Question 1

Which statement is consistent with the supply-side theories?

Accepted Answer

A)  When there is a recession, the Bank of Canada should decrease the money supply. 
B)  A shift in aggregate supply leads to a permanent increase in the natural rate of output. 
C)  The government should periodically increase the minimum wage and unemployment insurance benefits. 
D)  Aggregate demand does not shift in the short run. 
A)  When there is a recession, the Bank of Canada should decrease the money supply. 
B)  A shift in aggregate supply leads to a permanent increase in the natural rate of output. 
C)  The government should periodically increase the minimum wage and unemployment insurance benefits. 
D)  Aggregate demand does not shift in the short run.

Question 2

Suppose the closed economy is in long-run equilibrium. Pessimism on the part of investors then shifts the aggregate-demand curve $50 billion to the left. The government wants to increase spending in order to avoid a recession. If the crowding-out effect is always half as strong as the multiplier effect, and if the MPC equals 0.9, by how much do government purchases have to rise?

Accepted Answer

A)  $10 billion 
B)  $20 billion 
C)  $50 billion 
D)  $100 billion 
A)  $10 billion 
B)  $20 billion 
C)  $50 billion 
D)  $100 billion

Question 3

How do the multiplier effect and the crowding-out effect change the consequences of an increase in government spending?

Accepted Answer

A)  They both amplify the consequences. 
B)  They both diminish the consequences. 
C)  The multiplier effect diminishes the consequences, while the crowding-out effect amplifies the consequences. 
D)  The multiplier effect amplifies the consequences, while the crowding-out effect diminishes the consequences. 
A)  They both amplify the consequences. 
B)  They both diminish the consequences. 
C)  The multiplier effect diminishes the consequences, while the crowding-out effect amplifies the consequences. 
D)  The multiplier effect amplifies the consequences, while the crowding-out effect diminishes the consequences.

Question 4

If there is crowding out, which of the following might decrease as government expenditures increase?

Accepted Answer

A)  the overall change in real GDP 
B)  the demand for money curve 
C)  interest rates 
D)  the demand for capital goods 
A)  the overall change in real GDP 
B)  the demand for money curve 
C)  interest rates 
D)  the demand for capital goods

Question 5

Figure 16-1  
-Refer to Figure 16-1. In a closed economy, what could have caused the economy to move from a to b?

Accepted Answer

A)  a wave of optimism 
B)  a decrease in price 
C)  either fiscal or monetary contraction 
D)  an increase in the price of oil 
A)  a wave of optimism 
B)  a decrease in price 
C)  either fiscal or monetary contraction 
D)  an increase in the price of oil

Question 6

Fiscal policy can have different effects depending whether the exchange rate is fixed or flexible. Who sets the Canadian exchange rate policy?

Accepted Answer

A)  the U.S. Federal Reserve Bank 
B)  the Royal Bank of Canada 
C)  the Bank of Canada 
D)  the Toronto Stock Exchange 
A)  the U.S. Federal Reserve Bank 
B)  the Royal Bank of Canada 
C)  the Bank of Canada 
D)  the Toronto Stock Exchange

Which statement is consistent with the supply-side theories?

How do the multiplier effect and the crowding-out effect change the consequences of an increase in government spending?

If there is crowding out, which of the following might decrease as government expenditures increase?

Figure 16-1 -Refer to Figure 16-1. In a closed economy, what could have caused the economy to move from a to b?

Fiscal policy can have different effects depending whether the exchange rate is fixed or flexible. Who sets the Canadian exchange rate policy?

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

Exam 16: The Influence of Fiscal Policy on Aggregate Demand

Which statement is consistent with the supply-side theories?

How do the multiplier effect and the crowding-out effect change the consequences of an increase in government spending?

If there is crowding out, which of the following might decrease as government expenditures increase?

Figure 16-1 -Refer to Figure 16-1. In a closed economy, what could have caused the economy to move from a to b?

Fiscal policy can have different effects depending whether the exchange rate is fixed or flexible. Who sets the Canadian exchange rate policy?

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