Deck 20: Macroeconomic Policy

Question 1

The crowding out effect refers to

A) the presence of the Ricardo-Barro effect.
B) how a cyclical budget deficit changes over the business cycle.
C) government investment crowding out private investment.
D) the wealth effect's impact on the aggregate demand curve.

Answer 1

C

Question 2

An example of a fiscal policy designed to increase real GDP is

A) a cut in taxes.
B) an increase in taxes.
C) a decrease in government expenditure.
D) None of the above answers is correct.

Answer 2

A

Question 3

If the Fed makes an open market ________ of government securities,the federal funds rate will ________ as the quantity of money ________.

A) purchase; rise; increases
B) sale; fall; increases
C) purchase; fall; decreases
D) sale; rise; decreases

Answer 3

D

Question 4

An example of a fiscal policy designed to decrease real GDP is

A) a cut in taxes.
B) an increase in taxes.
C) an increase in government expenditure.
D) None of the above answers is correct.

Question 5

If we compare the United States to France,we see that potential GDP per person in France is ________ than that in the United States because the French ________ is greater than that in the United States.

A) greater; tax wedge
B) less; structural deficit
C) less; tax wedge
D) less; MPC

Question 6

Fiscal policy entails changes in

A) the quantity of money.
B) the MPC.
C) government spending and taxes.
D) the multiplier.

Question 7

The Laffer curve studies the relationship between

A) open market operations and the interest rate.
B) taxes and the real interest rate.
C) tax rates and tax revenues.
D) monetary policy and tax revenues.

Question 8

An economy has real GDP of $300 billion and potential GDP of $240 billion.To move the economy to potential GDP,the government should ________ taxes and/or ________ government expenditure.

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

Question 9

If net taxes are less than government outlays,the government sector has a budget ________ and government saving ________.

A) surplus; is positive
B) deficit; cannot be used for discretionary fiscal policy
C) deficit; is negative
D) None of the above answers is correct.

Question 10

A decrease in the reserves of commercial banks could be the result of

A) an increase in the velocity of circulation.
B) the sale of government securities by the Federal Reserve.
C) a decrease in the velocity of circulation.
D) an increase in the required reserve ratio.

Question 11

A decrease in government expenditures on goods and services is an example of ________.

A) a fiscal policy designed to increase real GDP
B) decreasing needs-tested spending programs
C) increasing induced taxes
D) a fiscal policy designed to decrease real GDP

Question 12

If the Fed makes an open market ________ of government securities,the federal funds rate ________ and the immediate impact is to shift the aggregate ________ curve.

A) purchase; falls; demand
B) sale; falls; demand
C) sale; rises; supply
D) purchase; rises; supply

Question 13

The Fed can change the federal funds rate

A) lowering taxes.
B) increasing spending.
C) purchasing government securities.
D) increasing aggregate demand.

Question 14

An income tax hike ________ potential GDP by ________.

A) increases; not crowding out investment
B) decreases; limiting the use of discretionary monetary policy
C) increases; offsetting the Barro-Ricardo effect
D) decreases; decreasing the supply of labor

Question 15

If the Fed makes an unexpected open market ________ of government securities,the aggregate ________ curve shifts rightward and ________.

A) sale; supply; the short-run Phillips curve shifts upward
B) purchase; demand; the short-run Phillips curve shifts downward
C) sale; demand; there is a movement along the short-run Phillips curve
D) purchase; demand; the long-run Phillips curve shifts rightward

Question 16

If the economy is at potential GDP and the Fed makes an open market sale of government securities,in the long run the aggregate ________ curve shifts ________ and the price level ________.

A) demand; rightward; rises
B) supply; leftward; rises
C) demand; leftward; falls
D) supply; leftward; falls

Question 17

The Fed's instruments include

A) open market operations.
B) the structural budget deficit.
C) the Ricardo-Barro effect.
D) the federal funds rate base.

Question 18

A fiscal action that is triggered by the state of the economy is called

A) monetarist policy.
B) the tax wedge.
C) automatic fiscal policy.
D) the multiplier.

Question 19

When the Fed enacts monetary policy,in the short run it changes

A) the AD curve.
B) the SAS curve.
C) both the AD and SAS curves.
D) potential GDP.

Question 20

An increase in taxes I. violates the Taylor rule.
II) decreases real GDP.
III) forces the Fed to change its instruments.

A) I only
B) II only
C) I and III
D) I and II

Question 21

Which of the following is true?
I) The quantity theory predicts that in the long run the inflation rate equals the money growth rate minus the growth rate of potential GDP.
II) If the Fed decreases the federal funds rate,aggregate demand increases.
III) The Fed's monetary policy works by shifting the short-run aggregate supply curve.

A) I and II
B) II and III
C) I and III
D) I, II and III

Question 22

________ occurs when a foreign firm sells its exports at a lower price than its cost of production.

A) A quota
B) Dumping
C) A tariff
D) A nontariff barrier

Question 23

If the Fed is concerned with lowering ________ it will make an open market ________ of government securities,which will ________ real GDP.

A) unemployment; sale; increase
B) inflation; purchase; decrease
C) inflation; sale; decrease
D) unemployment; sale; decrease

Question 24

If the Fed is concerned with lowering ________ it will make an open market ________ of government securities,which will shift aggregate demand curve ________.

A) inflation; sale; leftward
B) unemployment; sale; leftward
C) inflation; purchase; rightward
D) unemployment; purchase; leftward

Question 25

If the economy is at potential GDP and the Fed makes an open market purchase of government securities,in the short run bank reserves ________,the nominal interest rate ________,and the aggregate demand curve ________.

A) stay constant; does not change; does not shift
B) increase; rises; shifts rightward
C) decrease; falls; shifts rightward
D) increase; falls; shifts rightward