Question 1

Automatic stabilizers tend to smooth out the business cycle because they respond counter-cyclically to changes in national income.

Accepted Answer

A) True 
 B)False

Question 2

Fiscal policy is determined by:

Accepted Answer

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

Question 3

Fiscal policy is the use of taxes and government spending to shift the aggregate demand curve.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

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

Question 5

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

Accepted Answer

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

Question 6

Which of the following occurs automatically during a recession?

Accepted Answer

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

Question 7

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

Accepted Answer

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

Question 8

Table 16.1 - Obstacles to the success of economic policy  
-After the Berlin Wall fell,there was less need for large defense expenditures.However,a battle instantly arose about how the peace dividend should be spent.(Choose from Table 16.1)

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D

Question 9

All economic policy decisions involve opportunity costs.

Accepted Answer

A) True 
 B)False

Question 10

One News Wire article,titled "NBER Makes It Official: Recession Started in December 2007," dated December 2008,explains that the National Bureau of Economic Research waited 12 months to announce that economic activity peaked in December of 2007.This suggests that:

Accepted Answer

A)  There are important lags in response to policy. 
B)  The political business cycle is to blame for the economic situation. 
C)  Measurement difficulties prevent policy makers from identifying what is happening in the economy. 
D)  Economists could not agree on policy priorities.

Question 11

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

Accepted Answer

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

Question 12

The difficulties involved in getting a policy through Congressional deliberation are an example of:

Accepted Answer

A)  A goal conflict. 
B)  A measurement problem. 
C)  A design problem. 
D)  An implementation problem.

Question 13

The idea that no one knows for certain the shape of the aggregate supply curve contributes to:

Accepted Answer

A)  Goal conflicts. 
B)  Measurement problems. 
C)  Design problems. 
D)  Implementation problems.

Question 14

Once we are past the measurement problems associated with the economy,designing a policy to address the economic issue presents another potential problem.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following policy obstacles could occur because it is difficult to know how market participants will respond to specific prices?

Accepted Answer

A)  Design problems. 
B)  Implementation problems. 
C)  Goal conflicts. 
D)  Measurement problems.

Question 16

Which of the following is an example of fiscal policy?

Accepted Answer

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 17

"Fine tuning" refers to the ability of policy makers to make slight adjustments to the economy in order to attain economic goals.

Accepted Answer

A) True 
 B)False

Question 18

Refer to Figure 16.2. 
-Refer to Figure 16.2.Which of the following would most likely cause a shift from AD1 to AD2?

Accepted Answer

A)  A decrease in transfer payments. 
B)  An increase in government spending. 
C)  A decrease in the money supply through open market operations. 
D)  An increase in the marginal tax rate.

Question 19

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

Accepted Answer

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 20

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

Accepted Answer

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

Exam 16: Theory and Reality

Automatic stabilizers tend to smooth out the business cycle because they respond counter-cyclically to changes in national income.

Fiscal policy is determined by:

Fiscal policy is the use of taxes and government spending to shift the aggregate demand curve.

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

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

Which of the following occurs automatically during a recession?

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

Table 16.1 - Obstacles to the success of economic policy -After the Berlin Wall fell,there was less need for large defense expenditures.However,a battle instantly arose about how the peace dividend should be spent.(Choose from Table 16.1)

All economic policy decisions involve opportunity costs.

One News Wire article,titled "NBER Makes It Official: Recession Started in December 2007," dated December 2008,explains that the National Bureau of Economic Research waited 12 months to announce that economic activity peaked in December of 2007.This suggests that:

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

The difficulties involved in getting a policy through Congressional deliberation are an example of:

The idea that no one knows for certain the shape of the aggregate supply curve contributes to:

Once we are past the measurement problems associated with the economy,designing a policy to address the economic issue presents another potential problem.

Which of the following policy obstacles could occur because it is difficult to know how market participants will respond to specific prices?

Which of the following is an example of fiscal policy?

"Fine tuning" refers to the ability of policy makers to make slight adjustments to the economy in order to attain economic goals.

Refer to Figure 16.2. -Refer to Figure 16.2.Which of the following would most likely cause a shift from AD₁ to AD₂?

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

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

Exam 16: Theory and Reality

Automatic stabilizers tend to smooth out the business cycle because they respond counter-cyclically to changes in national income.

Fiscal policy is determined by:

Fiscal policy is the use of taxes and government spending to shift the aggregate demand curve.

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

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

Which of the following occurs automatically during a recession?

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

Table 16.1 - Obstacles to the success of economic policy -After the Berlin Wall fell,there was less need for large defense expenditures.However,a battle instantly arose about how the peace dividend should be spent.(Choose from Table 16.1)

All economic policy decisions involve opportunity costs.

One News Wire article,titled "NBER Makes It Official: Recession Started in December 2007," dated December 2008,explains that the National Bureau of Economic Research waited 12 months to announce that economic activity peaked in December of 2007.This suggests that:

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

The difficulties involved in getting a policy through Congressional deliberation are an example of:

The idea that no one knows for certain the shape of the aggregate supply curve contributes to:

Once we are past the measurement problems associated with the economy,designing a policy to address the economic issue presents another potential problem.

Which of the following policy obstacles could occur because it is difficult to know how market participants will respond to specific prices?

Which of the following is an example of fiscal policy?

"Fine tuning" refers to the ability of policy makers to make slight adjustments to the economy in order to attain economic goals.

Refer to Figure 16.2. -Refer to Figure 16.2.Which of the following would most likely cause a shift from AD1 to AD2?

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

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

Refer to Figure 16.2. -Refer to Figure 16.2.Which of the following would most likely cause a shift from AD₁ to AD₂?