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Chapter 11 part 2
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Questions in this quiz (39)
1According to the Keynesian view, if policy makers thought the economy was about to fall into a recession, which of the following would be most appropriate?
Select one:- Aa. a planned increase in the budget deficit
- Bb. reducing government expenditures
- Cc. balancing the budget
- Dd. a change in government spending and taxation that will lead to a budget surplus
2According to the Keynesian view, if purchasers buy more goods and services than businesses expect,
Select one:- Aa. the current level of income would persist in the future.
- Bb. the inventories of firms would decline, and the firms would expand output in order to restore their inventories to desired levels.
- Cc. firms would reduce their investment, and the economy would fall into a recession.
- Dd. the inventories of firms would increase, and the firms would reduce output until inventories were cut back to the desired level.
3According to the Keynesian view, which of the following would most likely stimulate real output if an economy were in a recession?
Select one:- Aa. a decrease in tax rates
- Bb. an increase in tax rates
- Cc. a reduction in government expenditures
- Dd. a budget surplus
4What happens in the economy illustrated in Figure 11-4 if government purchases increase by the amount necessary to achieve full employment?
Select one:
- Aa. The AD curve shifts to the left, the price level increases, and employment decreases.
- Bb. The AD curve shifts to the right, the price level increases, and long-run equilibrium is achieved.
- Cc. The SRAS curve shifts to the left, the price level decreases, and long-run equilibrium is achieved.
- Dd. The AD curve shifts to the right, the SRAS curve shifts to the left, and long-run equilibrium is achieved.
- Ee. The AD curve shifts to the right, the price level increases, and unemployment increases.
5If a fiscal policy change is going to exert a stabilizing impact on the economy, it must
Select one:- Aa. keep the federal budget in balance.
- Bb. be expansionary.
- Cc. be timed correctly.
- Dd. be restrictive.
6If output is less than full employment in the Keynesian model, what is needed to restore full employment?
Select one:- Aa. an increase in aggregate supply
- Bb. a reduction in government expenditures
- Cc. an increase in the price level
- Dd. an increase in aggregate demand
7If the federal government runs a budget deficit in order to finance an increase in spending, where do the funds to finance the spending come from?
Select one:- Aa. additional money printed by the Federal Reserve
- Bb. the financial assets of the members of Congress who are legally responsible for the deficit
- Cc. increased personal income taxes
- Dd. additional bonds issued by the U.S. Treasury
8If the government owes $10.0 trillion and then borrows $700 billion more this year, this leads to
Select one:- Aa. a debt of $9.3 trillion and a deficit of $700 billion.
- Bb. a debt of $10.7 trillion and a deficit of zero.
- Cc. a debt of $700 billion and a deficit of $10.7 trillion.
- Dd. a debt of $10.0 trillion and a deficit of $9.3 trillion.
- Ee. a debt of $10.7 trillion and a deficit of $700 billion.
9In the Keynesian view, equilibrium takes place when
Select one:- Aa. the level of total spending in the economy is equal to current output.
- Bb. current output is equal to the economy's long-run potential.
- Cc. the real and nominal interest rates are equal.
- Dd. the money supply is growing at a constant rate.
10In the midst of the Great Depression in 1932, Congress and the Hoover administration increased tax rates substantially. According to the Keynesian view, this tax increase was
Select one:- Aa. appropriate because it would lead to a significant increase in the money supply and, thereby, increase employment.
- Bb. inappropriate because it would decrease the money supply and, thereby, prolong the Depression.
- Cc. inappropriate because it would depress economic activity and lead to further increases in unemployment.
- Dd. appropriate because it would stimulate economic activity and help end the Depression.
11Keynesian analysis indicates that an unexpected decline in aggregate demand will lead to
Select one:- Aa. a reduction in inventories and an expansion in employment.
- Bb. a lower price level, which will quickly guide the economy to full-employment equilibrium.
- Cc. lower interest rates, which will stimulate aggregate demand and keep the economy at full employment.
- Dd. an increase in inventories and a reduction in output.
12Keynesian analysis suggests that if planned spending (aggregate demand) were $700 billion but GDP was $800 billion,
Select one:- Aa. the Federal Reserve would eventually lower interest rates.
- Bb. businesses would accumulate inventories, and output would fall.
- Cc. production would be stimulated, and output would increase, unless the full-capacity output was less than $950 billion.
- Dd. output would rise, incomes would rise, and tax revenues would automatically increase.
13Keynesian countercyclical budget policy suggests that
Select one:- Aa. the budget must be balanced if the national debt is growing more rapidly than the economy.
- Bb. a budget deficit should be planned during an inflationary boom.
- Cc. a budget deficit is needed if the economy is operating at less than full employment.
- Dd. the budget should always be in balance
14Keynesian economists believed that the prolonged unemployment of the 1930s was the result of
Select one:- Aa. the sharp reduction in the supply of money during 1929-1933 and another monetary contraction in 1938.
- Bb. the double-digit inflation of the 1930s.
- Cc. the high interest rates of the 1930s.
- Dd. insufficient aggregate demand and the failure of market forces to direct the economy back to full employment.
15Long lags make discretionary policy less effective because
Select one:- Aa. automatic stabilizers are subject to longer lags than are discretionary policies.
- Bb. it is easier to forecast an expansion than a recession.
- Cc. it is easier to forecast a recession than an expansion.
- Dd. by the time the impact of a policy is felt, the problem may have been corrected by market forces.
16Prior to the Great Depression, most economists believed that a recessionary downturn would be reversed by
Select one:- Aa. an increase in government spending that would stimulate aggregate demand and employment.
- Bb. higher wages that would stimulate aggregate demand and reduce unemployment.
- Cc. an expansionary monetary policy on the part of the Federal Reserve System.
- Dd. lower wages that would increase the quantity of labor demanded and reduce unemployment.
17Rather than seeking to balance the budget, Keynesian economists argue that the government's tax and spending policies should be determined by the
Select one:- Aa. size and quality of the labor force.
- Bb. level of aggregate demand required to achieve full employment of resources.
- Cc. demand for government-provided public goods.
- Dd. need to expand or contract the supply of money.
18The 1930s were a period of
Select one:- Aa. depressed economic conditions and prolonged high rates of unemployment.
- Bb. high rates of inflation coupled with a low rate of unemployment.
- Cc. strong economic expansion and rapid growth of real output.
- Dd. strong growth of real output even though the general level of prices was declining.
19The expenditure multiplier indicates that
Select one:- Aa. changes in investment, government, or consumption spending can trigger much larger changes in output.
- Bb. a market economy will be more stable than classical economists thought.
- Cc. the marginal propensity to consume is greater than one.
- Dd. an increase in saving will cause output to rise by a multiple of the additional saving.
20The government is pursuing an expansionary fiscal policy if it
Select one:- Aa. decreases government spending and increases taxes.
- Bb. increases government spending or increases taxes.
- Cc. decreases government spending or reduces taxes.
- Dd. increases government spending and/or reduces taxes.
21The Great Depression provided support for Keynes' view that
Select one:- Aa. government action was necessary to ensure interest rates remained at the equilibrium level.
- Bb. lower interest rates would quickly restore the full employment equilibrium of an economy.
- Cc. prolonged periods of unemployment would be present when demand is deficient.
- Dd. falling resource prices would bring the economy out of a recession.
22The Keynesian analysis of fiscal policy implies that
Select one:- Aa. the federal budget should be used to maintain aggregate demand at a level consistent with full employment.
- Bb. the federal budget should be balanced annually except during war.
- Cc. fiscal policy should generally be restrictive except during inflationary booms.
- Dd. fiscal policy should generally be expansionary except during periods of economic recession.
23The primary tool of fiscal policy is
Select one:- Aa. regulation of the bond market.
- Bb. the stock market.
- Cc. the money supply.
- Dd. the federal budget.
24When an economy is operating below its potential capacity, Keynesian economists argue that
Select one:- Aa. taxes should be lowered but only if the government is running a budget surplus.
- Bb. both a and b are correct.
- Cc. all of the above are correct.
- Dd. the government should cut taxes and/or increase expenditures in order to stimulate aggregate demand.
- Ee. taxes should be raised if the government is currently running a budget deficit.
25When the federal government is running a budget deficit,
Select one:- Aa. government expenditures exceed government revenues.
- Bb. the economy must be in an economic recession.
- Cc. the size of the national debt will decline.
- Dd. government revenues exceed government expenditures.
26When there are few unemployed resources, additional spending will tend to
Select one:- Aa. flow directly to the unemployed resources, so that the multiplier can be maintained at 1/1-mpc
- Bb. increase the demand for resources and drive prices downward, increasing the size of the multiplier.
- Cc. increase the marginal propensity to consume, and thereby increase the size of the multiplier.
- Dd. bid resources away from other activities and drive prices upward, reducing the size of the multiplier.
27Which of the following best expresses the central idea of countercyclical fiscal policy?
Select one:- Aa. Planned deficits are experienced during economic booms and planned surpluses during economic recessions.
- Bb. Deficits are planned during economic recessions, and surpluses are utilized to restrain inflationary booms.
- Cc. Actual deficits should equal actual surpluses during a period of deflation.
- Dd. The balanced-budget approach is the proper criterion for determining annual budget policy.
28Which of the following best illustrates the use of discretionary countercyclical fiscal policy?
Select one:- Aa. Congress passes a bill authorizing $100 billion in additional spending when it receives news of a deepening recession.
- Bb. Income tax receipts are smaller because of a decline in real GDP during a recession.
- Cc. Congress appropriates $50 billion to help the needy, and the appropriation is financed by a tax on wealth.
- Dd. Congress provides $90 billion in relief aid for hurricane victims.
29Which of the following is a major deficiency of fiscal policy as a stabilization tool?
Select one:- Aa. Congress is reluctant to make changes in either taxes or expenditures.
- Bb. A change in fiscal policy exerts major effects on the economy quickly.
- Cc. The Constitution requires the president to submit and Congress to pass a balanced budget.
- Dd. Both political and economic factors make it unlikely that changes in fiscal policy will be timed correctly.
30Which of the following is a major insight of the Keynesian model?
Select one:- Aa. A general overproduction of goods relative to total demand is impossible because production creates its own demand.
- Bb. Fluctuations in aggregate demand are an important potential source of business instability.
- Cc. The responsiveness of aggregate demand to changes in supply will be directly related to the availability of unemployed resources.
- Dd. Changes in output, as well as changes in prices, play a role in the macroeconomic adjustment process, particularly in the long run.
31Which of the following is a problem with discretionary fiscal policy as an economic stabilization tool?
Select one:- Aa. It is difficult to properly time discretionary changes in fiscal policy.
- Bb. Discretionary changes in fiscal policy can be easily anticipated by private decision makers.
- Cc. Discretionary fiscal policy is only effective during a recession.
- Dd. Discretionary fiscal policy is only effective during an economic boom.
32Which of the following is an important insight of Keynesian analysis?
Select one:- Aa. When an economy is in a recession, lower interest rates and lower wage rates will quickly direct the economy back to full employment.
- Bb. A balanced budget is the key to maintenance of full employment.
- Cc. When widespread unemployment is present, increases in aggregate demand will exert a larger impact on real output than when the economy is operating at or near full employment.
- Dd. When an economy is in a recession, it makes sense to increase taxes and reduce government expenditures.
33Which of the following is the primary source of changes in output within the framework of Keynesian analysis?
Select one:- Aa. changes in interest rates
- Bb. changes in aggregate demand
- Cc. changes in wage rates
- Dd. changes in the price level
34Which of the following would a Keynesian economist be most likely to stress?
Select one:- Aa. A dollar saved is a dollar earned; a high rate of saving is the key to prosperity
- Bb. You cannot spend your way out of a recession.
- Cc. Supply creates its own demand.
- Dd. Businesses will not produce goods and services if they do not think people will buy them.
- Ee. When the unemployment rate is high, wage rates will fall.
35Which of the following would decrease the size of a federal budget deficit?
Select one:- Aa. growth in real GDP
- Bb. an increase in defense spending
- Cc. a decrease in tax revenues
- Dd. a recession
- Ee. an increase in transfer payments
36Why does a tax change affect aggregate demand?
Select one:- Aa. A tax change alters imports and net exports.
- Bb. A tax change alters disposable income and consumption spending.
- Cc. A tax change alters government spending by an equal amount.
- Dd. A tax change alters saving by an equal amount.
37Within the framework of the Keynesian model,
Select one:- Aa. the economy will continually be in equilibrium.
- Bb. changes in prices rather than changes in output direct the economy to equilibrium.
- Cc. changes in output rather than changes in prices direct the economy to equilibrium.
- Dd. changes in interest rates and resource prices will direct the economy to equilibrium.
38Within the Keynesian model, if the marginal propensity to consume is 0.8, which of the following is true?
Select one:- Aa. When investment increases by $1, income increases by $5.
- Bb. When investment increases by $1, saving increases by $5.
- Cc. When consumption increases by $1, saving increases by $5.
- Dd. When consumption increases by $5, income increases by $1.
39Within the Keynesian model, the multiplier effect tends to
Select one:- Aa. reduce the impact of an increase in investment on output and employment.
- Bb. promote price stability.
- Cc. smooth out the up- and down- swings of the business cycle.
- Dd. magnify small changes in spending into much larger changes in output and employment.
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- Business/Economics (Test 3) Quiz on Chapter 11 part 2, created by Debbie Morgan on 23/02/2019.
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- Debbie Morgan
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- Created on 23 Feb 2019 · updated on 23 Feb 2019
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