Which of the following would shift the aggregate demand curve to the right?
An increase in government spending
An increase in taxes
An increase in interest rates
An increase in input prices
Question
2 of 30
Fiscal policy refers to the
manipulation of the money supply in order to increase the amount of paper currency in circulation.
adjustment of government spending and taxes in order to achieve certain national economic goals.
adjustment of national income data to account for price level changes.
changing way that unemployment data is calculated so as to make it appear that unemployment is lower than it actually is.
Question
3 of 30
If the economy is experiencing an inflationary gap and the government wants to accelerate the adjustment to the long-run equilibrium, it should
reduce aggregate demand by cutting government spending or raising taxes.
reduce aggregate demand by increasing government spending or cutting taxes.
increase aggregate supply by cutting government spending or raising taxes.
increase aggregate supply by increasing government spending or lowering taxes.
Question
4 of 30
Refer to the above figure. If the relevant aggregate demand curve is AD2, what is the current economic situation?
Inflationary gap
Recessionary gap
Equilibrium
Overemployment
Question
5 of 30
Supply-side economics focuses on tax cuts to stimulate
aggregate demand by reducing saving.
aggregate supply by increasing production.
government spending.
military research.
Question
6 of 30
According to the Laffer curve, increases in the tax rate will lead to a(n)
steady decrease in tax revenues.
steady increase in tax revenues.
initial decrease in tax revenues and then an increase in tax revenues.
initial increase in tax revenues and then a decrease in tax revenues.
Question
7 of 30
Which of the following are lags with which fiscal policy makers must cope?
Recognition time lags
Action time lags
Effect time lags
All of the above
Question
8 of 30
Once either expansionary or contractionary fiscal policy has been undertaken
aggregate demand will respond quickly and the problems in the economy will be corrected.
aggregate demand will respond quickly in the short run but the economy will not improve in the long run.
a time lag exists between implementation and the results of the policy.
taxes will need to be adjusted because of the recognition time lag.
Question
9 of 30
When real gross domestic product (GDP) falls, which of the following will automatically occur?
A decrease in all tax rates
A decrease in income tax revenues
A decrease in unemployment compensation expenditures
An increase in income tax revenues
Question
10 of 30
Provisions that cause changes in government spending and taxes that do not require action of the President or Congress are called
discretionary fiscal policy.
discretionary stabilizers.
automatic stabilizers.
private stabilization effects.
Question
11 of 30
How does a government budget deficit occur?
A government's tax revenues exceed its spending.
A government's spending exceeds its tax revenues.
If a nation carries a public debt, it must be running a deficit every year.
A nation earns more on exports than it spends on imports.
Question
12 of 30
If the government's spending exactly equals its revenues during a budget year, that government is
running a budget deficit.
experiencing a budget surplus.
balancing its budget.
paying off its public debt.
Question
13 of 30
How does the federal government finance a budget deficit?
It redeems its IOUs.
It purchases U.S. Treasury bonds.
It cuts spending on entitlement programs.
It borrows funds by selling U.S. Treasury bonds.
Question
14 of 30
The public debt can be thought of as
the total amount that consumers owe on their credit cards.
the total amount in taxes that consumers pay to the government.
accumulated budget deficits and surpluses.
the total amount that the government spends on goods and services.
Question
15 of 30
When was the last year that the United States had a budget surplus?
2009
1984
1993
2001
Question
16 of 30
Expressing the U.S. federal budget deficit as a percentage of GDP
results in inflation-adjusted revenue and expenditure numbers.
helps people to understand the size of the deficit relative to the size of the economy.
was useful through the 1980s, but is no longer helpful because both the deficit and real Gross Domestic Product (GDP) have grown so large.
is only useful if the budget deficit is rising at an annual rate of more than 4%.
Question
17 of 30
According to the textbook, approximately what percentage of U.S. net public debt is held by foreign residents?
20%
50%
800%
90%
Question
18 of 30
The amount of funds that the Social Security system has loaned the federal government is
included in the net public debt.
added to the gross public debt to calculate the net public debt.
not included in the gross public debt.
excluded from the net public debt.
Question
19 of 30
Which is the fastest growing component of the federal government budget?
Spending on the military and the war on terrorism
Spending to improve the nation's schools
Spending to improve and expand the nation's infrastructure
Spending on entitlements
Question
20 of 30
Money functions as a(n)
store of value.
unit of account.
medium of exchange.
All of the above
Question
21 of 30
Money is defined as
a person's net worth.
anything that people generally accept in exchange for goods and services.
a byproduct of a barter economy.
any financial instrument that is backed by gold.
Question
22 of 30
The degree to which an asset can be acquired or disposed of without much loss of nominal value or transaction costs is known as
fiat money.
liquidity.
fiducia.
credit.
Question
23 of 30
The opportunity cost of holding money is measured by
a dollar.
the price of government bonds.
the interest yield that could have been earned by holding some other asset.
the liquidity of interest-bearing assets.
Question
24 of 30
The reason that people are willing to accept money with no intrinsic value is that
paper currency may be exchanged for full-bodied money.
the money supply is backed by an equal amount of gold and silver.
there is a fiduciary monetary system in which currency has both acceptability and predictability of value.
the value of the money varies directly with changes in the price level.
Question
25 of 30
The designate M1 measure of money consists of
the most liquid types of money in the U.S. system.
small time deposits only.
credit cards and ATM cards.
gold and gold coins.
Question
26 of 30
The central bank for the United States is
Chase Manhattan Bank.
the Congressional Bank.
the Federal Reserve System.
First National Bank of New York.
Question
27 of 30
It is widely believed that the Federal Reserve's most important function is
to provide loans to the federal government.
to regulate the money supply.
to set the legal, controlled consumer interest rates.
to lend to risky customers.
Question
28 of 30
Fractional reserve banking is a system in which
depository institutions pay a fraction of advertised interest rates.
a fraction of banking services must be provided by depository institutions.
depository institutions hold a fraction of total deposits in reserve.
the money supply is a set fraction of the U.S. gold reserves.
Question
29 of 30
In order to reach the maximum money multiplier, it is assumed that
commercial banks keep the amount of reserves equal to total bank deposits.
all loans get redeposited in a checkable account.
there is insufficient loan demand.
loans are diverted into circulating currency.
Question
30 of 30
By affecting the amount of reserves in the banking system, the Fed can
affect the size of the money supply.
change the marginal tax rates.
increase government purchases.
reduce government purchases.
1. What shape did the short-run aggregate supply curve have during the 1930s, according to Keynes? Explain. (5 points)
2. What is the multiplier? How is it calculated? Why is the multiplier related only to consumption spending? (5 points)
3.What are the macroeconomic consequences of a budget deficit when the economy is operating at full employment? Be sure to discuss the effects in the short run and long run. (5 points)
4.. Suppose that the Fed purchases $1 million in bonds in the open market. Explain how the money supply can increase by more than $1 million. (5 points)
5.. What happens to the price of bonds when the Fed sells bonds? What happens to the interest rate? What happens to the money supply?