Question 1

A major advantage of built-in or automatic stabilizers is that they

Accepted Answer

A) guarantee the federal budget will be balanced over the course of the business cycle. 
B) require no Congressional action to be effective. 
C) automatically produce surpluses during recessions and deficits during inflation. 
D) require discretionary actions on the part of Congress before they exert an impact on output and employment. 
A) guarantee the federal budget will be balanced over the course of the business cycle. 
B) require no Congressional action to be effective. 
C) automatically produce surpluses during recessions and deficits during inflation. 
D) require discretionary actions on the part of Congress before they exert an impact on output and employment.

Question 2

Which of the following would a Keynesian economist be most likely to stress?

Accepted Answer

A) Supply creates its own demand. 
B) Businesses will not produce goods and services if they do not think people will buy them. 
C) You cannot spend your way out of a recession. 
D) When the unemployment rate is high, wage rates will fall. 
E) A dollar saved is a dollar earned; a high rate of saving is the key to prosperity. 
A) Supply creates its own demand. 
B) Businesses will not produce goods and services if they do not think people will buy them. 
C) You cannot spend your way out of a recession. 
D) When the unemployment rate is high, wage rates will fall. 
E) A dollar saved is a dollar earned; a high rate of saving is the key to prosperity.

Question 3

The consumption function shows the relationship between

Accepted Answer

A) planned consumption expenditures and disposable income. 
B) permanent income and savings. 
C) business inventory and real GDP. 
D) aggregate demand and aggregate consumption. 
A) planned consumption expenditures and disposable income. 
B) permanent income and savings. 
C) business inventory and real GDP. 
D) aggregate demand and aggregate consumption.

Question 4

The distinction between discretionary fiscal policy and the use of automatic stabilizers is that

Accepted Answer

A) only discretionary fiscal policy can stimulate the economy. 
B) only automatic stabilizers can stimulate the economy. 
C) discretionary fiscal policy, once adopted, is built into the structure of the economy. 
D) automatic stabilizers, once adopted, are built into the structure of the economy. 
A) only discretionary fiscal policy can stimulate the economy. 
B) only automatic stabilizers can stimulate the economy. 
C) discretionary fiscal policy, once adopted, is built into the structure of the economy. 
D) automatic stabilizers, once adopted, are built into the structure of the economy.

Question 5

The Keynesian analysis of fiscal policy implies that

Accepted Answer

A) fiscal policy should generally be expansionary except during periods of economic recession. 
B) fiscal policy should generally be restrictive except during inflationary booms. 
C) the federal budget should be balanced annually except during war. 
D) the federal budget should be used to maintain aggregate demand at a level consistent with full employment. 
A) fiscal policy should generally be expansionary except during periods of economic recession. 
B) fiscal policy should generally be restrictive except during inflationary booms. 
C) the federal budget should be balanced annually except during war. 
D) the federal budget should be used to maintain aggregate demand at a level consistent with full employment.

Question 6

According to the Keynesian view, if real GDP is slowing and the economy appears to be headed for a recession, a reduction in tax rates is

Accepted Answer

A) highly appropriate because it will stimulate aggregate demand and, thereby, help to strengthen the economy. 
B) highly inappropriate because it will either reduce the size of the budget surplus or increase the size of the deficit. 
C) not very important because the "demand stimulus effects" of the tax cut will be largely offset by additional borrowing. 
D) not very important because the "demand stimulus effects" of lower current taxes will be largely offset by the expectation of higher taxes in the future. 
A) highly appropriate because it will stimulate aggregate demand and, thereby, help to strengthen the economy. 
B) highly inappropriate because it will either reduce the size of the budget surplus or increase the size of the deficit. 
C) not very important because the "demand stimulus effects" of the tax cut will be largely offset by additional borrowing. 
D) not very important because the "demand stimulus effects" of lower current taxes will be largely offset by the expectation of higher taxes in the future.

Question 7

The main reason that the deficit grows in a recession is that

Accepted Answer

A) the government reacts quickly and adjusts taxes to compensate. 
B) monetary policy that targets interest rates causes the costs of borrowing to fall. 
C) the deficit causes the recession, and reducing the deficit cures the recession. 
D) many forms of taxes act as automatic stabilizers. 
A) the government reacts quickly and adjusts taxes to compensate. 
B) monetary policy that targets interest rates causes the costs of borrowing to fall. 
C) the deficit causes the recession, and reducing the deficit cures the recession. 
D) many forms of taxes act as automatic stabilizers.

Question 8

In the Keynesian view, equilibrium takes place when

Accepted Answer

A) the real and nominal interest rates are equal. 
B) the level of total spending in the economy is equal to current output. 
C) current output is equal to the economy's long-run potential. 
D) the money supply is growing at a constant rate. 
A) the real and nominal interest rates are equal. 
B) the level of total spending in the economy is equal to current output. 
C) current output is equal to the economy's long-run potential. 
D) the money supply is growing at a constant rate.

Question 9

When Keynesian equilibrium is present,

Accepted Answer

A) aggregate demand for goods and services will equal the current rate of output. 
B) business inventories will be increasing. 
C) full employment must be present. 
D) the actual rate of unemployment must equal the natural rate of unemployment. 
A) aggregate demand for goods and services will equal the current rate of output. 
B) business inventories will be increasing. 
C) full employment must be present. 
D) the actual rate of unemployment must equal the natural rate of unemployment.

A major advantage of built-in or automatic stabilizers is that they

Which of the following would a Keynesian economist be most likely to stress?

The consumption function shows the relationship between

The distinction between discretionary fiscal policy and the use of automatic stabilizers is that

The Keynesian analysis of fiscal policy implies that

According to the Keynesian view, if real GDP is slowing and the economy appears to be headed for a recession, a reduction in tax rates is

The main reason that the deficit grows in a recession is that

In the Keynesian view, equilibrium takes place when

When Keynesian equilibrium is present,

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

A major advantage of built-in or automatic stabilizers is that they

Which of the following would a Keynesian economist be most likely to stress?

The consumption function shows the relationship between

The distinction between discretionary fiscal policy and the use of automatic stabilizers is that

The Keynesian analysis of fiscal policy implies that

According to the Keynesian view, if real GDP is slowing and the economy appears to be headed for a recession, a reduction in tax rates is

The main reason that the deficit grows in a recession is that

In the Keynesian view, equilibrium takes place when

When Keynesian equilibrium is present,

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