macroeconomics test 3

D

Expansionary fiscal policy is so named because it: A. involves an expansion of the nation’s money supply. B. necessarily expands the size of government. C. is aimed at achieving greater price stability. D. is designed to expand real GDP.

A

Expansionary fiscal policy is so named because it: A. involves an expansion of the nation’s money supply. B. necessarily expands the size of government. C. is aimed at achieving greater price stability. D. is designed to expand real GDP.

C

Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward: A. an equality of tax receipts and government expenditures. B. an excess of tax receipts over government expenditures. C. an excess of government expenditures over tax receipts. D. a reduction of subsidies and transfer payments and an increase in tax rates.

B

An appropriate fiscal policy for a severe recession is: A. a decrease in government spending. B. a decrease in tax rates. C. an increase in interest rates.

B

5. Which of the following represents the most expansionary fiscal policy? A. a $10 billion tax cut B. a $10 billion increase in government spending C. a $10 billion tax increase D. a $10 billion decrease in government spending

B

Built-in stability means that: A. an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby stabilize the economy. B. with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus. C. Congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity. D. government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year.

A

Which of the following statements is correct? A. Built-in stability only partially offsets fluctuations in economic activity. B. Built-in stability works in halting inflation, but it cannot alleviate unemployment. C. Built-in stability can be relied on to eliminate completely any fluctuation in economic activity. D. Built-in stability has eliminated the need for discretionary fiscal policy.

B

Suppose the government purposely changes the economy’s cyclically adjusted budget from a deficit of 3 percent of real GDP to a surplus of 1 percent of real GDP. The government is engaging in a(n): A. expansionary fiscal policy. B. contractionary fiscal policy. C. neutral fiscal policy. D. high-interest rate policy.

B

. The Federal budget deficit is found by: A. subtracting government tax revenues plus government borrowing from government spending in a particular year. B. subtracting government tax revenues from government spending in a particular year. C. cumulating the differences between government spending and tax revenues over all years since the nation’s founding. D. subtracting government revenues from the noninvestment-type government spending in a particular year.

B

The crowding-out effect of expansionary fiscal policy suggests that: A. tax increases are paid primarily out of saving and therefore are not an effective fiscal device. B. increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. C. it is very difficult to have excessive aggregate spending in the U.S. economy. D. consumer and investment spending always vary inversely.

A

The most likely way the public debt burdens future generations, if at all, is by: A. reducing the current level of investment. B. causing future unemployment. C. causing deflation. D. reducing real interest rates.

B

The amount of consumption in an economy depends: A. Inversely on the level of disposable income B. Directly on the level of disposable income C. Inversely on the level of saving D. Directly on the rate of interest

A

The MPC can be defined as the: A. Change in consumption divided by the change in income B. Change in income divided by the change in consumption C. Ratio of income to saving D. Ratio of saving to consumption

D

Which will shift the consumption schedule upward? A. A current high level of household indebtedness B. A current low level of wealth or assets held by consumers C. Expectations of future declines in the consumer price index D. Expectations of future shortages of essential consumer goods

C

. If consumers expect prices to rise and shortages to occur in the future, then it will shift: A. Upward both the consumption and saving schedules B. Downward both the consumption and saving schedules C. The consumption schedule upward and the saving schedule downward D. The consumption schedule downward and the saving schedule upward

D

An increase in the real interest rate will: A. Shift the investment demand curve to the right B. Shift the investment demand curve to the left C. Shift the consumption schedule upward D. Decrease the amount of investment spending

B

Which would decrease investment demand? A. A decrease in business taxes B. An increase in the cost of acquiring capital goods C. An increase in the rate of technological change D. A decrease in the stock of capital goods on hand

D

If the MPC is .75, the multiplier will be: A. 2 B. 3 C. 3.5 D. 4

C

Which is considered an injection of spending into the income expenditures stream? A. Employment B. Production C. Investment D. Saving

A

23. If GDP exceeds aggregate expenditures: A. Saving will exceed planned investment B. Planned investment will exceed saving C. Planned investment will exceed actual investment D. Injections will exceed leakages

A

When planned investment equals saving in a private, closed economy: A. Aggregate expenditures will equal GDP B. Aggregate expenditures will be greater than GDP C. Aggregate expenditures will be less than GDP D. Consumption plus investment will be greater than aggregate expenditures

D

. In a recessionary expenditure gap, the equilibrium level of real GDP is: A. Less than planned investment B. Equal to full-employment GDP C. Greater than full-employment GDP D. Less than full-employment GDP