Question 1 of 56 1 0 1 0 Points Government tax and expenditure policies put in place by the Federal government to stabilize the economy are called A monetary policy B fiscal policy C supply side policy D interest rate policy Answer Key B Question 2 of 56 1 0 1 0 Points The government has a budget deficit if A its total revenues are equal to its total expenditures B its total revenues are less than its total expenditures C its total revenues are greater than its total expenditures D the money supply is less than total expenditures Answer Key B Question 3 of 56 1 0 1 0 Points Contractionary fiscal policy includes A increasing taxes and increasing government purchases B raising interest rates increasing taxes and decreasing transfer payments C increasing taxes and decreasing government expenditures D raising interest rates decreasing taxes and decreasing government spending Answer Key C Question 4 of 56 1 0 1 0 Points All of the following are examples of automatic stabilizers except A personal income taxes B means tested federal transfer payments C welfare benefits D government emergency spending Answer Key D Question 5 of 56 1 0 1 0 Points An expansionary fiscal policy is likely to A increase borrowing by the Treasury through the sale of bonds B decrease borrowing by the Treasury through the purchase of bonds C increase borrowing by the Treasury through the purchase of bonds D decrease borrowing by the Treasury through the sale of bonds Answer Key A Question 6 of 56 1 0 1 0 Points Some economists argue that A discretionary monetary policy is ineffective because of its long identification lag B discretionary fiscal policy is ineffective because of its long recognition lag C discretionary monetary policy is ineffective because of its long implementation lag D discretionary fiscal policy is ineffective because of its long implementation lag Answer Key D Question 7 of 56 0 0 1 0 Points Which of the following describes a discretionary fiscal policy action program A the progressive income tax system B The government increases funding for the Dislocated Worker Program a federal initiative that provides retraining and career counseling C the unemployment compensation program D the system of welfare programs Answer Key B Question 8 of 56 1 0 1 0 Points The bulk of aggregate demand in the United States consists of A consumption B investment C government spending D net exports Answer Key A Question 9 of 56 1 0 1 0 Points Which of the following statements is true about fiscal policy lags A Automatic stabilizers have a much shorter impact lag than discretionary fiscal policy B Although the recognition lag is equally long for discretionary fiscal policy and for automatic stabilizers the latter avoid implementation lag because automatic stabilizers are triggered automatically C Unlike discretionary fiscal policy automatic stabilizers respond automatically to changes in the economy thus avoiding the recognition and implementation lags D Although automatic stabilizers have a much shorter lag discretionary fiscal policy instruments have a more potent impact on the economy because they are more precise Answer Key C Question 10 of 56 1 0 1 0 Points If private sector investment does not respond much to interest rate changes then A there will be more crowding out when expansionary policies are undertaken B there will be less crowding out when expansionary policies are undertaken C fiscal policy will be less effective than monetary policy D monetary policy will be more effective than fiscal policy Answer Key B Question 11 of 56 1 0 1 0 Points Suppose the consumption function is C 500 0 8Y If Y 1 000 what is the amount of consumption A 300 B 500 C 1 000 D 1 300 Answer Key D Question 12 of 56 1 0 1 0 Points For the following model if output is 1000 is the economy in equilibrium Consumption 100 5Y Investment 100 Gov t Spending 0 Net Exports 0 A yes because D Y B yes because S I C no because D Y D no because S I Answer Key C Question 13 of 56 1 0 1 0 Points Which of the following is an advantage of automatic stabilizers A There is no implementation lag for automatic stabilizers B Only congress has to act to implement automatic stabilizers C There is virtually no administrative cost to implementing automatic stabilizers D They affect only businesses Answer Key A Question 14 of 56 1 0 1 0 Points Net investment adds to the nation s capital stock A True B False Answer Key True Question 15 of 56 1 0 1 0 Points Payments to households that do not require anything in exchange are called A transfer payments B government purchases C consumption expenditures D investment expenditures Answer Key A Question 16 of 56 1 0 1 0 Points During an economic downturn households respond to a decline in income by A reducing taxes B reducing consumption C increasing the quantity of labor supplied D negotiating higher wages Answer Key B Question 17 of 56 1 0 1 0 Points Suppose that income taxes are increased by 600 billion If the marginal propensity to consume is 0 75 and the spending multiplier is 4 by how much will the aggregate demand curve shift at a given price level A 2 400 billion B 1 800 billion C 600 billion D 450 billion Answer Key B Question 18 of 56 1 0 1 0 Points A change in government purchases shifts the aggregate demand curve by an amount equal to the A change in consumption x marginal propensity to consume B change in government purchases x money multiplier C change in government purchases x spending multiplier D change in the spending multiplier x change in government purchases Answer Key C Question 19 of 56 1 0 1 0 Points A decrease in interest rates will cause A an increase in investment B a decrease in consumption C an increase in government expenditures D a decline in aggregate demand Answer Key A Question 20 of 56 1 0 1 0 Points An increase in business taxes is likely to reduce aggregate demand because of a decrease in private investment A True B False Answer Key True Question 21 of 56 1 0 1 0 Points The use of government expenditures and taxes to influence the level of economic activity is called A deficit management policy B debt management policy C financial policy D fiscal policy Answer Key D Question 22 of 56 1 0 1 0 Points Which of the following best explains why a 10 billion tax cut is likely to have a smaller impact on aggregate demand than a 10 billion increase in government purchases A tax cuts reduce aggregate demand B tax cuts increase disposable income some of which may be saved while all of the