Question 1

The U.S.Congress passed a stimulus bill in February 2009 to help remove the economy from a recessionary gap.This is an example of the use of

Accepted Answer

A)  expansionary monetary policy. 
B)  contractionary monetary policy. 
C)  contractionary fiscal policy. 
D)  expansionary fiscal policy. 
A)  expansionary monetary policy. 
B)  contractionary monetary policy. 
C)  contractionary fiscal policy. 
D)  expansionary fiscal policy. D

Question 2

In order for an increase in aggregate demand to raise Real GDP and the price level,the aggregate supply curve must be ____________________.If an increase in aggregate demand raises the price level but leaves Real GDP unchanged,the aggregate supply curve must be _____________________.

Accepted Answer

A)  upward-sloping; vertical 
B)  upward-sloping; horizontal 
C)  downward sloping; vertical 
D)  vertical; upward-sloping 
E)  vertical; downward-sloping 
A)  upward-sloping; vertical 
B)  upward-sloping; horizontal 
C)  downward sloping; vertical 
D)  vertical; upward-sloping 
E)  vertical; downward-sloping A

Question 3

Suppose that a $10 billion increase in government spending increases Real GDP by $50 billion,and that a $12 billion tax reduction increases Real GDP by $54 billion.In this situation,the tax multiplier is _______________ the government spending multiplier.

Accepted Answer

A)  less than 
B)  greater than 
C)  equal to 
D)  none of the above 
A)  less than 
B)  greater than 
C)  equal to 
D)  none of the above A

Question 4

There is debate among economists over whether or not the government spending multiplier is greater than the tax multiplier.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is an empirical issue?

Accepted Answer

A)  The degree to which investment will decline as the interest rate rises. 
B)  The assumptions of the simple quantity theory of money. 
C)  The predictions of the simple quantity theory of money. 
D)  The degree to which wages are flexible. 
E)  a and d 
A)  The degree to which investment will decline as the interest rate rises. 
B)  The assumptions of the simple quantity theory of money. 
C)  The predictions of the simple quantity theory of money. 
D)  The degree to which wages are flexible. 
E)  a and d

Question 6

If wages are flexible,it is very likely that government intervention will be needed to push the economy out of a recessionary gap.

Accepted Answer

A) True 
 B)False

Question 7

Economist B says all of the following: Expansionary fiscal policy is needed to raise aggregate demand and remove the economy from a recessionary gap.The choice of fiscal policy measures is between more government spending and a ___________ in taxes.Since I am in favor of smaller government,I choose a __________________ in __________________.

Accepted Answer

A)  rise; decrease; government spending 
B)  rise; cut; taxes 
C)  decrease; rise; government spending 
D)  decrease; cut; taxes 
E)  none of the above 
A)  rise; decrease; government spending 
B)  rise; cut; taxes 
C)  decrease; rise; government spending 
D)  decrease; cut; taxes 
E)  none of the above

Question 8

"If we come to a company's rescue this time,they'll take more risks and we'll have to come to their rescue next time,too." The economist who said this most likely

Accepted Answer

A)  believes that the AS curve is upward-sloping. 
B)  prefers monetary policy to fiscal policy when it comes to stabilizing the economy. 
C)  is against bailouts. 
D)  prefers increases in government spending to tax cuts when it comes to stimulating the economy from the demand side. 
E)  none of the above 
A)  believes that the AS curve is upward-sloping. 
B)  prefers monetary policy to fiscal policy when it comes to stabilizing the economy. 
C)  is against bailouts. 
D)  prefers increases in government spending to tax cuts when it comes to stimulating the economy from the demand side. 
E)  none of the above

Question 9

If the (average)tax rate falls by 10% and as a result the tax base rises by 8%,then tax revenues will

Accepted Answer

A)  rise. 
B)  decline. 
C)  remain unchanged. 
D)  There is not enough information given to answer this question. 
A)  rise. 
B)  decline. 
C)  remain unchanged. 
D)  There is not enough information given to answer this question.

Question 10

The Taylor rule is an example of a rule-based monetary policy system.

Accepted Answer

A) True 
 B)False

Question 11

"Expansionary fiscal policy is needed to increase Real GDP --- at least in the short run." The economist who said this most likely believes that

Accepted Answer

A)  the tax multiplier is larger than the government spending multiplier. 
B)  the AS curve is vertical. 
C)  there will be a great deal of crowding out connected with a rise in government spending. 
D)  the AS curve is upward-sloping. 
E)  c and d 
A)  the tax multiplier is larger than the government spending multiplier. 
B)  the AS curve is vertical. 
C)  there will be a great deal of crowding out connected with a rise in government spending. 
D)  the AS curve is upward-sloping. 
E)  c and d

Question 12

Which of the following statements is false?

Accepted Answer

A)  Economists who advocate discretionary monetary policy argue that it is more likely to achieve the desired economic results because the monetary authority has the flexibility to shape the best monetary policy to the existing circumstances. 
B)  Here is an example of zero crowding out: The government spends $100 more and the private sector doesn't spend any less. 
C)  Here is an example of complete crowding out: The government spends $100 more and the private sector spends $100 less. 
D)  Not all economists believe that rule-based monetary policy is preferable to discretionary monetary policy. 
E)  none of the above 
A)  Economists who advocate discretionary monetary policy argue that it is more likely to achieve the desired economic results because the monetary authority has the flexibility to shape the best monetary policy to the existing circumstances. 
B)  Here is an example of zero crowding out: The government spends $100 more and the private sector doesn't spend any less. 
C)  Here is an example of complete crowding out: The government spends $100 more and the private sector spends $100 less. 
D)  Not all economists believe that rule-based monetary policy is preferable to discretionary monetary policy. 
E)  none of the above

Question 13

A $300 billion increase in government spending increases Real GDP by $1,800 billion.Assuming a constant price level,what does the government spending multiplier equal?

Accepted Answer

A)  0.17 
B)  120 
C)  6 
D)  60 
E)  ​0.83 
A)  0.17 
B)  120 
C)  6 
D)  60 
E)  ​0.83

Question 14

A $100 billion increase in government spending increases Real GDP by $900 billion.Assuming a constant price level,what does the government spending multiplier equal?

Accepted Answer

A)  9 
B)  900 
C)  800 
D)  8 
E)  7 
A)  9 
B)  900 
C)  800 
D)  8 
E)  7

Question 15

Economist A believes that the elasticity of investment is 1.47 while economist B believes that the elasticity of investment is 0.76.Which economist,A or B,is more likely to believe that a change in the interest rate will change the current economic environment?

Accepted Answer

A)  Economist A,since she believes that investment is more sensitive to changes in interest rates than does economist B. 
B)  Economist B,since she believes that investment is more sensitive to changes in interest rates than does economist A. 
C)  Economist A,since she believes that investment is less sensitive to changes in interest rates than does economist B. 
D)  Economist B,since she believes that investment is less sensitive to changes in interest rates than does economist A. 
A)  Economist A,since she believes that investment is more sensitive to changes in interest rates than does economist B. 
B)  Economist B,since she believes that investment is more sensitive to changes in interest rates than does economist A. 
C)  Economist A,since she believes that investment is less sensitive to changes in interest rates than does economist B. 
D)  Economist B,since she believes that investment is less sensitive to changes in interest rates than does economist A.

Question 16

It is possible for a decrease in tax rates to increase tax revenues and decrease the size of a budget deficit.

Accepted Answer

A) True 
 B)False

Question 17

The Taylor Rule is an example of

Accepted Answer

A)  discretionary monetary policy. 
B)  rule-based monetary policy. 
C)  a monetary policy measure that always sets the money supply growth rate at 3 percent. 
D)  contractionary monetary policy. 
E)  none of the above 
A)  discretionary monetary policy. 
B)  rule-based monetary policy. 
C)  a monetary policy measure that always sets the money supply growth rate at 3 percent. 
D)  contractionary monetary policy. 
E)  none of the above

Question 18

According to the standard textbook Keynesian analysis,which is greater: the tax multiplier or the government spending multiplier? Explain the reasoning behind this relationship.

Accepted Answer

The standard textbook Keynesian analysis

Question 19

Which of the following statements is false?

Accepted Answer

A)  Not all economists are agreed as to whether government should bail out companies in financial trouble. 
B)  Not all economists prefer a rule-based monetary policy to discretionary monetary policy. 
C)  Rule-based monetary policy advocates often assert that discretionary monetary policy can be motivated by politics. 
D)  The tax multiplier is always larger than the government spending multiplier. 
A)  Not all economists are agreed as to whether government should bail out companies in financial trouble. 
B)  Not all economists prefer a rule-based monetary policy to discretionary monetary policy. 
C)  Rule-based monetary policy advocates often assert that discretionary monetary policy can be motivated by politics. 
D)  The tax multiplier is always larger than the government spending multiplier.

Question 20

The tax multiplier is the number that,when multiplied by the

Accepted Answer

A)  budget deficit,gives us the change in total spending. 
B)  budget deficit,gives us the change in the public debt. 
C)  change in taxes,gives us the change in total spending. 
D)  change in government spending,gives us the change in total spending. 
A)  budget deficit,gives us the change in total spending. 
B)  budget deficit,gives us the change in the public debt. 
C)  change in taxes,gives us the change in total spending. 
D)  change in government spending,gives us the change in total spending.

Exam 18: Public Choice and Special-Interest-Group Politics

The U.S.Congress passed a stimulus bill in February 2009 to help remove the economy from a recessionary gap.This is an example of the use of

In order for an increase in aggregate demand to raise Real GDP and the price level,the aggregate supply curve must be ____________________.If an increase in aggregate demand raises the price level but leaves Real GDP unchanged,the aggregate supply curve must be _____________________.

Suppose that a $10 billion increase in government spending increases Real GDP by $50 billion,and that a $12 billion tax reduction increases Real GDP by $54 billion.In this situation,the tax multiplier is _______________ the government spending multiplier.

There is debate among economists over whether or not the government spending multiplier is greater than the tax multiplier.

Which of the following is an empirical issue?

If wages are flexible,it is very likely that government intervention will be needed to push the economy out of a recessionary gap.

"If we come to a company's rescue this time,they'll take more risks and we'll have to come to their rescue next time,too." The economist who said this most likely

If the (average)tax rate falls by 10% and as a result the tax base rises by 8%,then tax revenues will

The Taylor rule is an example of a rule-based monetary policy system.

"Expansionary fiscal policy is needed to increase Real GDP --- at least in the short run." The economist who said this most likely believes that

Which of the following statements is false?

A $300 billion increase in government spending increases Real GDP by $1,800 billion.Assuming a constant price level,what does the government spending multiplier equal?

A $100 billion increase in government spending increases Real GDP by $900 billion.Assuming a constant price level,what does the government spending multiplier equal?

Economist A believes that the elasticity of investment is 1.47 while economist B believes that the elasticity of investment is 0.76.Which economist,A or B,is more likely to believe that a change in the interest rate will change the current economic environment?

It is possible for a decrease in tax rates to increase tax revenues and decrease the size of a budget deficit.

The Taylor Rule is an example of

According to the standard textbook Keynesian analysis,which is greater: the tax multiplier or the government spending multiplier? Explain the reasoning behind this relationship.

Which of the following statements is false?

The tax multiplier is the number that,when multiplied by the

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free,controlled,and Relative

Supply,demand,and Price: Applications

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,union,and Labor

The Distribution of Income and Poverty

Interest,rent,and Profit

Market Failure: Externalities, public Goods, and Asymmetric Information

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government: Five Topics Considered

Stocks,bonds,futures,and Options

Stocks,bonds,futures,and Options

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In order for an increase in aggregate demand to raise Real GDP and the price level,the aggregate supply curve must be .If an increase in aggregate demand raises the price level but leaves Real GDP unchanged,the aggregate supply curve must be _.