Deck 16: Theory and Reality

Question 1

Ceteris paribus,when income increases,federal tax revenues:

A) Decrease as taxpayers experience unemployment.
B) Decrease since income taxes are regressive.
C) Increase because automatic stabilizers work against the cyclical movements of GDP.
D) Increase because Congress typically raises the tax rates during an expansion.

Answer 1

C

Question 2

A tax cut can best be characterized as:

A) Monetary policy only.
B) Fiscal policy only.
C) Both Monetary and supply-side policy.
D) Both fiscal and supply-side policy.

Answer 2

D

Question 3

A government spending hike can best be characterized as:

A) Fiscal policy only.
B) Both fiscal and supply-side policy.
C) Both monetary and fiscal policy.
D) Supply-side policy only.

Answer 3

A

Question 4

Automatic stabilizers include:

A) Changes in the money supply that are initiated by the Fed.
B) Discretionary fiscal policy that must be determined by Congress.
C) Government spending changes that are triggered by the economy,not government decision-makers.
D) Supply-side policies that Congress and the president design to stimulate the economy.

Question 5

A decrease in government expenditure shifts the aggregate:

A) Supply curve to the left.
B) Supply curve to the right.
C) Demand curve to the left.
D) Demand curve to the right.

Question 6

Assume the economy is in a recession and has a budget deficit.Ceteris paribus,if the economy begins to expand,automatic stabilizers will cause:

A) A decrease in tax revenues.
B) An increase in government spending.
C) A decrease in the budget deficit.
D) A decrease in interest rates.

Question 7

Which of the following is an example of fiscal policy?

A) Airline Deregulation Act of 1978.
B) Jobs and Growth Tax Relief Act of 2003.
C) Americans with Disabilities Act 1990.
D) Immigration Act of 1990.

Question 8

An automatic stabilizer is:

A) A government spending or tax change that automatically responds counter to the business cycle.
B) A tax cut approved by Congress prior to an election year.
C) A monetary supply or interest rate change that automatically responds counter to the business cycle.
D) Supply-side policy designed by Congress to shift aggregate supply to the right.

Question 9

Which of the following occurs automatically during a recession?

A) Tax revenues increase.
B) The budget deficit becomes greater.
C) Government spending decreases.
D) The money supply increases.

Question 10

Alternating periods of economic growth and contraction are referred to as:

A) Fiscal policy.
B) The business cycle.
C) A policy lever.
D) The fiscal cycle.

Question 11

Which of the following is an example of fiscal policy?

A) The Federal Reserve cuts interest rates sharply in 2007.
B) The use of wage and price controls to curb inflation.
C) The Deficit Reduction Act of 1984.
D) Family Leave Act of 1993.

Question 12

Fiscal policy is determined by:

A) The Federal Reserve system.
B) Congress through government expenditures.
C) Government through regulatory agencies.
D) Businesses through investment.

Question 13

Fiscal policy includes:

A) The discount rate.
B) Education and job training.
C) Changes in government spending.
D) Changes in interest rates.

Question 14

The business cycle is defined as:

A) Alternating periods of economic growth and contraction.
B) Changing wages and prices.
C) An effort to reach full employment.
D) The growth of real GDP.

Question 15

Which of the following will increase aggregate demand?

A) Expansionary fiscal policy.
B) A decrease in the growth of the money supply.
C) A policy of laissez faire.
D) Supply-side options,such as deregulation.

Question 16

Automatic stabilizers include:

A) Unemployment benefits.
B) Open market operations.
C) Government deregulation.
D) Reserve requirements.

Question 17

All of the following are an example of an automatic stabilizer except for:

A) A decrease in income tax revenue during a recession.
B) An increase in unemployment benefits during a recession.
C) An increase in interest rates during a period of inflation.
D) A decrease in government welfare spending during an economic expansion.

Question 18

Which of the following is an example of fiscal policy?

A) An increase in income taxes.
B) Deregulation of financial institutions.
C) Relaxed immigration laws.
D) An increase in the discount rate.

Question 19

Fiscal policy includes:

A) Immigration policy.
B) Changes in government spending.
C) Changes in the reserve requirement.
D) Government regulation.

Question 20

Which of the following are used as policy tools?

A) Population growth,spending behavior,and invention.
B) Wars,natural disasters,and trade disruptions.
C) Taxes,government spending,and the availability of money.
D) External shocks and internal market forces.

Question 21

Discretionary fiscal policy includes:

A) New tax and spending decisions.
B) Spending decisions from previous years.
C) Automatic stabilizers.
D) Tax decisions from previous years.

Question 22

Supply-side policy includes:

A) A decrease in the discount rate.
B) An increase in taxes.
C) An increase in spending on infrastructure.
D) A decrease in the required reserve ratio.

Question 23

Which of the following is not an example of a monetary policy tool?

A) Open-market operations.
B) The tax rate.
C) The discount rate.
D) The reserve requirement.

Question 24

Tools for supply-side policy include:

A) Changes in tax incentives.
B) Open-market operations.
C) Changes in government spending.
D) Changes in the discount rate.

Question 25

The use of money and credit controls to influence macroeconomic activity is:

A) Monetary policy.
B) Fiscal policy.
C) Supply-side policy.
D) Classical policy.

Question 26

Those who advocate the use of monetary policy believe that an increase in the money supply will shift the aggregate:

A) Supply curve to the left.
B) Supply curve to the right.
C) Demand curve to the left.
D) Demand curve to the right.

Question 27

Monetary policy is determined by:

A) Voters.
B) The Federal Reserve's Board of Governors.
C) Congress.
D) Businesses through investment.

Question 28

According to supply-side policy,the aggregate supply curve should be:

A) Shifted to the right during periods of inflation and to the left during a recession.
B) Shifted to the left during periods of inflation and to the right during a recession.
C) Shifted to the right to address most economic situations.
D) Left alone to move as the market directs it.

Question 29

A decrease in marginal tax rates can best be characterized as:

A) Both fiscal and supply-side policy.
B) Fiscal policy only.
C) Both monetary and fiscal policy.
D) Supply-side policy only.

Question 30

The Fed uses monetary policy in an effort to change _______ and shift the aggregate _______ curve.

A) Interest rates;demand
B) Interest rates;supply
C) Taxes;demand
D) Taxes;supply

Question 31

When the Fed raises interest rates they are attempting to:

A) Increase aggregate demand.
B) Decrease aggregate demand.
C) Increase aggregate supply.
D) Decrease aggregate supply.

Question 32

Discretionary fiscal policy refers to:

A) Monetary policy.
B) Deliberate changes in government regulation.
C) Automatic changes in taxes and spending because of the business cycle.
D) Changes in spending and revenue items because of new legislation.

Question 33

Supply-side policy includes:

A) An increase in the reserve requirement.
B) A decrease in spending on education.
C) An increase in government-mandated fringe benefits.
D) An increase in incentives for business investment.

Question 34

Which of the following is an example of supply-side policy?

A) Selling bonds in the open market.
B) Tax incentives for business investment.
C) The purchase of military goods by the government.
D) Changes in the reserve requirement.

Question 35

Which of the following believe that lower tax rates will increase the incentives to work,invest,and produce?

A) Keynesians.
B) Supply-siders.
C) Monetarists.
D) New classical economists.

Question 36

The tools of monetary policy include changes in:

A) Incentives to save.
B) Tax laws.
C) The reserve requirement.
D) Minimum wage laws.

Question 37

When does the fiscal year begin for the federal government?

A) January 1.
B) July 1.
C) October 1.
D) December 31.

Question 38

Supply-side policy is determined by:

A) The Federal Reserve system.
B) Businesses through investment.
C) The labor force by deciding to work.
D) Congress through spending and regulation.

Question 39

Assume the economy is in a recession.Ceteris paribus,as the economy begins to expand,automatic stabilizers cause:

A) A larger budget deficit.
B) Government spending to decrease.
C) The money supply to increase.
D) Tax revenues to decrease.

Question 40

Open market operations can best be characterized as:

A) Monetary policy only.
B) Both fiscal and supply-side policy.
C) Both monetary and fiscal policy.
D) Fiscal policy only.

Question 41

Which of the following is a mechanism Keynes advocated for dealing with a recession?

A) Raising interest rates.
B) Raising taxes.
C) Increasing government expenditure.
D) Increasing supply incentives.

Question 42

A Keynesian cure for inflation might include:

A) A decrease in the reserve requirement.
B) An increase in government transfers.
C) A decrease in government regulation of businesses.
D) An increase in tax rates for corporations and households.

Question 43

Which of the following groups would advocate increasing government spending specifically on infrastructure development during a recession?

A) Supply-siders.
B) Monetarists.
C) New classical economists.
D) Classical economists.

Question 44

Which of the following will cause a decrease in the price level and an increase in output,ceteris paribus?

A) A leftward shift of the aggregate supply curve.
B) A rightward shift of the aggregate supply curve.
C) A leftward shift of the aggregate demand curve.
D) A rightward shift of the aggregate demand curve.

Question 45

Which of the following would advocate increasing government spending on welfare programs during a recession?

A) Monetarists.
B) Keynesians.
C) Classical economists.
D) Supply-side economists.

Question 46

According to modern Keynesians,which of the following is an appropriate policy during a recession?

A) Expand the money supply and increase government spending.
B) Expand the money supply and decrease government spending.
C) Contract the money supply and increase government spending.
D) Contract the money supply and decrease government spending.

Question 47

The difference between full-employment output and the amount of output demanded at current price levels is equal to the:

A) Real GDP.
B) Multiplier.
C) Potential GDP.
D) GDP gap.

Question 48

Supply-side policy is designed to shift the production possibilities curve:

A) Inward and the aggregate supply curve to the left.
B) Inward and the aggregate supply curve to the right.
C) Outward and the aggregate supply curve to the left.
D) Outward and the aggregate supply curve to the right.

Question 49

The Personal Responsibility and Work Opportunity Act of 1996 established time limits for welfare dependence and caused aggregate:

A) Demand to shift to the right.
B) Demand to shift to the left.
C) Supply to shift to the right.
D) Supply to shift to the left.

Question 50

The multiple by which an initial change in aggregate spending will alter total expenditure after an infinite number of spending cycles is the:

A) Business cycle.
B) Multiplier.
C) Velocity of money.
D) GDP gap.

Question 51

Which of the following believe that during a recession the appropriate policy is an increase in government spending,which sets off a multiplier reaction?

A) Keynesians.
B) New classical economists.
C) Monetarists.
D) Supply-siders.

Question 52

Which of the following groups would advocate raising taxes to address inflation?

A) Monetarists.
B) Classical economists.
C) Keynesians.
D) Supply-side economists.

Question 53

Which of the following will reduce inflation and also reduce the level of output,ceteris paribus?

A) A leftward shift of the aggregate supply curve.
B) A rightward shift of the aggregate supply curve.
C) A leftward shift of the aggregate demand curve.
D) A rightward shift of the aggregate demand curve.

Question 54

The difference between full-employment output and the amount of output demanded at current price levels is known as the:

A) GDP gap.
B) Deficit gap.
C) Structural deficit.
D) Natural rate of unemployment.

Question 55

Which of the following can be both a supply-side and a fiscal policy tool during a recession?

A) Tax cuts.
B) Deregulation.
C) Job training programs.
D) Liberalized immigration laws.

Question 56

During a recession,Keynesians emphasize the need to _______ government spending or _______ taxes,which will cause a multiplier reaction.

A) Decrease;increase
B) Decrease;decrease
C) Increase;increase
D) Increase;decrease

Question 57

Which of the following is a monetarist solution for a recession?

A) Increase government spending.
B) Expand the money supply at a faster rate.
C) Provide greater work incentives.
D) Patience.

Question 58

Which of the following is a monetarist approach to a recession?

A) Increase government spending.
B) Patience or a laissez-faire policy.
C) Provide tax incentives to increase investment.
D) Expand the money supply at a faster rate to stimulate spending.

Question 59

According to ______,an appropriate policy action during a recession is to improve production incentives by reducing tax rates and government regulation.

A) Monetarists
B) Keynesians
C) Classical theorists
D) Supply-side economists

Question 60

According to ______,a policy of patience is appropriate during a recession.

A) Modern Keynesians
B) Keynesians
C) Monetarists
D) Supply-side economists

Question 61

According to ______,it is appropriate to reduce the money supply in order to reduce inflation.

A) New classical economists
B) Supply-side economists
C) Monetarists
D) Marxists

Question 62

The United States missed its goals for unemployment,inflation and growth during the:

A) 1970s only.
B) 1970s and 1980s only.
C) 1980s and 1990s only.
D) 1970s,1980s,1990s,and the 2000's.

Question 63

The correction of any and all macroeconomic problems that arise:

A) Is compatible with our design capabilities.
B) Has been easy to accomplish over the last decade.
C) Is the concept of fine-tuning.
D) Can only be achieved using monetary policy.

Question 64

Which of the following will reduce inflation by decreasing the growth rate of the money supply?

A) A decrease in government spending.
B) An increase in the discount rate.
C) The purchase of securities in the open market by the Fed.
D) An increase in automatic stabilizers.

Question 65

Which of the following would address inflation by reducing government regulation and encouraging more immigration?

A) New classical economists.
B) Keynesians.
C) Supply-side economists.
D) Monetarists.

Question 66

A fiscal policy cure for inflation includes:

A) Patience.
B) An increase in the reserve requirement.
C) A reduction in tax rates for corporations and households.
D) A decrease in government spending.

Question 67

Unemployment because of a mismatch between the skills of job seekers and the requirements of available jobs is called:

A) Stagflation unemployment.
B) Structural unemployment.
C) Cyclical unemployment.
D) Seasonal unemployment.

Question 68

Supply-side policy tools to deal with stagflation include:

A) A reduction in government spending.
B) A decrease in the discount rate.
C) A reduction in tax rates.
D) An increase in the reserve requirement.

Question 69

Which of the following will reduce the problems of high unemployment and inflation during a period of stagflation?

A) An increase in the tax rate.
B) An increase in the money supply.
C) Government deregulation.
D) An increase in consumer spending.

Question 70

Which of the following is a monetarist solution to reduce inflation?

A) Reduce the money supply.
B) Raise taxes.
C) Decrease government spending.
D) Reduce interest rates.

Question 71

A supply-side policy cure for inflation includes:

A) Reduced government spending.
B) Tax incentives to encourage saving.
C) The purchase of securities by the Fed.
D) An increase in the discount rate.

Question 72

In terms of unemployment,the U.S.economy performed the best from:

A) 1972-1980.
B) 1995-2000.
C) 1980-1985.
D) 1959-1964.

Question 73

Stagflation is a situation in which the economy experiences both:

A) Inflation and unemployment.
B) Inflation and full employment.
C) Deflation and unemployment.
D) Deflation and full employment.

Question 74

Efforts to fine-tune the economy have been used for several decades and as a result:

A) We have successfully achieved our major economic goals at all times.
B) The economy still experiences recessions,high unemployment and inflation at times.
C) Employment goals have been met,but price stability has not been attained.
D) Price stability goals have been met,but full employment has not been attaineD.

Question 75

Ceteris paribus,a natural disaster such as a hurricane that disrupts the supply of oil in a country is likely to cause a:

A) Rightward shift of the aggregate supply curve.
B) Leftward shift of the aggregate supply curve.
C) Rightward shift of the aggregate demand curve.
D) Leftward shift of the aggregate demand curve.

Question 76

Which group looks for ways to increase productive capacity and reduce import barriers during a period of inflation?

A) Supply-side economists.
B) Monetarists.
C) Keynesians.
D) Modern Keynesians.

Question 77

Which of the following is likely to cause stagflation,ceteris paribus?

A) A leftward shift of the aggregate supply curve.
B) A rightward shift of the aggregate supply curve.
C) A leftward shift of the aggregate demand curve.
D) A rightward shift of the aggregate demand curve.

Question 78

Which of the following is true about the U.S.economy during the 1970s?

A) It experienced low levels of inflation.
B) It experienced high employment levels.
C) It met the goal for economic growth each year.
D) It experienced two recessions.

Question 79

In terms of inflation,the U.S.economy performed the best from:

A) 1991-1996.
B) 1978-1982.
C) 1973-1977.
D) 1968-1972.

Question 80

Adjustments to economic policy designed to counteract small changes in economic outcomes are known as:

A) Automatic stabilizers.
B) Rational expectations.
C) Fine-tuning.
D) The business cycle.