It will shift aggregate demand right by more than $100 billion. 
B)  It will shift aggregate demand right by $100 billion. 
C)  It will shift aggregate demand right by less than $100 billion. 
D)  It will shift aggregate demand left by more than $100 billion.

Question 8

We have learned in previous chapters that fiscal policy can have lasting effects on savings, investment, and economic growth. On the other hand, this chapter seems to suggest that the only long-run effect of fiscal policy is an increase in the price level. How could you use the aggregate demand and supply model for a more accurate description of the short-run and long-run effects of an increase in government spending? Could you distinguish between different uses of government expenditures to predict their effects on prices and output?

Accepted Answer

If we accept that fiscal policies increa

Question 9

What do supply-side economists focus more on than other economists?

Accepted Answer

A)  how fiscal policy affects consumption 
B)  the multiplier effect of fiscal policy 
C)  how fiscal policy affects aggregate supply 
D)  the accelerator and exchange-rate effects 
A)  how fiscal policy affects consumption 
B)  the multiplier effect of fiscal policy 
C)  how fiscal policy affects aggregate supply 
D)  the accelerator and exchange-rate effects

Question 10

An increase in government spending initially and primarily shifts which curve in what direction?

Accepted Answer

A)  aggregate demand to the right 
B)  aggregate demand to the left 
C)  aggregate supply to the right 
D)  aggregate supply to the left 
A)  aggregate demand to the right 
B)  aggregate demand to the left 
C)  aggregate supply to the right 
D)  aggregate supply to the left

Question 11

Which of the following best defines automatic stabilizers?

Accepted Answer

A)  changes in taxes or government spending that increase the lags caused by fiscal policy 
B)  changes in taxes or government spending that shift aggregate demand without requiring active policies 
C)  changes in taxes or government spending that policymakers quickly agree to implement 
D)  any change in taxes or government policies 
A)  changes in taxes or government spending that increase the lags caused by fiscal policy 
B)  changes in taxes or government spending that shift aggregate demand without requiring active policies 
C)  changes in taxes or government spending that policymakers quickly agree to implement 
D)  any change in taxes or government policies

Question 12

The government buys a bridge. The owner of the company that builds the bridge pays her workers. The workers increase their spending. Firms that the workers buy goods from increase their output. What does this type of effect on spending illustrate?

Accepted Answer

A)  the multiplier effect 
B)  the crowding-out effect 
C)  the marginal propensity to consume effect 
D)  the investment accelerator effect 
A)  the multiplier effect 
B)  the crowding-out effect 
C)  the marginal propensity to consume effect 
D)  the investment accelerator effect

Question 13

Explain how unemployment insurance acts as an automatic stabilizer.

Accepted Answer

As income falls, unemployment rises. Mor

Question 14

Which of the following do critics of stabilization policy argue?

Accepted Answer

A)  There is too short a lag between the time policy is passed and the time policy has an impact on the economy. 
B)  The impact of policy may not last long enough for the problem to be solved. 
C)  Policy cannot cause economic fluctuations. 
D)  Policy can be a source of, instead of a cure for, recessions. 
A)  There is too short a lag between the time policy is passed and the time policy has an impact on the economy. 
B)  The impact of policy may not last long enough for the problem to be solved. 
C)  Policy cannot cause economic fluctuations. 
D)  Policy can be a source of, instead of a cure for, recessions.

Question 15

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The Bank of Canada conducts monetary pol

Question 16

What do supply-side economists believe a reduction in the tax rate will cause?

Accepted Answer

A)  a large shift of the aggregate-supply curve to the left 
B)  a large shift of the aggregate-supply curve to the right 
C)  a small shift of the aggregate-supply curve to the right 
D)  a small shift of the aggregate-supply curve to the left 
A)  a large shift of the aggregate-supply curve to the left 
B)  a large shift of the aggregate-supply curve to the right 
C)  a small shift of the aggregate-supply curve to the right 
D)  a small shift of the aggregate-supply curve to the left

Question 17

Assume that the MPC is 0.9. What is the multiplier?

Accepted Answer

A)  0.1 
B)  1.1 
C)  9 
D)  10 
A)  0.1 
B)  1.1 
C)  9 
D)  10

Question 18

Which of the following is NOT an automatic stabilizer?

Accepted Answer

A)  the minimum wage 
B)  the employment insurance benefits 
C)  the federal income tax 
D)  the welfare system 
A)  the minimum wage 
B)  the employment insurance benefits 
C)  the federal income tax 
D)  the welfare system

Question 19

During recessions, the government tends to run a budget deficit.

Accepted Answer

A) True 
 B)False

Question 20

If the MPC is 0.8 and government increases spending by $50 million, what will be the demand for goods and services generated by this increase?

Accepted Answer

A)  $10 million 
B)  $40 million 
C)  $62.5 million 
D)  $250 million 
A)  $10 million 
B)  $40 million 
C)  $62.5 million 
D)  $250 million

Which statements do economists NOT agree on?

Which of the following shifts aggregate demand right?

Which statement is consistent with the supply-side theories?

In a small open economy with perfect capital mobility, if exchange rates are fixed, how could aggregate demand be increased?

What are the effects of a change in taxes on consumption and aggregate demand?

A decrease in government spending initially and primarily shifts which curve in what direction?

Assuming no crowding-out, investment-accelerator, or multiplier effects, how will a $100 billion increase in government expenditures shift aggregate demand?

What do supply-side economists focus more on than other economists?

An increase in government spending initially and primarily shifts which curve in what direction?

Which of the following best defines automatic stabilizers?

The government buys a bridge. The owner of the company that builds the bridge pays her workers. The workers increase their spending. Firms that the workers buy goods from increase their output. What does this type of effect on spending illustrate?

Explain how unemployment insurance acts as an automatic stabilizer.

Which of the following do critics of stabilization policy argue?

What is the difference between monetary policy and fiscal policy?

What do supply-side economists believe a reduction in the tax rate will cause?

Assume that the MPC is 0.9. What is the multiplier?

Which of the following is NOT an automatic stabilizer?

During recessions, the government tends to run a budget deficit.

If the MPC is 0.8 and government increases spending by $50 million, what will be the demand for goods and services generated by this increase?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 16: The Influence of Fiscal Policy on Aggregate Demand

Which statements do economists NOT agree on?

Which of the following shifts aggregate demand right?

Which statement is consistent with the supply-side theories?

In a small open economy with perfect capital mobility, if exchange rates are fixed, how could aggregate demand be increased?

What are the effects of a change in taxes on consumption and aggregate demand?

A decrease in government spending initially and primarily shifts which curve in what direction?

Assuming no crowding-out, investment-accelerator, or multiplier effects, how will a $100 billion increase in government expenditures shift aggregate demand?

What do supply-side economists focus more on than other economists?

An increase in government spending initially and primarily shifts which curve in what direction?

Which of the following best defines automatic stabilizers?

The government buys a bridge. The owner of the company that builds the bridge pays her workers. The workers increase their spending. Firms that the workers buy goods from increase their output. What does this type of effect on spending illustrate?

Explain how unemployment insurance acts as an automatic stabilizer.

Which of the following do critics of stabilization policy argue?

What is the difference between monetary policy and fiscal policy?

What do supply-side economists believe a reduction in the tax rate will cause?

Assume that the MPC is 0.9. What is the multiplier?

Which of the following is NOT an automatic stabilizer?

During recessions, the government tends to run a budget deficit.

If the MPC is 0.8 and government increases spending by $50 million, what will be the demand for goods and services generated by this increase?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters