Question 1

The expenditure multiplier indicates that

Accepted Answer

A) changes in investment, government, or consumption spending can trigger much larger changes in output. 
B) an increase in saving will cause output to rise by a multiple of the additional saving. 
C) a market economy will be more stable than classical economists thought. 
D) the marginal propensity to consume is greater than one. 
A) changes in investment, government, or consumption spending can trigger much larger changes in output. 
B) an increase in saving will cause output to rise by a multiple of the additional saving. 
C) a market economy will be more stable than classical economists thought. 
D) the marginal propensity to consume is greater than one.

Question 2

When an economy expands into an economic boom, automatic stabilizers will tend to

Accepted Answer

A) enlarge the budget deficit (or reduce the surplus). 
B) reduce the budget deficit (or increase the surplus). 
C) ensure that the budget will remain in balance. 
D) reduce the supply of money and, thereby, retard aggregate demand. 
A) enlarge the budget deficit (or reduce the surplus). 
B) reduce the budget deficit (or increase the surplus). 
C) ensure that the budget will remain in balance. 
D) reduce the supply of money and, thereby, retard aggregate demand.

Question 3

As the marginal propensity to consume (MPC) increases, the spending multiplier

Accepted Answer

A) increases. 
B) decreases. 
C) remains constant. 
D) becomes indefinable. 
A) increases. 
B) decreases. 
C) remains constant. 
D) becomes indefinable.

Question 4

According to the Keynesian model, in what ways will expansionary fiscal policy stimulate aggregate demand?

Accepted Answer

The two components of expansionary fisca

Question 5

According to the Keynesian view, an unanticipated reduction in spending will

Accepted Answer

A) increase the demand for goods and services. 
B) raise business inventories and lead to a decline in output. 
C) lead to lower interest rates, which will stimulate aggregate demand and keep the economy at full employment. 
D) lead to a lower price level, which will quickly guide the economy to full-employment equilibrium. 
A) increase the demand for goods and services. 
B) raise business inventories and lead to a decline in output. 
C) lead to lower interest rates, which will stimulate aggregate demand and keep the economy at full employment. 
D) lead to a lower price level, which will quickly guide the economy to full-employment equilibrium.

Question 6

The 1930s were a period of

Accepted Answer

A) strong economic expansion and rapid growth of real output. 
B) high rates of inflation coupled with a low rate of unemployment. 
C) depressed economic conditions and prolonged high rates of unemployment. 
D) strong growth of real output even though the general level of prices was declining. 
A) strong economic expansion and rapid growth of real output. 
B) high rates of inflation coupled with a low rate of unemployment. 
C) depressed economic conditions and prolonged high rates of unemployment. 
D) strong growth of real output even though the general level of prices was declining.

Question 7

Which of the following is a problem with discretionary fiscal policy as an economic stabilization tool?

Accepted Answer

A) Discretionary changes in fiscal policy can be easily anticipated by private decision makers. 
B) It is difficult to properly time discretionary changes in fiscal policy. 
C) Discretionary fiscal policy is only effective during a recession. 
D) Discretionary fiscal policy is only effective during an economic boom. 
A) Discretionary changes in fiscal policy can be easily anticipated by private decision makers. 
B) It is difficult to properly time discretionary changes in fiscal policy. 
C) Discretionary fiscal policy is only effective during a recession. 
D) Discretionary fiscal policy is only effective during an economic boom.

Question 8

In the midst of the Great Depression in 1932, Congress and the Hoover administration increased tax rates substantially. According to the Keynesian view, this tax increase was

Accepted Answer

A) inappropriate because it would depress economic activity and lead to further increases in unemployment. 
B) appropriate because it would lead to a significant increase in the money supply and, thereby, increase employment. 
C) inappropriate because it would decrease the money supply and, thereby, prolong the Depression. 
D) appropriate because it would stimulate economic activity and help end the Depression. 
A) inappropriate because it would depress economic activity and lead to further increases in unemployment. 
B) appropriate because it would lead to a significant increase in the money supply and, thereby, increase employment. 
C) inappropriate because it would decrease the money supply and, thereby, prolong the Depression. 
D) appropriate because it would stimulate economic activity and help end the Depression.

Question 9

According to the Keynesian view, if policy makers thought the economy was about to fall into a recession, which of the following would be most appropriate?

Accepted Answer

A) a change in government spending and taxation that will lead to a budget surplus 
B) a planned increase in the budget deficit 
C) reducing government expenditures 
D) balancing the budget 
A) a change in government spending and taxation that will lead to a budget surplus 
B) a planned increase in the budget deficit 
C) reducing government expenditures 
D) balancing the budget

Question 10

If an economy were experiencing a high rate of unemployment as the result of weak aggregate demand, a Keynesian economist would be most likely to recommend

Accepted Answer

A) a reduction in taxes coupled with a reduction in government expenditures of equal size. 
B) an increase in government expenditures coupled with an increase in taxes of equal size. 
C) a reduction in taxes, without any offsetting reduction in government expenditures. 
D) maintenance of a balanced budget. 
A) a reduction in taxes coupled with a reduction in government expenditures of equal size. 
B) an increase in government expenditures coupled with an increase in taxes of equal size. 
C) a reduction in taxes, without any offsetting reduction in government expenditures. 
D) maintenance of a balanced budget.

Question 11

As the marginal propensity to consume (MPC) decreases, the spending multiplier

Accepted Answer

A) increases. 
B) decreases. 
C) remains constant. 
D) becomes indefinable. 
A) increases. 
B) decreases. 
C) remains constant. 
D) becomes indefinable.

Question 12

Federal budget deficits generally grow during recessions because

Accepted Answer

A) both tax revenues and transfer payments decrease. 
B) both tax revenues and transfer payments increase. 
C) tax revenues decrease while transfer payments increase. 
D) tax revenues increase while transfer payments decrease. 
E) tax revenues decrease but transfer payments are unchanged. 
A) both tax revenues and transfer payments decrease. 
B) both tax revenues and transfer payments increase. 
C) tax revenues decrease while transfer payments increase. 
D) tax revenues increase while transfer payments decrease. 
E) tax revenues decrease but transfer payments are unchanged.

Question 13

Which of the following is an important insight of Keynesian analysis?

Accepted Answer

A) When an economy is in a recession, lower interest rates and lower wage rates will quickly direct the economy back to full employment. 
B) When widespread unemployment is present, increases in aggregate demand will exert a larger impact on real output than when the economy is operating at or near full employment. 
C) When an economy is in a recession, it makes sense to increase taxes and reduce government expenditures. 
D) A balanced budget is the key to maintenance of full employment. 
A) When an economy is in a recession, lower interest rates and lower wage rates will quickly direct the economy back to full employment. 
B) When widespread unemployment is present, increases in aggregate demand will exert a larger impact on real output than when the economy is operating at or near full employment. 
C) When an economy is in a recession, it makes sense to increase taxes and reduce government expenditures. 
D) A balanced budget is the key to maintenance of full employment.

Question 14

Government programs that automatically shift the government budget toward a deficit during recessions and a surplus during recoveries are called

Accepted Answer

A) discretionary fiscal policy. 
B) automatic stabilizers. 
C) progressive taxation. 
D) price deflators. 
A) discretionary fiscal policy. 
B) automatic stabilizers. 
C) progressive taxation. 
D) price deflators.

Question 15

The primary tool of fiscal policy is

Accepted Answer

A) the money supply. 
B) the stock market. 
C) the federal budget. 
D) regulation of the bond market. 
A) the money supply. 
B) the stock market. 
C) the federal budget. 
D) regulation of the bond market.

Question 16

If the federal government is running a budget surplus,

Accepted Answer

A) its expenditures must be greater than its revenues. 
B) the supply of money will decline. 
C) it will be able to reduce its outstanding debt. 
D) the U.S.Treasury will have to borrow additional funds in order to cover the surplus. 
A) its expenditures must be greater than its revenues. 
B) the supply of money will decline. 
C) it will be able to reduce its outstanding debt. 
D) the U.S.Treasury will have to borrow additional funds in order to cover the surplus.

Question 17

Prior to the time of John Maynard Keynes, most economists stressed that

Accepted Answer

A) low levels of aggregate demand would lead to prolonged periods of unemployment. 
B) market economies were inherently unstable because of fluctuating aggregate demand. 
C) market adjustments would automatically direct an economy to full employment within a relatively brief period of time. 
D) budget deficits and surpluses were necessary for the control of economic fluctuations. 
A) low levels of aggregate demand would lead to prolonged periods of unemployment. 
B) market economies were inherently unstable because of fluctuating aggregate demand. 
C) market adjustments would automatically direct an economy to full employment within a relatively brief period of time. 
D) budget deficits and surpluses were necessary for the control of economic fluctuations.

Question 18

Use the figure below to answer the following question(s).
Figure 11-3  
-Refer to Figure 11-3. If the economy is currently operating at point a, which of the following would a Keynesian economist be most likely to favor?

Accepted Answer

A) a tax cut 
B) an increase in government expenditures 
C) a shift to a more expansionary monetary policy 
D) a reduction in the budget deficit 
A) a tax cut 
B) an increase in government expenditures 
C) a shift to a more expansionary monetary policy 
D) a reduction in the budget deficit

Question 19

Changes in government spending and/or taxes as the result of legislation, is called

Accepted Answer

A) open market operations of the Federal Reserve. 
B) discretionary fiscal policy. 
C) balanced budget operations. 
D) discretionary monetary policy. 
A) open market operations of the Federal Reserve. 
B) discretionary fiscal policy. 
C) balanced budget operations. 
D) discretionary monetary policy.

Question 20

How does Keynesian economic theory recommend that fiscal policy be conducted?

Accepted Answer

Keynesian economists believe the governm

The expenditure multiplier indicates that

When an economy expands into an economic boom, automatic stabilizers will tend to

As the marginal propensity to consume (MPC) increases, the spending multiplier

According to the Keynesian model, in what ways will expansionary fiscal policy stimulate aggregate demand?

According to the Keynesian view, an unanticipated reduction in spending will

The 1930s were a period of

Which of the following is a problem with discretionary fiscal policy as an economic stabilization tool?

In the midst of the Great Depression in 1932, Congress and the Hoover administration increased tax rates substantially. According to the Keynesian view, this tax increase was

According to the Keynesian view, if policy makers thought the economy was about to fall into a recession, which of the following would be most appropriate?

If an economy were experiencing a high rate of unemployment as the result of weak aggregate demand, a Keynesian economist would be most likely to recommend

As the marginal propensity to consume (MPC) decreases, the spending multiplier

Federal budget deficits generally grow during recessions because

Which of the following is an important insight of Keynesian analysis?

Government programs that automatically shift the government budget toward a deficit during recessions and a surplus during recoveries are called

The primary tool of fiscal policy is

If the federal government is running a budget surplus,

Prior to the time of John Maynard Keynes, most economists stressed that

Use the figure below to answer the following question(s). Figure 11-3 -Refer to Figure 11-3. If the economy is currently operating at point a, which of the following would a Keynesian economist be most likely to favor?

Changes in government spending and/or taxes as the result of legislation, is called

How does Keynesian economic theory recommend that fiscal policy be conducted?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Exam 11: Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

The expenditure multiplier indicates that

When an economy expands into an economic boom, automatic stabilizers will tend to

As the marginal propensity to consume (MPC) increases, the spending multiplier

According to the Keynesian model, in what ways will expansionary fiscal policy stimulate aggregate demand?

According to the Keynesian view, an unanticipated reduction in spending will

The 1930s were a period of

Which of the following is a problem with discretionary fiscal policy as an economic stabilization tool?

In the midst of the Great Depression in 1932, Congress and the Hoover administration increased tax rates substantially. According to the Keynesian view, this tax increase was

According to the Keynesian view, if policy makers thought the economy was about to fall into a recession, which of the following would be most appropriate?

If an economy were experiencing a high rate of unemployment as the result of weak aggregate demand, a Keynesian economist would be most likely to recommend

As the marginal propensity to consume (MPC) decreases, the spending multiplier

Federal budget deficits generally grow during recessions because

Which of the following is an important insight of Keynesian analysis?

Government programs that automatically shift the government budget toward a deficit during recessions and a surplus during recoveries are called

The primary tool of fiscal policy is

If the federal government is running a budget surplus,

Prior to the time of John Maynard Keynes, most economists stressed that

Use the figure below to answer the following question(s). Figure 11-3 -Refer to Figure 11-3. If the economy is currently operating at point a, which of the following would a Keynesian economist be most likely to favor?

Changes in government spending and/or taxes as the result of legislation, is called

How does Keynesian economic theory recommend that fiscal policy be conducted?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters